Land tax woes

The Herald Sun is reporting a tax “outrage”.

HOMEOWNERS are being hit with spiralling rates as councils value their properties at up to double their market worth.

Some bills have increased by more than $2000 this year, with councils set to rake in millions of dollars extra in rates revenue.

Values placed on many houses across Victoria are significantly higher than the prices estimated by banks and real estate agents.

Okay – so what is going on?

Ratepayers Association of Victoria president Jack Davis said the problem was widespread, particularly in rural councils that were targeting blocks of land.

“If you’ve got a block of land that could fit six units on it, you’re rated on the basis of six units,” he said.

Important to realise that is a feature and not a bug. That is how land tax is supposed to work. Therein lays the fundamental problem with land tax.

In any taxation system the government defines the tax base and sets the tax rate. In the case of land tax, however, the government also provides an estimate of the value of the tax base. That estimate of value is not entrepreneurial but bureaucratic. To be sure those bureaucrats make use of (more or less) complex valuation tools and I have no doubt they do the best they can under the circumstances. The fact remains, however, that the valuation is artificial. The property owner pays tax on what a bureaucrat thinks the best value for the property might be, not the current property owner or potential property owners. There may be a good reason why individuals don’t knock down their houses and build six units on the land or sell their property to someone else who will knock down the house and build six units.

One solution to this problem is to convert any property valuation into an offer for purchase. So when you receive your rates notice the council should be making an offer to purchase your property that the valuation they have estimated.

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70 Responses to Land tax woes

  1. Pedro

    That’s just one of the fundamental problems. The other is that valuations lag reality, which is fine on the way up by disasterous on the way down.

  2. cohenite

    One solution to this problem is to convert any property valuation into an offer for purchase. So when you receive your rates notice the council should be making an offer to purchase your property that the valuation they have estimated.

    I’m intriqued; how would that work; can I extend the principle so when I get my tax assessment I convert it into a debt which I can then offset against my tax liability?

  3. m0nty

    Sounds like Sinc is advocating state investment!

  4. Harold

    Give them 10 % off their valuation, they’d be silly to refuse.

  5. Steve D

    The other side of the valuation minefield is that, in principle, the value determines the potion of the bill, so if everyone’s valuation is out by, say, +10%, and the overall budget for the income has been determined before allocation of the rates notice, then the bill should be the same. I suspect few ratepayers look at it this way, though.

  6. Generally wheen you hear this, it is a property developer complaining that they have to pay some portion of the change in value of the land they are on. They need to suck it up or sell up.

    Problems that occur are generally related to not revaluing properties regularly enough, or after the case where a event (think flood ro major infrastructure change) should occur.

    My understanding is that the full revaluations are based upon the changes in sale price for land in the area. There are often ‘updates’ in between that are So it’s not entirely ‘bureaucratic’ in nature, but on the value that the market sees in that land. If someone is misusing land to the degree noted, again, they need to pay up, suck it up, or sell up. As Sinc said, that is how this is supposed to work. Otherwise you get people sitting on valuable land and not putting it to best use, and the community loses out.

    Increases in council revenue are entirely independant of changes in rates. All the rating changes is the distribution of that income.

  7. Penndragon

    “Give them 10 % off their valuation, they’d be silly to refuse.”

    Just 10%???

    Some years ago I bought my parents’ home from my mother’s estate (not far from Melbourne)after negotiating based on informal valuations from several local agents. We paid about $230,000. Imagine my surprise when I found it was valued at $360,000 for rates. I protested many times because the council kept bringing the valuation back up to about $360,000. They would not accept the umpire’s decision for very long. They wear you down.

    One year my protest was refused because I used a previous year’s form – yes there are nasty time limits on objections.

    Then if you are very late or neglectful or both and running on a tight budget then they use a Melbourne law firm to sue a Melbourne based debtor on a property that is closer to Melbourne than Ballarat, in Ballarat. They maintain that council offices are just closer to Ballarat.

    I don’t have a printable opinion of these people. It is time this rort was stopped once and for all.

  8. Gutho

    Surely the best method is that used in California, the value is the price that it last changed hands.

  9. Driftforge

    Surely the best method is that used in California, the value is the price that it last changed hands.

