Infrastructure Funding: Land Consumption Tax / Land Value Tax

[#Metro]

A thread for some articles about LVT.
LVT could be a major source for funding large transport projects, and recaptures value generated from properties around such projects.

[#Metro]

https://www.thebig5hub.com/news/2015/march/new-saudi-land-tax-will-support-housing-boom-but-developer-shares-tumble/

Saudi Arabia's decision to levy undeveloped land in urban areas is seen as a bold move to meet its need for one million new homes. But it sent shares of real estate firms falling following the announcement. Many investors continued to hold land simply for investment and this move, aimed to force them to develop, may also cause prices to fall as more land comes onto the market.

[#Metro]

Scrap stamp duty? Yes, then tax the family home
http://www.smh.com.au/business/the-economy/scrap-stamp-duty-yes-then-tax-the-family-home-20150615-gho0gt.html

The great thing about "land", in its broadest definition, is that it can't run away, turn itself into a double-Dutch-Irish sandwich, hide in the Caymans, or sink to the bottom of the harbour. No matter how creative your accountant, a good land tax will be paid. It is quite easy and efficient.

A secondary positive is that it enables government to capture some of the value-add from investing in infrastructure. Put in a new train line, property values rise, the government gets a reward.

The problem of elderly residents being asset rich but income poor can be handled by allowing the "rates" to accumulate and be paid out of the eventual estate. Along with removing the barrier of stamp duty, land tax provides an incentive to move to a more efficient space where maintaining a large home itself becomes expensive.

[#Metro]

Land tax often overlooked in the tax debate
http://www.theage.com.au/comment/land-tax-often-overlooked-in-the-tax-debate-20150407-1mfro2.html

Most importantly, taxing land better would force a more efficient use of land in our major cities. Australian cities are home to some of the biggest houses in the world. A land tax would give grandmas in Woollahra, rattling around in their four-bedroom homes, more of an incentive to subdivide or downsize. No more sitting on windfall wealth from rising property prices and passing it on to the kids.

[#Metro]

Levying the land
http://www.economist.com/news/finance-and-economics/21580130-governments-should-make-more-use-property-taxes-levying-land

Taxing land and property is one of the most efficient and least distorting ways for governments to raise money. A pure land tax, one without regard to how land is used or what is built on it, is the best sort. Since the amount of land is fixed, taxing it cannot distort supply in the way that taxing work or saving might discourage effort or thrift. Instead a land tax encourages efficient land use. Property developers, for instance, would be less inclined to hoard undeveloped land if they had to pay an annual levy on it.

...in an efficient capital market the burden of property taxes is borne by owners of capital across the economy; and since capital owners tend to be richer, the tax is likely to be progressive.

[#Metro]

Land tax campaign restarts, 120 years after Henry George's death

http://www.theaustralian.com.au/business/opinion/land-tax-campaign-restarts-120-years-after-henry-georges-death/story-fnp85lcq-1227416975817

The first recommendation in the LF Economics submission was straight from Henry George: for a land tax "to moderate both land price bubbles and their devastating busts".

They point out that land tax is already in the toolkits of state governments, but has been "rendered comatose by a host of exemptions and concessional treatments".

Essentially they recommend that state land tax be extended to owner-occupied housing and agricultural land and calculated on a per square metre basis.

[#Metro]

Why Land Tax cannot be passed on to renters: the tax is still charged whether or not someone is renting the place.
http://blog.lvrg.org.au/2011/08/why-land-tax-cant-be-shifted-onto.html

Thursday, August 11, 2011:
Why land tax can't be shifted onto tenants

Gavin R. Putland expands on his letter in Wednesday's Financial Review.*

Landlords hate land tax because they can't pass it on. So they campaign against it — by pretending that they can pass it on!

[SurfRail]

Um, of course land tax is passed on to tenants - through higher face rents to cover the landlord's holding costs.

Allowing land tax to be recovered as an outgoing would make rents more transparent.  Retail shop leases don't allow land tax recovery in Queensland (in NSW they do) and nor do residential tenancies, so it gets factored into the rent.  The landlord doesn't lose out any more or less on account of land tax than anything else just because the property is untenanted.

