Land Tax: The painless approach to introducing a land tax

Land Tax has become the new black with even the Treasurer talking about his enthusiasm for experimentation by other people (aka the state governments).

However, shifting a state governments finances from the fat lump sums that a new home buyer pays with a larger mortgage to a steady drip drip drip tax every quarter on every land owner is often considered a nasty form of political ratsak.

So is there a way of shifting the finances of a state from an inefficient and inequitable tax like stamp duties to a land tax calculated by the reference to the unimproved value of the land?

A good place to start the discussion is the approach being taken in the ACT which has taken a softly softly over 20 years approach and is now a few years down the road in that direction.

http://www.revenue.act.gov.au/duties-and-taxes/land-tax

The simplest way to get the ball rolling is to slowly increase ‘rates’ calculated by reference to the unimproved value while slowly reducing stamp duty.

That will allow the shift to take place over an extended period – say 10 – 20 years.

People are used to rates and understand they are connected to the services provided to support the usage and therefore the value of their land. Expanding the understanding of the concept of rates to include services and infrastructure of more district or regional character will help the introduction.

This all assumes of course that the purpose of the impost is to have the users of land contribute in an equitable manner to the services that support the value of the land.

Once the purpose of the impost includes taxing wealth different issues arise as that is about redistributing wealth and quite reasonably people can have strong views about that.

Keeping the issues of taxing land to pay for infrastructure separate from taxing land to redistribute wealth is critical in this debate yet very few do.

The best approach is to start increasing rates so that those who have the extraordinary privilege of monopolising a patch of the earth’s crust pay the full price of all the services that are necessary to give their monopoly real value:

  • Road services including district and regional connections
  • Sewage
  • Power services
  • Telecommunications services
  • Parks and gardens
  • Libraries
  • Public transport
  • Swimming pools and other public facilities
  • Public schools
  • Police services
  • Medical services.
  • Etc

So what might a new Local Council Rate Notice look like?

As local government in NSW is a creature of the State Government, as the recent mergers have demonstrated, the State government can do whatever it wants.

The State Government would simply require the local council to bill a ‘regional’ rate when they bill the local rates and require them to hand over the ‘regional’ rate money that is collected.

An Annual Rates Notice might look like this.

Unimproved value of your land:                  $700,000

Local Rates (0.006% of value):                     $4,200

Regional Rates (0.004% of value)               $2,800

Total Amount payable (0.01% of value)     $7,000 per annum.

See the attractive and very glossy enclosed brochures explaining how your local and regional rates are used to help drive the value of your land to the MOOOOON !

A quarterly rates notice would have a total amount of $1,750 – which is split between the local government and the state government $1,050 and $700.

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