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Housing industry ploy

By Karl Fitzgerald - posted Wednesday, 18 April 2012


Land Tax is naturally progressive. Those earning higher incomes generally live in more valuable locations that are well serviced with abundant parks, good schools and natural beauty. This means their land values are higher. Land Taxes with yearly valuations take this into account.

But we are told it is fairer to tax the core foods that so many survive on.

It is the low rate of Land Tax that has allowed land speculators to buy up large tracts of land in the surrounding areas of a city in the expectation that the city will grow outwards. When the bureaucrat gives his golden pen tick, changing land from rural to residential zoning, this is like a tattslotto bonanza for the lucky landowner.

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If a decent Land Tax system was in place, as soon as the re-zoning kicks in, so would the land valuation, ensuring that the people shared in this windfall, not just the lucky few. The resultant land supply would hit the market at a lower price.

One of the problems with the CIE report is that they compare apples with oranges. The GST is a transaction tax. It is charged at the point of sale (like Stamp Duty). Land Taxes are based on the length of ownership. They are a holding tax. It is stated by CIE that housing is taxed twice, once as it is built and then at an ongoing basis. We agree the taxes on conveyancing and stamp duties should be axed as countless State and federal Tax reviews have shown.

The on-going holding charge, the Land Tax and municipal rates, must continue in acknowledgement that those who own land benefit from its naturally rising value. This is an unearned income that property owners receive when the wider public funds a new neighbouring train station, highway or even when volunteers plant trees in the local park. All these outcomes make a community more attractive, leading to land value increases.

Land Taxes can infact be expanded to replace developer charges as a fairer way to pay for new infrastructure, as was the practice in the periods when we built entire new train lines. Read this background paper on Land Value Capture.

The 2010 KPMG Econtech report was referenced by CIE to 'prove' that GST was a greater contributor to GDP:

Our $15 billion stamp duty and municipal rates reform (replaced by higher GST rate) without the $5 billion of productivity improvement would increase real GDP by 0.6 per cent

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Perhaps a numberwang was involved in the modelling? Municipal rates can be paid electronically in a matter of seconds. There is virtually zero compliance cost. The quarterly BAS statements that form the paper trail for the GST, are widely seen as the bane of small business' existence.

Late Sunday nights are spent pouring over receipts, with entrepreneurs forced to work unpaid as a tax collector on behalf of the government. This is known as a compliance cost and is surely greater than an electronic payment and even paying conveyancing. Municipal rates (holding charges) should not be lumped in with conveyancing costs. This is a sleight of hand by the property lobby in an attempt to rid wealthy property owners of a tax they can't hide in a tax haven.

In analysing the source to this meme, KPMG Econotech's CGE paper notes on p23:

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This article was first published on Prosper Australia on 16 April, 2012.



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About the Author

Karl Fitzgerald is the Projects Coordinator for Earthsharing Australia.

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All articles by Karl Fitzgerald

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