[#Metro]

Rents are set by the rental market. If the landlord tries to increase the rent, they might not get a tenant. Empty property AND you are still getting charged.

Landlords cannot charge more than the renters are willing to pay. Tenants are mobile and can move, land parcel is fixed in place.

Also applies to land with nothing on it - how is the owner of an empty block of land going to increase the rent on tenants when there is no building?

How is the owner-occupier of a property going to increase the rent - if only they live in the property?

If the holding costs become too high, they will have to build something to get an income stream or sell the land to someone who will do that.

You can kill two birds with one stone here - fund decent PT upgrades and fix up the unaffordable housing situation.

[#Metro]

http://kaalvtn.blogspot.co.uk/2013/01/g-lvt-would-benefit-rich-and-hurt-poor.html#1

Tenants are price-sensitive, they don't want to waste all their money on rent and will tend to choose the cheapest accommodation and will share if necessary. And the landlord? He cannot vary his output one jot, one home is one unit, either he rents it out at anything up to market rates (and we can safely assume that most of them do) or he demands more and receives nothing. If he is has fixed costs associated with that home (be it mortgage repayments or LVT) then he does not have the luxury of withdrawing the home from the market and leaving it empty, he has to rent it out for as much as he can (market rates).

[#Metro]

Interesting Seattle paper. The problem with things like Eastern busway is that when you announce the busway corridor land values are likely to increase, which makes the property resumption and construction costs for busway construction increase also.


The Value Capture Approach To Stimulating Transit Oriented
Development And Financing Transit Station Area Improvements
http://www.vtpi.org/gihring_tod.pdf

At the same time, public planners and stakeholders need to acknowledge the fact that the
announcement of station designation, the installation of station improvements, and
commensurate up-zoning bring added site value to affected properties. Riley's research
on London's Jubilee Line Extension revealed that a Southwark station area site was
purchased in 1980 for £100,000; a year after the line's opening the site was sold for £2.6
million.

"The gain was money in the bank for the owners but nothing was contributed to
the welfare of the residents."

Meantime, Sound Transit planners found that the original
cost estimates of building the LINK system were increasing beyond expectations.
Unanticipated inflationary trends in the real estate market, especially rising land prices
along the designated rail corridor, drove acquisition costs beyond the project's total
capital budget. Officials are now inquiring as to whether there are legal but painless ways
of tapping into these escalating land values to find supplemental capital funding for the
$1.9 billion extension.

[#Metro]

Brisbane underground bus and train tunnel to boost values in adjacent suburbs

http://www.news.com.au/finance/real-estate/brisbane-underground-bus-and-train-tunnel-to-boost-values-in-adjacent-suburbs/story-fndbalka-1226765676540

HOMEOWNERS in suburbs earmarked for Brisbane's underground bus and train project may be set to gain more than just a faster commute to work.

According to property industry experts, new infrastructure is a major catalyst for home value growth.

"What we've seen through an analysis of the Northern Busway, South East Busway and Airportlink is that values remain relatively stagnant during (the early stages of) construction," she said.

"It's flat in the first two to three years but escalates in the last two.
"In the last two years, including the year when it's completed, you get much higher rates of growth."

^ The value of private properties around the infrastructure is pumped up - for free and with no effort on the part of the landowner - courtesy of the Qld Government.

[Stillwater]

Not to mention developers who buy up sheep paddocks at sheep paddock prices, then bully governments and councils into rezoning the land and provide transport infrastructure to get there.  Voila, sheep paddocks become prime residential land at residential land prices.  It would be interesting to see how much land around Brisbane is in the hands of developers, lying idyll while they wait for property values to go up.

[red dragin]

Not to mention developers who buy up sheep paddocks at sheep paddock prices, then bully governments and councils into rezoning the land and provide transport infrastructure to get there.  Voila, sheep paddocks become prime residential land at residential land prices.  It would be interesting to see how much land around Brisbane is in the hands of developers, lying idyll while they wait for property values to go up.

Land Banking - there will be a bit.

I know of two of these going on at the moment, however both locations where destined to be residential in the next 5-10 years, given the surrounding areas are already residential. PT already exist - well what we call PT in the Pine Rivers area anyway.  :bi

[SurfRail]

Rents are set by the rental market. If the landlord tries to increase the rent, they might not get a tenant. Empty property AND you are still getting charged.