    That’s as bad in many ways as including the value of improvements. The benefit of land tax is in the difference between last sale price and current price.

    Without shifting cost onto that difference, you lose the driver for best use of land, and you convert it into a base wealth tax.

    The whole point is to recover some, if not all of the differential between the purchase price and the ongoing benefit.

  10. Lysander Spooner

    Land Tax, seriously, is a dark ages tax agent which serves as a reminder that (employed, unemployed, self-unemployed…): You are a slave. And you cannot break free.

    The taxation of my land forces me (violently) to hand over bucks for services I don’t want or need.

  11. Louis

    I work in government and have something to do with this area. You will all want to watch closely at what local governments are doing with rates and charges.

    Ironic that as we move more and more to a user pays system (you pay a provider directly rather have it covered under your rates) that rates have dramatically increased.

    Council’s have benefitted massively over the last 15 years from increased property prices, development (resulting more rates and development fees) and reducing the number rates-funded services. Yet they are all effectively living month to month. They have no capacity to handle a reduction in rates (most likely from lower property prices).

    There are already commercial properties in QLD where the rates a MORE each year than the value of the property. Local governments have become the fastest growing cost on business and families and their greed is growing. Most require licence and permits for an every growing list of activities which councils don’t even both to make the most basic effort to actually ‘regulate’…beyond checking to see you paid the fee.

    So where does this shake down money go? To ever increasing pay and perks for council employees and councillors.

  12. Aussieute

    I experienced this in the past and made a formal complaint to the Local and State Government and to the The Australian Valuers Institute.

    My request was for the Valuer concerned to prove that the valuation as presented was “true and correct” and not a fictitious number for other purposes. We had 50 others join in and the Council and Valuer had to revalue the whole area to commercial standards relating to recent sales etc.

    Ratepayers on mass need to lodge formal complaints with each council, which are required to be individually dealt with and a formal meeting with the Valuer on an individual basis is also required.

    If enough complain this can mean a 12 month period where the Valuer has no time for other work and the rates due do not have to be paid until a resolution process is completed.

    If councils wish to raise more money then they just need to raise the rate in the $ valuation not manipulate property prices.

  13. Alfonso

    Oh my…. I have a 2c zoned (5 storey) unit block block 1400 sq m in a north coast seaside town, block is on edge of CBD and 1st storey and above units would have water views. 7 standard 2 bed units fit nicely.

    Its valuation has come from $1.1 mill to today @ $750k….none of these valuations were ever realistic market prices.
    They are based on the last “comparable” block sold in 2001. A one off sale joke to a bloke who since went broke trying to develop it.

    You could have, since 2001, and CAN today buy my block for a 20% discount on its Land Tax “valuation” (sic).

  14. Sleetmute

    Wouldn’t it create a conflict of interest, given that councils have a major role in approving new developments? So the council could give a high valuation and if you decide to sell at that price, it could approve any and all developments necessary for council to obtain full value from the land.

  15. Alfonso

    Councils don’t do valuations that’s a State Govt dept function….they also have a vested interest in maximising each one.

  16. J-man

    Sinclair, this works fine for the example you cite, but falls down if there are improvements on the land and assuming that the land tax is based on unimproved values. However, it is the best solution I have heard to date for the problems associated with my favourite tax base.

    A work colleague read this and questioned how a libertarian could argue for a land tax. His point was that a libertarian would argue that he should be able to use the land in the manner he chooses. He compared land tax on a valuation of the land predicated on its most profitable use to income taxation based on an individuals maximum earning potential. Interestingly, he is an advocate for land tax, but he is a little confused on what a libertarian is.

  17. Driftforge

    The taxation of my land forces me (violently) to hand over bucks for services I don’t want or need.

    Bull$&#%. It forces you to hand over bucks for the right to use that land, and the services that are available to it and to you due to your holding a monopoly right to its use. It, to a limited extent, recovers the difference between the price paid for the land and the benefit accrued.

    If you aren’t getting full benefit from the land, pay up or move on so that someone else can.

  18. Alice

    Alfonso
    says

    “Councils don’t do valuations that’s a State Govt dept function….they also have a vested interest in maximising each one.”

