Infrastructure: No Pork Barrel Needed

In every marginal electorate, politicians promise to take revenue raised by nationwide or statewide taxes and spend it on projects that confer purely local economic benefits. This practice is corrupt and unnecessary — corrupt because a minority of taxpayers are bribed at the expense of the majority, and unnecessary because, if a project is economically justified, it can be funded out of the benefit that it confers — and, by implication, from within the area that gets the benefit.

If a project confers a benefit on a limited area, you can’t share in the benefit unless you live or do business in the area; and for that purpose you need access to real estate in the area. Therefore the market value of the benefit is manifested as uplifts in land values in the affected area. If the project satisfies a cost-benefit test, the total uplift will exceed the cost, so the project can be funded by clawing back only a fraction of the uplift through the tax system, leaving the rest of the uplift as an unearned windfall for owners of property in the affected area — and without burdening the taxpayers outside that area.

This funding mechanism can be set up in a revenue-neutral manner by increasing marginal land tax rates and abolishing or reducing other taxes. Then, when a certain project increases land values in a certain area, the land tax assessments automatically rise only in that area, even if the government funding the project is responsible for a much larger area, such as the State or the Commonwealth. The affected property owners can only gain, because their tax bills don’t increase unless their land values do, and their land values don’t increase unless, in the judgment of the market, the owners are better off in spite of the tax implication. Moreover, the higher the marginal rate of land tax, the greater the range of projects that become self-funding through the ensuing uplifts in land values, hence the greater the number of projects that actually proceed, delivering windfalls to property owners — and the greater the range of other taxes that can be scrapped when the new system is introduced.

In short, when a public project passes a cost-benefit test, and when its benefit is confined to a specific area and measurable in economic terms, there is “never ever” any excuse for failing to fund the project, and “never ever” any need to draw funding from outside the affected area. Voters should therefore punish any politician who claims that the government can’t afford a much-needed project in their area, or who promises to spend their taxes for the economic benefit of any other area!

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https://prosper.org.au/2007/11/01/infrastructure-no-pork-barrel-needed/