PART A – POLICY RESPONSE TO REFORMING ALL PROPERTY-BASED CHARGES
While serving some useful purpose, state and local government holding charges on land are presently miniscule and misapplied. Ideally, the collection of the rent from land would be made by the federal government, with the independent Reserve bank overseeing this.
Fortunately, there is much flexibility with the means by which site rent (the more appropriate term for land tax) can be collected, depending on local preferences and political realities. Three of the most favoured methods are:
(1) Applying a “Mill Tax”
This method is virtually immune to criticism and political attack because the federal or state government would only be collecting the uplift in land values, principally resulting from the provision of extra services and infrastructure. All projects could thus be made self-funding in addition to a likely surplus which could be used to reduce some of the more destructive state taxes and charges, such as:
AT A STATE LEVEL:
- Payroll tax
- Stamp duty on property transfers
- Gambling levies
- Excessive public transport fares imposed to recoup the investment of state funds in transport infrastructure (which will otherwise disappear into land values)
AT A FEDERAL LEVEL:
- Raising the income tax threshold from its abysmally-low level of $6000
- Company taxes
Importantly, a Mill Tax (named the noted philosopher, John Stuart Mill) aids home affordability by effectively freezing the market value of land.
(2) Phasing in over 5 years a charge on land with yearly increments of 2% to total 10%
Applied at a federal or state level, this can be used to phase out a variety of damaging taxes such as noted above. A double economic boost is applied in that a wealth of unused and underused land will be forced onto the market, as the holders of idle land will not be able to continue this practice when faced with the requirement to pay for a good deal of the community-created land value. The benefits of this policy can be diluted if, for political purposes, it’s decided to exempt the primary residence. Some other exemptions can be made, although asset-rich/income-poor retirees can defer site rent payments against their estate (discontinuing the practice whereby taxpayers effectively subsidise the significant inheritances due to the uplift in land values).
Home affordability would be improved even more than in (1), as well as the incentive to put land to its optimal use. The cityscape would change from a resource-hungry sprawl to a set of more compact, liveable, walkable communities connected by quality public transport.
(3) Shifting local rates off improvements and onto land
Administratively and politically, the easiest option of all. Essentially, it reverses the trend of local governments which have moved away from the desired (we maintain) form of “site value rating” on land values only. This removes the component of rates applied to improvements (punishing those who improve their houses and discouraging employment). At present the family home is subsidising the neighbouring land bankers vacant block. The means of assessing land values are already in place, and the more expensive and inaccurate need to assess improvements can be dispensed with.
PART B: METHODOLOGY STATEMENT
The range of advantages for the proposed tax reforms can be summarised as:
- As land values are created by the community (as opposed to the value of improvements), there is a strong element of fairness in returning such unearned gains
- Historically, land taxes have been shown to be highly progressive
- Reduces, if not eliminates, the massive windfall profits earned by speculators and developers in property deals
- Improves home affordability as (a) site rentals drive down prices & (b) land which is presently unused or underused is forced onto the market, creating a buyers’ market
- Provides incentives to puts land to its optimal use and reduces punitive taxes on production and exchange, with many strong employment-creating benefits
- Dampens the boom-bust economic cycles which are significantly fuelled by property speculation
- Both collection and compliance costs are a fraction of present range of taxes
- Efficiency is maximised with the least deadweight costs
- Site rent provides an undiminishing revenue base, whereas other (also desirable) eco-taxes tend to shrink over time as the related natural resources are used more sparingly
- Reduces urban sprawl with the concomitant wasteful energy used by long-distance commuting
- Facilitates the provision of proper public transport as, with the “recycling” of uplifted land values back into the public purse, the investment in such infrastructure can be self-funding (plus a surplus, as history has shown)
- Less sprawl means less wastage of infrastructure “leapfrogging” over underused land
- Less sprawl means less urban encroachment onto what should be productive rural land. Similarly, there’ll be less rural encroachment onto national parks and other habitat
- Land should be considered as a vital element of the Global Commons and as such should be treated in the same way as mineral rights, logging rights, fishing rights, the electromagnetic spectrum, satellite orbits, aircraft flight paths & landing slots, the use and abuse of water & soil & air, noise & light pollution, and risks to the gene pool from GM.
- As such, the basis for applying natural resource charges as a way to equalize our share of what should be seen as the Common Wealth can be understood and accepted by the public far more readily than our present inefficient, arbitrary (at best – unfair, more likely) and wasteful tax system. Natural resource charges, by applying the True Cost of their use and abuse, forces us to use them sparingly.
- While we should be monitoring the Global Commons, there is no need or real justification for our present intrusive (and expensive) tax system which monitors personal activities and assets.