Next time government says it can’t afford to build, wave this IA report in their face

Australia has a problem: we can’t build roads, rail and schools as fast as population is growing with current government financing methods. Failing to keep up with our current needs – let alone investing for an uncertain future – puts the living standards of everyone at risk.

We and our ancestors worked very hard to get to this point. Our duty of care is to put in place the conditions for future prosperity by acting decisively today.

How we fund civic assets is crucial to nation building – complicated by climate disruption, an ageing population and urbanisation.

Infrastructure Australia’s new report Capturing Value – advice on making value capture work in Australia recognises infrastructure investment devolves to land prices and considers five main ways Value Capture could be implemented.

The report is clear: the shortest distance between two points is a straight line. IA firmly recommends government use land value tax on the broadest possible base.

“Over time Australian governments should look to introduce a more consistent approach to value capture. Transitioning to a broad-based land tax – alongside the removal of stamp duty – will eliminate many of the challenges posed by individual measures and provide a permanent, more efficient method of value capture which can help fund the infrastructure Australia needs over coming decades.

Our revenue system relies heavy on labour and consumption taxes, user charges and dubious PPP’s which grant ‘tollbooth’ rights. This would be fine if citizens were homogenous, all owning identical houses an equal distance from facilities and earned the same incomes. But we aren’t and we don’t. Location matters. The benefits of infrastructure are unevenly distributed across the landscape.

Australia’s tax regime mean a renting wage-earner generously subsidises the holders of valuable land, to their great benefit. This is unfair and damages the entire economy. IA gets it:

“Left uncaptured, this value uplift is enjoyed by the fortunate few who own land close to the hub, despite often having done nothing to earn this windfall gain.

“Reforming state land taxes by removing exemptions to create a broad-based charge represents the most efficient way to capture value over the long term. As recommended by the Henry Tax Review, a broad-based land tax could provide governments with a reliable stream of funding that efficiently and fairly reflects the productive value of land. By introducing this reform alongside the removal of other, less efficient taxes on transactions such as stamp duties, governments have an opportunity to improve how we collect funding for infrastructure, and alleviate the need for implementing project-specific mechanisms in future.

IA is cautious about the political difficulties tax reform onto land presents. If the public better understood how cruel economic geography is, introducing a broad-based land tax would be easy. That understanding requires political leadership, a quality Australia sorely lacks.

The IA report cites the work of Prosper Australia in three places: on the history of Value Capture, our submission to the House of Representatives Transport Connectivity inquiry and Dr Cameron Murray’s ACT report.

1 Comment

  1. david singer15-12-2016

    It is insanity to allow the owners of principal places of residence to make huge tax free profits which flow into their pockets because of better roads, trains, hospitals, ambulances and schools to which they presently do not contibute one cent – whilst the owners of all other properties do.

    Both major political parties really need to embrace a common policy of introducing a broad based land tax and eliminating stamp duties in all States.

    Neither is prepared to do so hoping the other may bite the bullet first in the belief that in doing so it will amount to political suicide that will propel the other into Government.

    Following are excerpts from my letter written to Kristina Keneally and Barry O’Farrell on 3 May 2010 urging such action:

    “Dear Premier and Dear Leader Of The Opposition

    I am taking what may be unprecedented action in addressing a joint letter to you both – urging you to jointly instruct NSW Treasury to conduct an immediate review to implement Recommendations 51-54 of the Final Report of the Henry Tax Review for the benefit of the citizens of NSW – with a view to abolishing stamp duty on property transfers and broadening the land tax base.

    The Henry Review recommendations are set out below for your information.

    I am urging a bipartisan approach (as I have for many years now) since the reforms are too important to be shelved or postponed because of political bickering and point scoring.

    The Henry Review has found that retention of stamp duties and a narrowly based land tax are totally inefficient and deficient for the reasons fully articulated in the Final Report.

    Both sides of politics need a sound solid revenue base to finance their programs. I cannot see that being achieved unless both parties agree to a joint course of action to put the system in place to achieve that objective.

    I and my firm David Landa Stewart Lawyers have been ardent campaigners for the last 10 years urging reform in NSW similar to those now recommended by the Henry Review.

    My submission to the Henry Review Committee can be found at:

    My submission details a system that can be introduced very quickly and inexpensively which I call POST – Property Owners State Tax – that fully addresses these welcome recommendations.

    POST would replace current stamp duty and land tax and introduce a single property tax that would be revenue neutral, simple, equitable and easy to administer yet be sufficiently flexible to act as a growth tax to meet the provision of new and improved State services as might be thought necessary by the Government of the day.

    I believe my detailed proposal was the only one offered in any submission made to the Henry Review. The proposal was not challenged or otherwise evaluated in the final report issued by the Henry Review.

    I would urge that POST – along with other proposals that might be forthcoming after a suitably advertised period – be modelled and scrutinised by Treasury so that the most effective replacement for stamp duties and land tax can be introduced.

    If so invited – I am more than happy to offer my services free of charge to assist Treasury in whatever way I can to make the Henry Review recommendations become a reality and bring lasting benefits to the citizens of NSW.

    I would urge you to act with expedition.”

    My request fell on deaf ears.

    Now almost seven years later surely it is time that sanity prevailed.

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