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.