    BS. The old valuer generals department which used to do half decenyt land valuations was privatised to become LPI (Land and Property Information) who now have a vested interest in inflating land values and are really slack at doing comparisons.
    They have been sued a couple of times already and lost but really they shoould not have privatised the old valuer generals dpartment to put this bucnch of land value pushing slackarses in.

    Shame. Another failed pro business idea that has costs us all more.

  19. Alice

    Alfonso – the problem is LPI – they are slack, dont value properly and have a vested interest in overinflating land values which means a bucketload more tax for anyone who owns land every year.

    I hate the bastards nbut not many are picking up on their activities. LPI

    Loser Property Information.

  20. Driftforge

    His point was that a libertarian would argue that he should be able to use the land in the manner he chooses.

    A libertarian should argue that monopoly right to land use is an infringement on their liberty, that should be paid for. A once off payment advantages only the monopolist; maximum return for the consideration is obtained when the timeframe is balanced between security of tenure and variability of benefit.

    A full land tax where no price is paid for land is the optimum; council rates on the current value of the land is a step in the right direction.

  21. Driftforge

    Alice – given that ratings are only (currently) a distribution mechanism, it doesn’t matter if rates are overstated, as long as they are overstated evenly.

    Distortions are the issue.

    That said, this is a function that should not be privatised; I’d suggest it ought to be part of the Governor’s remit.

  22. Alfonso

    I say again Alice, Councils don’t do valuations, the Valuer General is responsible for whatever LPI tenderer comes in.

  23. Alfonso

    “recovers the difference between the price paid for the land and the benefit accrued.”

    Rubbish…that’s the function of CGT.
    We have classic double taxation if that’s the justification for land tax.

  24. Alice

    The Valuer General doesnt exist I tell you Alfonso exceot as a shell office with maybe three people in it. Its these LPO bastards that are doing all these pathetic valuations.

    Soke idiot privatised the Valuer Generals Department and people have been getting ripped off tax wise ever since.

    Take the blinkers out of your eyes. I dont like inefficient government but I hate greedy idiot privatised bodies gouging me and pretending to be some halfway decent government service.

    Wake up and smell the roses Alfono. Check it out yourself properly. Some idiot ideologue flogged off the departmentlikely to make it more “efficient” and now it is efficeint at ripping money out of ordinary people’s pockets. That privatisation was worse than a tax hike. Be c areful what you wish for.

  25. Driftforge

    Capital gains tax doesn’t provide an ongoing driver for change. Land tax does. CGT just recovers a portion when you do, and only when one is not exempt from it anyway.

  26. Alice

    Drift – you are so right. This isnt a function that should be privatised (land valuations) exceot some dope privatised it and we are all getting higher valuations and paying higher tax, unreasonably so.

    Privatising this department and adding incebtives is just a tax raise. Thats all it is. LPI are fools trying to run a big job on a shoestring and stiffing it up (on the higher value thus tax side).

    Sue them I say. A profit making entity on higher land values shouldnt bloody well exist.
    Gee was that the prior atate govt’s idea.
    Jail them all.

  27. Driftforge

    Alice – except that the taxes aren’t raised. All rating does is determine the distribution of council costs. (Assuming the same mechanism as here, where council budgets are basically limited by the state government)

  28. Alice

    Land tax ius raised when these idiots (LPI) overvalue. Not just council rates.

  29. Tim

    There was a Heinlein novel (I think “Number of the Beast”?) where they end up on a world where taxation is based on the valuation the owners of land set on it, but they are obliged to sell the land at that value to anyone who is willing to pay it. Which kind of appealed to me.

    About the only thing in that book that did.

  30. Alice

    Drift you dont understand. The LPI valuations affect land tax and council rates. Im not whinging about concil rates so mucb as land tax. I keep most of my super out of the hands of fund managers and put it into land and property (smart I reckon) and thats where the land tax kicks in.

  31. Driftforge

    Ah. In that case I see your point, Alice.

    No government ahold be responsible for the valuations upon which its revenue is based.

  32. Alice

    Well Drift – what I am trying to say here is that thr government actually used to do a better job of not unduly inflating land valautaions ans they saw fit

    Unlike this mob LPI (the privatised version).

