Decentralisation made easy
As Australian capital cities spill out into their hinterland, our regional cities and towns serviced by good infrastructure are failing worse than ever to attract their share of population growth. Politicians regularly breast-beat about the developmental imbalance, occasionally sending this or that centrally-located administrative department off to the regions in order to redress the lopsidedness artificially. They always manage, however, to overlook the sort of natural incentives that could be employed to encourage people out of clogged cities.
Why not remove IMPEDIMENTS to living in the regions?
- Increasing council site value rates and State land taxes in order to facilitate removal or reduction of payroll taxes, stamp duty, motor registration fees, rail freight charges and differential petroleum costs, the latter of which would require oil company cooperation. Site values will increase more in capital cities than in the regions.
- Getting rid of council rates on buildings, as in Victoria where all municipalities fine people for constructing buildings or for redeveloping properties. Site value rating, with a single rate in the dollar and no minimum rate, is an essential foundation for economic activity and for decentralisation to occur naturally. It encourages construction and economic activity, instead of penalising it by rating on capital improved values, or by net annual value rating.
- In site value rating States, such as Queensland and New South Wales, we should be looking at abolishing ‘minimum rates’, because these have the deleterious effect that owners of the least valuable sites effectively subsidise owners of more valuable land. Abolishing the minimum rate would put everyone on a fair and equitable footing and better encourage construction activity.
- Reforming State land taxes, so that all properties are levied with a single rate charge with no exemptions, thresholds or aggregation provisions.
As site values in capital cities are substantially higher than those in the regions, the increased rates in cities and the removal of obstacles in the regions clearly offer incentives to relocate from the cities to where both real estate and council rates are cheaper.
It was, after all, differential council rating and the federal land tax (1910-1952) that had initially assisted to establish and develop Australia’s regional towns and cities. There was no federal income tax during the greater part of that period. When people ask “Where is the money to come from?” we might well re-visit how our forebears handled the situation and respond: “From part of the uplift in land values that infrastructure and population delivers to local landholders.”
Studies confirm this outcome
Economists accept that taxes on land, unlike other taxes and charges, carry no excess burden because they are in the nature of rents which can’t be passed on in prices. However, as the foregoing amounts to a big claim for the efficacy of land-based revenues in relation to decentralisation, where’s the practical evidence behind the efficacy of rating and taxing land values?
There’s plenty of evidence. The State of Victoria used to rate entirely on the net annual value of properties (NAV), i.e. on the improved rental value, until legislation was passed in 1920 which allowed municipalities to change to unimproved capital value rating (since redefined as site value rating).
Between 1943 and 1986 the Land Values Research Group conducted many municipal rating studies, amongst other things, quantifying the benefits enjoyed by those 67 municipalities which chose to switch from NAV to SV rating to leave improvements untaxed. In all cases, even during periods of recession, where the change to SV occurred, building activity not only rose, but increased at rates greater than those in adjacent NAV-rating municipalities which had not made the switch.
These comparative results also held for State-based agricultural activity, as represented by areas under crops:-
Depression (1929/30 to 38/39) Post-War (1946/47 to 1958/59)
Site value rating States Site value rating States
Western Australia + 3% Western Australia + 71%
New South Wales + 22% New South Wales + 5%
Queensland + 68% Queensland + 76%
Net Annual value States Net Annual value States
South Australia – 5% South Australia + 7%
Tasmania – 8% Tasmania – 6%
Victoria – 10% Victoria – 6%
Go for it Australia: you’ve done it before!
It’s not all that difficult to comprehend: if you un-tax people for being productive and remove current obstacles placed in the way of their living outside the capital cities, some people will take the hint. We need to offer ongoing structural incentive if decentralisation is to occur.
And whilst the vast majority of developers are currently to be found within our State capitals, the impetus provided by such a positive regionalisation program would encourage a change of habit for some developers – to venture out into the regions, to where the action is.