Where are we going?

By our 15 year old W.A Georgist Frederick Subere-Albawy, chief blogger at The Natural Commonwealth.

The Western Australian Government has announced that it intends to build an underground rail link to Perth Airport, as well as Forrestfield, a suburb to the east of the airport. This will involve 8 km of tunnel (the line will be built entirely underground), and cost about $2 billion.

It is encouraging to see this railway line proposed. Public transport usage in Perth is increasing, and there is sure to be travel demand from both visitors and residents for a railway to the airport. There will be many benefits from this rail line, as it will become easier to access Perth’s airport. But how are the benefits distributed?

Travellers will save money on taxis and parking, and potentially save time as well.

The main beneficiaries will be owners of large plots of prime land near stations. The newspaper article about this proposal in The West Australian even had the headline, ‘Landowners Eye Airport Rail Bonanza’

“A 250ha pocket of semirural and light industrial land in High Wycombe is set to leap in value when the Barnett Government announces the terminus station for its airport rail link.

The Forrestfield station is next to a strategic pocket of land bounded by Maida Vale Road, Dundas Road and Roe Highway.

The land is certain to be rezoned for higher density mixed-use residential and commercial – a windfall for dozens of landowners.”

This highlights a fundamental disconnect. Infrastructure is paid for by the public purse, and yet huge benefits flow to private landowners, whose contribution to this project may barely have been greater than that of a low-income earner struggling to make ends meet.

What is effectively a transfer of wealth from the government to the lucky few who own prime land would be bad enough at any time, but this comes at a time when the WA government is under severe financial pressure. Concerns have been mounting over the rising level of state government debt, especially since last September when the state government lost its AAA credit rating. According to Premier Colin Barnett:

“The only thing I can say is maybe we’re guilty of trying to do too much too quickly, maybe we need to slow down a little bit.”

Election promises for huge infrastructure spends had to be scrapped, with the MAX light rail system shelved, and the Airport line deferred (although it was originally proposed to be completed by 2018, the current completion year is 2020).

Making matters worse for Barnett’s government, the Federal government simply refuses to fund urban rail. On the campaign trail last year, Tony Abbott said:

“We have no history of funding urban rail and I think it’s important that we stick to our knitting. And the Commonwealth’s knitting when it comes to funding infrastructure is roads.”

The WA government is putting its budget position on the line to build a $2 billion Airport rail link, and yet huge benefits are flowing to a select few land owners near stations.

If this increase in land values was captured using a substantial land value tax (WA has a small land tax, but it is insignificant in terms of the gains possible for lucky landowners), the WA government could build a rail line to the Airport that was self-funding. In fact it could build light rail as well, and could build many infrastructure projects, without the need for unsustainable debt.

The Barnett government’s plan is to spend money on the rail line, but will they get a return on their investment? A higher land value tax would meet revenue requirements, let alone cost-benefit analysis.

More generally, increased land value capture would also help reduce the WA government’s debt, and could replace stamp duty, an inefficient tax that punishes households for moving to homes better located for their needs, even though this is already a costly inconvenience.

Treasurer Mike Nahan claims that Stamp Duty is a ‘dumb’ tax, but sees no alternative.

“Our largest tax base, besides pay roll, is stamp duty on housing transactions which is actually a tax on people moving house – about as dumb as you can get,” Dr Nahan said.

“It’s a bad tax but it’s a very important tax to us and we have no alternative.”

If Dr Mike Nahan could implement an increased land value tax, he could kill (at least) three birds with one stone – fund infrastructure such as the Airport Rail Link, reduce the WA government’s debt, and replace Stamp Duty.