    I hate to dispel your illusiaons about smaller more efficient government in order to pay lower taxes

    but Im telling you – you are worse off with LPI – they are the supposedly new more efficient version of the clumsy old inefficent dinosaur Valuer general’s department and hey guess what???.

    LPI suck and they cause a direct tax rise.

    I dont know how you are going to get your head around this Drift but it is a big problem.

  33. Rococo Liberal

    SInc

    I think you better understand the difference between Land Tax, a State Government impost, and local government rates befioore you make any more silly posts like this one.

    Most of the commenters here have fallen into the trap of commenting on spomething they know nothing about. It really is embarassing.

  34. Alice

    Drift

    That wasnt my point at all.

    Above is my point and something tells me you arent listening or dont want to listen.

    Id like this LPI mob sacked.

  35. Infidel tiger

    Aren’t council rates based on GRV?

  36. Driftforge

    Sure. The second statement was me making my own point. Valuations for taxation is not properly a private, for profit function either. My original suggestion was that it should be under the office of the state governor.

  37. Driftforge

    Infidel – the basis varies from state to state.

  38. Alice

    No Sinnc has it wrong
    he says
    ” In the case of land tax, however, the government also provides an estimate of the value of the tax base”

    So why do LPI run around doing all the valuations for land tax purposes and LPI is a private organisation. The government does jack here any more.

  39. Alice

    And its LPI valuations that are communicated to Councils as well.

  40. Driftforge

    RL – part of the issue is that these things vary from state to state, confusing the discussion somewhat.

    In Tassie, we have a state land tax, council rates stupidly based on AAV, and any number of other minor costs.

    They don’t fit together well, nor do they impose sufficient impost to really be effective.

  41. Driftforge

    The big issue mucking with these things is that varying the basis or rate effectively gifts to or steals from anyone who already owns property. Those buying are fine, the price reflects the changes. But those already owning property really should be compensated for their capital losses if the taxation basis affects them adversely.

    It’s part of why I think this is better dealt with as a title issue rather that a taxation one.

  42. Sinclair Davidson

    RL – what you talking about? I have my rates notice right in front of me and in the information section it talks about “Land Tax Act”, “State Revenue Office”, “Valuation of Land Act”, and the “Site Value”. Maybe things are different in NSW but here Council rates are a land tax. Not to be confused with the State land tax that doesn’t apply to owner-occupied residential property.

  43. Alice

    here you are – all about LPI

    ” divisin of he NSW finance departmet’

    http://www.lpi.nsw.gov.au/about_lpi

    Teh hit on LPI tenders to see whats been outsourced.

    BS its a government service. Name only.

    LPI “manage the valuation system n behalf of the Givernor General”. Page 55 annual report of the dept of finance.
    Page 53
    “Land and Property Information’s services to the Valuer general are formalised through a service level agreement which is reviewed annually.”

    I might also note LPI has budget targets for land values.

  44. Sinclair Davidson

    Here are the Victorian details.

  45. Alice

    In NSW the govvernor general provides land values to Councils (for rates purposes) and to OSR (office of state revenue for land tax purposes for non owner occupied residental or commercially owned land). P53 Annual report dept of finance.
    The land values are all provided by LPI in NSW which supplies its services by a service agreement to the Valuer general.

    The function of the valuer generals department in NSW has been primarily oustourced to LPI.

  46. Driftforge

    For land to work properly as a market:

    Present Value ( rates + land tax ) > Land Price.

  47. Gavin R Putland

    Excuse me, but local rates in Victoria are not “land tax”, but more like what Americans call “property tax”. All three councils mentioned in this story rate on the capital-improved value (CIV), which is the combined sale value of the land and building(s). All councils in Victoria rate on either the CIV or its annualized equivalent, the net annual value (NAV).

    CIV/NAV rating is the bastard child of an unholy alliance between land speculators and socialists. Land speculators love it because hits home owners harder than owners of vacant lots (unless the latter attract a higher differential rate, which the speculators oppose), and because it penalizes new construction which would compete with the speculators’ holdings; in particular, it penalizes higher-density infill development and, by default, increases the value of land banks at the urban fringe. Socialists love it because it appeals to envy — which is more easily aroused by opulent houses than by well-located lots, notwithstanding that opulent houses represent private retention of the fruits of private effort while well-located lots represents private appropriate of the fruits of community effort — and because it conforms to the socialist dogma that all wealth is equally worthy of confiscatory taxation regards of how it was acquired or what perverse incentives will be caused by taxing it.

