Land Value Tax
Henry George was a strong advocate of this early last century as being the only tax a society should or need levy. His book Progress and Poverty was a land mark publication. Today……
Land Value Tax can raise revenue and reduce problems of fairness, housing affordability and under-utilisation of land.
But there are a few subtleties often overlooked about LVT – Land Value Tax.
1. The ‘best-designed’ property tax is the simplest – a flat-rate levy on the unimproved value of the land with no – or very few – exceptions.
2. The moral justification for such a tax is that if you wish to have a piece of Australia for your exclusive use and benefit, then you compensate us for foregoing that amenity, after all, it is ‘our’ land.
3. A Land Value Tax (LVT) converts the costs of useful infrastructure from expenditure to investment. Such infrastructure always enhances land values and a LVT would ensure that this would be reflected in enhanced Government revenue – indefinitely – instead of a capital gain for the property owner.
4. Conversely, any property owner suffering a loss in value would be automatically compensated by a reduced LVT obligation.
5. It is fit and proper that the greater the value of the land, the more you will pay ‘us’ because it is our efforts and facilities – that is, the society’s – that give and maintain the value to your asset. The value of a parcel of land depends on the community services that it enjoys by way of defence, policing, transport services, educated manpower, health and recreational facilities.
6. Because the ‘big end of town’ generally owns a lot of property a flat rate tax would see them pay their proper share towards these community services.
7. By increasing the cost of keeping blocks undeveloped and houses empty, a LVT would reduce speculation in property ownership and stabilise house and land prices; in the longer term, housing would become more affordable – the opposite of present prospects.
8. Federal Government leadership could see pressure being applied to the States to adopt a nationally uniform, flat-rate LVT; if States can be pressured into selling income-producing assets, the States could surely be ‘encouraged’ to make full use of their land taxing rights.
9. That all the valuation and collection systems for a simple, flat-rate LVT are in existence – and that the tax liability cannot be shifted off-shore or be denied are more compelling reasons for LVT to be a priority consideration.
10. A unique feature of LVT is that it is in a sense voluntary! If the LVT you are asked to pay does not equate to the value and amenity that you enjoy from the property, then you can get someone else to pay it – by moving elsewhere. Not easy but entirely legitimate!
An ideal scheme would be to start with a very small, nationally uniform, LVT with a planned regular increase so that the land and housing markets have a certain and definite path to transition. In due time, GST could be eliminated and Stamp Duty too.
Unfortunately, ‘the big end of town’ does not want to pay their proper share and use their media to demonise LVT – with headlines about taxing the family home. The fairness of LVT is never featured; for example, at one time, the late Kerry Packer personally owned 14 million acres of Australia; if you owned 14 thousand acres you would still be a big land-owner but for every dollar you paid, KP would have contributed 1000. There was a long case with the ATO and some measly 9 or 10 thousand dollars was finally agreed, if my memory is correct.
Another easy argument the LVT antagonists promote is the plight of the aging widow who – through no fault of her own – has become asset rich as a result of developments around her humble home but is income poor. How could she cope with a LVT? One solution would be for a Reserve Bank Land Trust to buy her freehold at valuation and for her to live out her days as a totally secure leaseholder – financially well-endowed and surrounded by her newly adoring grandchildren!
· LVT receives increasing publicity - ACOSS, Grattan Institute, Henry Tax Review are all supporters - but, as yet nothing like enough to get LVT really ‘on the table’.
· ‘Value Capture’ has gathered some recent adherents and publicity is based on some similar considerations to LVT – but it presents many opportunities for mates deals, complicated contracts and loop holes which would disadvantage the taxpayer.
· LVT regimes have always been designed by the States to favour some sectors, penalise others and be competitive as between States; as stated above a simple, flat rate, nationally uniform tax would be totally fair. If we can have a reduction of Company Tax scheduled over ten years, we could have an increasing LVT scheduled over ten years