The Death of Property Rights

Australian regulatory attacks on modern agriculture have vastly reduced the capacity of the farming sector to adapt to new technologies and markets and have damaged the nation’s agricultural productivity. 

In the case of the Murray-Darling Basin, Australia’s only really significant irrigated agriculture province, until recently farmers used about half of the rivers’ water.  Inspired by fallacious notions, including that salinization is occurring, bodies of self-appointed scientists and activists like the Wentworth Group lobbied to pressure governments into buying a quarter of the irrigation water farmers formerly used. This water was then directed to unproductive environmental uses.  Governments’ susceptibility to agreeing to such unfortunate policy measures was reinforced by claims of their appointed soothsayers, notably Ross Garnaut, who maintained that climate change will make irrigation impossible in the Murray-Darling Basin.

At least in the case of water, governments actually bought the rights from farmers (though in the spirit of Communist electoral victories, those promoting the purchases have sought to foreclose opportunities for successors to unpick them).  In the case of land, farmers’ rights have simply been stolen through regulations that make the land unproductive.

One landowner who took a stance against this was Peter Spencer.  The Federal Court of Australia in July of last year decided against his claim that the value of his property had been taken by the NSW government and the commonwealth acting in concert.  Mr Spencer, who has appealed the decision, maintained that NSW  had enacted restrictions on land clearing that had expropriated the value of the property and this process enabled the Commonwealth to acquit the greenhouse gas abatement obligations it accepted under the Kyoto Protocol signed in 1997.

The judge found that the New South Wales government had in fact “sterilised” or “taken” Mr Spencer’s land.  She found that this took place sequentially from 1972.  Under a process between then and 1984, the Soil Conservation Act had subjected 88% of Mr Spencer’s land to a prohibition or restriction upon clearing that rendered it unviable for farming.  The State Environmental Planning Policy 46 – Protection and Management of Native Vegetation, enacted in August 1995 took the remaining 1,915 hectares of the property.

In 2007, the NSW government offered to buy Mr Spencer’s land for $2.17 million, which it said was fair value, given that its regulatory measures had all but eliminated the land’s productive capacity.  A valuation Mr Spencer had had prepared put its worth at $9 million in the absence of the regulatory restraints on its use.  The judge insouciantly suggested that “given Mr Spencer’s evidence of his current somewhat desperate and strained circumstances, his refusal to take up the exit assistance package could be characterised as unfortunate.”[1].

Although the judge accepted that the regulatory measures of the NSW Government amounted to a taking of the property, she merely shrugged her shoulders with regard to this, accepting, as others in the judiciary had previously done, that land theft by state governments was a fact of life.  The most generous interpretation of her decision was contained in one of her statements[2], “there may have been a “taking” but there was no acquisition” because although the state had rendered the land all but valueless it did not actually take it off the owner!

In comparison to state actions, land theft by the Commonwealth is, or was, more difficult to excuse because of section 51(xxxi) of the Constitution.  Made famous by the film The Castle, this formally requires the Commonwealth to provide fair compensation if it takes property.

In addition to showing an indifference to state government takings of private property, the courts have also allowed a whittling away of the Constitutional safeguards to property from Commonwealth seizure.  And in the recent High Court decision on plain packaging of cigarettes the decision was that no compensation was due because, although the tobacco companies’ property rights had been taken, those rights had been extinguished rather than used by the government.

The judge in the Spencer case used a variation of such mangled logic in considering whether the Commonwealth owed compensation.  The taking of the property provided “benefits” to the Commonwealth in that it helped achieve the target that had been agreed in the Kyoto Protocol.  The Howard Government sought to meet this even though the Protocol was only ratified under the Rudd Government in 2007.

The judge accepted that without the prevention of land clearing Mr Spencer “could have pursued his projects and development plans throughout the later 2000s and onwards. Emissions from his clearing of land would then have been counted in Australia’s inventory and would have contributed to an increase in emissions reported^[3].”  This would have required the Commonwealth to find offsetting savings elsewhere.  She also recognised that this was clearly part of “the impetus for the intergovernmental agreements and the increase in regulation over the clearing of native vegetation, in New South Wales and in other parts of Australia[4].”

Nonetheless she rejected that an informal arrangement was in place between the Commonwealth and the State, an arrangement that might allow an avoidance of Commonwealth compensation under the “just terms” clause of the Constitution.

Coming to that decision required considerable verbal gymnastics.  David Kemp, federal Minister for the Environment and Heritage from 2001 to 2004, said the Commonwealth Government had been concerned to reduce emissions in order to meet its Kyoto Protocol targets, and to encourage that reduction the Commonwealth was keen to see broadscale land clearing reduced or stopped in Queensland and New South Wales (the principal states responsible for emissions of greenhouse gases from land clearing in Australia).  He communicated this to those States. As the judge expressed it, “He stated that the Commonwealth was concerned by the lack of effective action in New South Wales at the time and was seeking reform of the way in which the NSW Government managed vegetation clearance, including by way of Commonwealth programs seeking to influence the rate and character of vegetation clearing. Commonwealth’s only real concern with the NSW legislation was that it did not prevent the Commonwealth pursuing its strategies and that New South Wales was prepared to cooperate with the Commonwealth in pursuit of those strategies[5].”