    An annual tax on the value of a house doesn’t reduce the cost of building it, but does confiscate part of the reward for building it. Thus it is a violation of the natural right to property in the fruits of one’s own efforts, and deters those efforts.

    In contrast, the price of the land on which the house stands is not underpinned by any construction cost, but is the present market value of the future grount-rent stream. The more the rent stream is reduced by an annual “tax” on the land value, the less the market will pay up-front for the future enjoyment of the rental value. When you “buy” the land, you don’t buy the whole rental value, but only the rental value net of the annual “tax”. Thus the “tax” doesn’t violate your property right, but represents that part of the property value for which you didn’t pay up-front.

    Neither are you worse off if the “tax” bill increases because the market price of the land increases. The market price takes the tax/rating system into account. So the “taxable” market price doesn’t increase unless, in the judgment of the market, you are better off in spite of the “tax” implication. Thus the “tax” increase doesn’t come out of your pocket, but merely reduces the unearned windfall that you take from the community’s pocket.

    Which is why I put “tax” in quotes when the “tax” is on the land, but not when it is on the house.

  48. Sinclair Davidson

    Gavin – took your time getting here. :)

    On my rates notice each year I get a breakdown of the site value and the capital improved value of my house.

  49. DriftForge

    Busy down here trying to avoid having the idiots in Hobart doing the dopey switch from AAV to CV.

    There’s an effort to look like you’re changing things for no actual gain.

    Trying to nudge these things the right way takes some effort and probably more positioning than I’ve had time for.

  50. DriftForge

    Busy down here trying to avoid having the idiots in Hobart doing the dopey switch from AAV to CV.

    There’s an effort to look like you’re changing things for no actual gain.

    Trying to nudge these things the right way takes some effort and probably more positioning than I’ve had time for.

  51. Gavin R Putland

    Sinclair Davidson wrote:

    On my rates notice each year I get a breakdown of the site value and the capital improved value of my house.

    Yes, and councils are allowed to rate on the site value; but none of them actually does so any more, largely because State legislation (since 1989) allows an unlimited number of differential rates only if they use CIV. This was a deliberate and shameless attempt to push councils towards CIV.

  52. Alfonso

    Land tax is much more than double CGT long term, it is an annual holding ‘rent’ to govt , just a wealth tax by another name.

    Alice, we don’t get any better or worse result from a tendered valuation process than from the old VG process. Except the old VG process well lagged “market ” value, tho it didn’t need to.
    The govt has decided to milk maximum often pretend maximum valuations for land to increase its Land Tax take and to maximise Council rate take. My Land tax is equal to an extra BAS payment annually, land is a captive asset and my move to financial assets is on.

    “Smell the roses”? Errr….what?

  53. Properly, there should be no capital gains from land to tax anyway. Land is not wealth, it is a license. You can’t have a wealth tax on something that isn’t wealth by nature.

  54. Pedro

    Qld is still on UCV for rates and land tax, so both are land taxes.

    I don’t know why people bang on about property rights though, you don’t own the land you just have tenure.

  55. Louis

    Pedro you realise that in 2010 QLD changed the legal definition of unimproved value of land…to include the value of improvements on the land. I kid you not. It was over a shopping centre at the Gold Coast which won an appeal to it’s land valuation.

  56. .

    We should have a land tax capped at 2% of UCV where the UCV is set in stone, like the maximal rate, and buyback rule, whereas they are set in stone constitutionally. It ought to replace income taxes of every kind and rates.

    The solution Heinlen and Sinclair propose is very elegant.

    I would still push for this and a duplication of the WA royalties system everywhere and Federally capped at 5% (paid into a pool/bank of revenue to smooth out the cycle) and apply the GST to everything but cap it again at 5%. Otherwise split the revenue into thirds for the Feds, State and shires and let responsibilities fall as they are afforded.

