The Property Council of Australia is ‘vehemently opposed’ to Canberra’s special land levy to part-fund the $600 million light rail project from Gungahlin to the city, calling it “just another property tax in disguise”.

The PCA’s Catherine Carter says, “To tax again an already overtaxed sector in a property market downturn is not the right approach and would be strenuously resisted”.

Strong words indeed from a sector whose premise is the passive collection of the economic rents created by those who use the land. The mind boggles at what a landowner revolt might look like.

As for it being overtaxed, economics shows land has a very large capacity to bear taxation without distorting behavior or incentives. As Milton Friedman said, “the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago”.

The Canberra Times article where Ms Carter’s fighting words appear helpfully points out the benefits of transport improvements descend directly upon land prices and cites expert economic analysis in support.

“The government has suggested a 25 per cent increase in home values in the corridor, and options are being modelled for levies and a special rating zone so it can “capture” some of that value.

“It points to work by James McIntosh at Curtin University, who investigated value capture options for Perth transport, which found that homes in rail corridors (400-800 metres either side of the track), increased in value by 5 to 25 per cent per cent, and some commercial properties skyrocketed by more than 50 per cent.

Earthsharing has a useful primer on Value Capture here for anyone needing more proofs.  If Ernst & Young are more to your taste, try this.

I also object to the proposed special levy, but modestly, and for quite different reasons.

The special levy requires a city planner to draw lines on a map, deciding who benefits and who doesn’t.  Canberra must hope Ms Planner gets it exactly right – by distance from the new rail, between residential and commercial uses, and over time.  The next ACT government may well change the zoning near stations to higher density, throwing Ms Planner’s assumptions to the wind.   There is a better way.

The Land Value Tax the ACT government is gradually introducing is based on the market price of land.  The civic value of the new rail line will emerge right here, like daffodils in Springtime.

Then, rather than neighboring landowners being bled by a heartless government to pay for unnecessary and foolish approval-seeking glamour projects, the market will value the new rail line objectively.

The ACT government’s land value tax cannot come soon enough.  They had also better double-check that the rail is genuinely needed: no benefit, no uplift.