Similarly then-Premier Bob Carr on the ABC – Lateline with Phillip Adams and in Federal Parliament delivering his maiden speech was pleased to admit he and Premier Beattie had stopped Land clearing in NSW and Queensland and by doing so had enabled Prime Minister Howard to meet his Kyoto targets[6].

In spite of this evidence and more, the Judge managed to find that an informal arrangement between the states and the Commonwealth was not proven[7].

Mr Spencer’s case is unusual only because he has chosen to make a fuss about the theft of his land.  Barnaby Joyce[8] has suggested that the expropriation of farmers for the carbon sequestration alone had cost them $200 billion.  This figure (which was not contested in the Parliament) was apparently arrived at by comparing land values where regulation prevented productive use, to values of land that was unaffected.  If confined to land that was value-impaired as a result of greenhouse gas abatement provisions, the $200 billion works out at $2,300 per tonne of CO₂.  This is based on the official estimates of emission reductions from ceasing land clearing, 87.5 million tonnes a year; over the course of a century $2,300 per tonne would, coincidentally, amount to $23 per tonne per annum, a figure similar to that of the carbon tax that the Gillard Government introduced and that the Abbott Government repealed.

In adverting to these costs, Mr Joyce argued that we should “change the legislation to bring back a sense of justice for the theft of this asset and return it to the people from whom it was stolen.”  Interestingly, Dr. Kemp said there was no intention to acquire property – at least that of Mr Spencer- on other than just terms.  There is however no record of him seeking such compensation provisions in the course of pressuring the NSW to take regulatory action to prevent clearing.

The fact is that regulations over land have progressively created the costs.  But governments, rather than incurring these costs on behalf of the people as a whole, paying “just terms” for the taking and spreading the costs across the community, have simply seized the assets from landowners with no compensation.

This is the nadir of legal decision making.  The courts have stood by while state governments have robbed particular citizens to achieve the environmental benefits they claim the people as a whole want.  In imposing such costs on a narrow section of the community, governments were acknowledging that the benefits they claimed were not valued sufficiently strongly by the community as a whole.  Governments were confident that the theft would avoid any general opprobrium that would accompany general increases in taxation.The courts have shamelessly allowed such transgressions to take place.  In doing so, they have sheltered behind a concocted fiction of precedents.  These have gradually chipped away at the notion of property rights protected from arbitrary taking by the government.  The courts cavalierly dismiss any “just terms” requirements under state law because they are not mentioned in state constitutions.  And they reinterpret the federal Constitutional provision to make it easier governments to override.

From medieval times, common law and commercial law developed on the basis of judgements grafting common sense to principles of fairness in dealing with property.  In the fractured Christendom of continental Europe, this “merchant law” was enforced by embargo – a jurisdiction that got a reputation for swindling merchants would soon see trade dry up as merchants decided risks were too high to do business there.

In England, united under a single jurisdiction, the common law developed whereby judges agreed to follow each other’s decisions to ensure consistency.  And as Jim Spigelman[9] reminds us, Magna Carta, which had many precursors and was reaffirmed over 50 times in the years following 1215, was essentially about preventing the king taking property.

The fundamental principle that governments would not take property from individuals for public purposes except on “just terms” became the Fifth Amendment of the American Constitution in 1790 once the former colonials realised that the absence of a king did not mean the absence of potential sovereign seizure.  The Fifth Amendment was a recognition that one-man-one vote could bring about the now all-too-familiar tyranny of the majority.

In watered-down fundamental rights set out formally in constitutions and implicitly in other legal jurisdictions, the legal fraternity would seem to have had a philosophical change of attitude to the promotion of benefits. Until relatively recently courts tended to be biased in favour of productive activities against unproductive. Thus in 1927, the US Supreme Court (276 U.S. 272 (1928) decided cedar tree owners’ trees in Virginia must be destroyed without compensation since diseased cedar trees could damage apple orchards and apple growing was a “principal agricultural pursuit”.

Whatever the underlying cause, we are seeing a judiciary that has ceased to be the impartial protector of property rights that was its original contribution to nurturing prosperity.  Using sophistry, courts seek out loopholes through which law becomes interpreted not in ways that maintain its tradition of defending property rights against the government but which provide a rationalisation for the seizure of private property to meet public needs.  Justice and liberty aside this has deep seated implications for the efficient operation of economies.  Individuals’ uncertainties over the rights to enjoy and prosper from ownership of property will mean a weakening of the wealth creation process.