    All of this under the auspices of a TABOR which would cut the rates over time.

  57. To be effective land tax needs to be proportional to the current value, so UCV multiplied by the interest rate applicable to the type of property.

    That proportion needs to be no less than 50%.

  58. .

    Actually I’d start out with the GST at 10% and get it down to 5% with the growth rules under the TABOR.

  59. Gavin R Putland

    Pedro wrote:

    Qld is still on UCV for rates and land tax, so both are land taxes.

    Unfortunate the UCV rating base is corrupted by so-called “minimum rates” — more accurately called minimum bills — which obliterate the correlation between land values and rate bills for those ratepayers who are on the minimum. That can apply to as much as 80% of the ratepayers.

    Louis wrote:

    Pedro you realise that in 2010 QLD changed the legal definition of unimproved value of land… to include the value of improvements on the land.

    Not all improvements, but only merged improvements, i.e. artificial improvements which, over time, become indistinguishable from natural features. In other words, the rating base was changed from the unimproved value to the site value.

    I’ve addressed these issues at http://is.gd/fcrates .

    Re Louis’s story: There was an earlier case in Queensland in which a court ruled that it was legitimate to value the land under a major shopping centre by subtracting the value of the building from the total value. This unfortunately has the effect of taxing the value of the locational synergy caused by having so many shops in one large building (each shop gaining from the traffic generated by the others). But it is still better than CIV/NAV rating, which taxes not only the value of the locational synergy created by the building, but also the value of the building itself. Confusingly, the effect of this locational synergy is sometimes described as an “improvement” in the value of the land caused by the presence of the building.

    Among Georgists, the ability of a large developer to create locational synergies is recognized as an exception to the rule that the value of land is created by parties other than the owner. But it should also be acknowledged that (i) the same locational synergies lead to above-normal returns on the cost of construction, and (ii) a development big enough to create internal locational synergies is also big enough to influence the direction of public investment in roads and other infrastructure, which in turn confer windfall gains on the value of the underlying land — and the latter gains are entirely unearned.

  60. rule that the value of land is created by parties other than the owner.

    That’s a silly rule to start with. Changes by any individual or organisation on their land have the greatest effect on their own lands value.

    The extreme case is a farmer improving their land.

    A common case is the renovation of a house or two in a rundown neighbourhood. Land prices in the local area rise, due to private action alone.

    It’s one of the biggest problems with the way Georgism is presented; this need to clump all land value rise into public actions.

    Less than half all land value increase is due to public works, probably less than one third.

  61. Mind you, if you actually go back to Progress and Poverty, Henry George points out that the assumption is false, but necessary. Given the complexity of working out which changes in land value are due to which action, or which combination of actions, the simplifying assumption that anything that increases the value of the land returns to the land was reasonably valid at the time.

    It’s hardly so now.

  62. Gavin R Putland

    DriftForge wrote:

    The extreme case is a farmer improving their land.

    In which case it’s not only land any more; it’s land plus capital. Under site-value rating, this is a problem only if the capital becomes a merged improvement, in which case the solution is to provide for documentation and deduction of the capital expenditure. (Of course, CIV/NAV rating doesn’t even pretend to care about this problem.)

    A common case is the renovation of a house or two in a rundown neighbourhood. Land prices in the local area rise, due to private action alone.

    But most of the sites that rise in value are owned by parties other than those that did the renovations. That’s what matters — not whether the parties that did the renovations were public or private.

    It’s one of the biggest problems with the way Georgism is presented; this need to clump all land value rise into public actions.

    If public action means government action, there is no such need. It wasn’t Henry George who wrote that “Ground-rents, so far as they exceed the ordinary rent of land, are altogether owing to the good government of the sovereign…” That fawning statist remark came from the pen of Adam Smith.

  63. Yes, I was talking about what you would call a ‘merged improvement’.

    A deduction or a contribution is necessary to cover that.

    Sure, there are normally more sites around than ‘one’. That’s a given. But the increase is centred on the ‘one’, and affects that the most. I’d suggest that there is an argument, as far as it can clearly be determined, that those who undertake works that result in increases in land value should be compensated directly in the case that a government body collects that increase.

    Obviously requires not only a government body that recovers land value, but also one that recovers a fixed portion of the land value.

    George just indicated that separating out the rents was beyond the scope of the time. Times have changed, at least to the extent of larger scale changes.

  64. Gavin,

    Just for reference, this is the comment I’m putting out to anyone who cares locally.

    Ideally, the rating system should be established such :


    That ratings are based on the Land Value (LV) multiplied by the market interest rate applicable to that property;

    That ratings are monitored constantly, and reviewed no less than yearly, and modified immediately upon a event that is likely to change the rating (such as a natural disaster or major infrastructure change);

    That where improvements are made that contribute to the land value, the council should contribute to those in proportion to which it rates the property;

    That council revenue be made fixed in proportion to it rating base, rather than arbitrarily set by state decree;

    That where the owner of a property held for more than 15 years is retired, that the rates on that property be ‘grandfathered’, whereas they are limited to the peak value levied in the three years prior to the owners retirement.

    In terms of transition arrangements:

    That where the rates due differs by less than 10%, that the new ratings be imposed;

    That where the rates would increase by more than 10%, that a single payment be made to the owner in proportion to the additional charges over and above the 10% of five times the excess impost;

    That where the rates would drop by more than 10%, that the rating change is feathered in over 5 years, or a single payment of twice the normal rates is made in the first year, at the option of the property owner.

    I believe that the above covers fully the circumstances that should be accounted for in aligning council rates with the opportunity to drive property towards its most effective use. The step increase in output and productivity resulting from such a change would be noticeable in the first years, and the rate of development permanently increased thereafter as a result of such a change.

    The above must be considered in the light of state land taxation, which distorts the above market. Land tax should be merged and collected alongside rates, and the current exclusions removed in the process.

  65. Nick De Cusa

    The problem here is ruthless pro-banker bias in the face of economic and physical principles. Since land is fixed in supply any failure to tax it is simply reflected in missal location of loan able funds, finance sector deadweight loss and enhanced upfront cost.

    We don’t have to aspire to a perfect tax system. Only a better one. Physical factors such as gravity and distance tell us that we would want to encourage land substitution over land ownership, to a greater degree than most economic models would imply. So we take the tax system we are given and try and improve matters. Under very few circumstances would we want to reduce the land tax. But government spending cuts could allow us to increase the tax free threshold and make rental income not taxable to individuals. There’s a number of other things we can do to improve the mix in favour of land substitutes. There are also things we can do to make a phase-in of higher land tax less brutal. But what we don’t want is to forget economic principles or go with the usual sucky-face neoclassical attitude towards banker hegemony.

  66. As Steve D says, if the total tax bill is apportioned on the basis of capital values, it is easiest for each home to be undervalued by ten or twenty per cent and for the millage rate to be higher than it otherwise would be.

    A purist would say that any land tax or rates should be based on the rental value of the site, or the ‘location premium’ so if Building A in cheapest Area A can be rented out for $10,000 a year and identical Building B in Area B can be rented out for $15,000 a year, then the tax on Building A is $zero and the tax on Building B is $5,000.

    An identical building in the best street in Sydney which can be rented out for $100,000 gets a tax of $90,000 a year. A tax on that sort of level would enable you to wipe out GST, payroll taxes and get income tax down to 10% or 15% or something.

    Everybody wins!

    Oh yes, and slap a higher tax on coal mines etc, show that fat ugly lady who’s boss.

  67. As Steve D says, if the total tax bill is apportioned on the basis of capital values, it is easiest for each home to be undervalued by ten or twenty per cent and for the millage rate to be higher than it otherwise would be.

    A purist would say that any land tax or rates should be based on the rental value of the site, or the ‘location premium’ so if Building A in cheapest Area A can be rented out for $10,000 a year and identical Building B in Area B can be rented out for $15,000 a year, then the tax on Building A is $zero and the tax on Building B is $5,000.

    An identical building in the best street in Sydney which can be rented out for $100,000 gets a tax of $90,000 a year. A tax on that sort of level would enable you to wipe out GST, payroll taxes and get income tax down to 10% or 15% or something.

    Everybody wins!

    Oh yes, and slap a higher tax on coal mines etc, show that fat ugly lady who’s boss.

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