Landlords cannot charge more than the renters are willing to pay. Tenants are mobile and can move, land parcel is fixed in place.

The market is comprised of suppliers of rental properties who need to make money on their investment and tenants who need the accommodation.  People don't let out property at a loss intentionally, negative gearing notwithstanding.

Supply and demand work in both directions.  Some people are willing to pay a premium for renting in certain locations, which causes rents to increase.  Vacancy rates aren't especially low these days.

Also applies to land with nothing on it - how is the owner of an empty block of land going to increase the rent on tenants when there is no building?

How is the owner-occupier of a property going to increase the rent - if only they live in the property?

If the holding costs become too high, they will have to build something to get an income stream or sell the land to someone who will do that.

You can kill two birds with one stone here - fund decent PT upgrades and fix up the unaffordable housing situation.

As to the first 2 points - not relevant to rents as the property is not on the rental market.  If the property is owner-occupied, it is still doing its job.

As to the third point - overly simplistic, as I've pointed out elsewhere.  Property isn't generally kept vacant to waste space or money intentionally.

As to the fourth point - housing affordability is affected by numerous factors.  Adding a wide-spectrum land tax isn't going to help particularly much, even though it may have other benefits.

[#Metro]

Grattan Institute is on to Land Tax as well. Though they have settled for a property levy - this taxes buildings etc to the land as well. They do this because at low rates the difference is small, but at higher rates the land tax becomes more efficient...

http://grattan.edu.au/report/property-taxes/

While property taxes can be unpopular because they are highly visible and hard to avoid, they are also efficient and fair, and don't change incentives to work, save and invest. Unlike capital, property is immobile – it cannot shift offshore to avoid taxes. Over the last 25 years, tax on property and property transactions have been the only significant growth taxes for states, with revenues keeping pace with the economy.

Key would be to spread it over time and also broaden it as much as possible, plus reduce some commonwealth taxes to give breathing space - personal income tax and company tax are obvious choices.

The report is here ---> http://grattan.edu.au/wp-content/uploads/2015/07/826-Property-Taxes.pdf

Land Tax is one of the least worst taxes there are around, far less worse than stamp duties, for which they are intended to replace.

[#Metro]

From The report, here ---> http://grattan.edu.au/wp-content/uploads/2015/07/826-Property-Taxes.pdf

4 Property taxes are relatively efficient

Property taxes – which are levied on the value of property holdings – are the most efficient taxes available to the states.
Governments that want to increase the amount of revenue they raise will harm growth less with property taxes than with most
other taxes. Unlike capital, property is immobile – it cannot shift offshore to avoid higher taxes. The risks of multinational tax
avoidance, the increasing mobility of capital, and the increasing value of residential property relative to incomes, should make
property taxes a priority in any tax reform.

4.1 Broad-based land taxes are the most efficient taxes
All taxes drag on economic growth. But some taxes do so less than others (Box 1). Broad land taxes are the most economically
efficient taxes because they do not discourage working or investing. Unlike capital or labour, the supply of land is fixed.
Someone must use the land: it cannot be moved away. Land taxes do not distort decisions about land use, provided they
apply in a way that the landowner can't avoid.

For example, a constant rate land tax applied to the unimproved value of all land prevents landowners from reducing their
liability to such a tax by changing how they use their land. An empty block of land would pay the same tax even after it was
developed. Broad-based land taxes are much more efficient than stamp duties (Box 1). Given estimates of the inefficiency costs of stamp duties, abolishing stamp duties in all states and replacing them with a broad-based land tax could add $9 billion a year to GDP.

[ozbob]

Brisbanetimes --> Grattan Institute: state governments property tax would raise $7 billion a year

[#Metro]

https://www.prosper.org.au/land-value-capture/

Land Value Capture (LVC) is a simple technique to recycle a portion of the windfall gains land owners benefit from publicly funded infrastructure. Importantly, these windfalls are captured over the life-cycle of the infrastructure, such that one generation is not hit with the total infrastructure costs (i.e. as per the current preference for Developer Charges).


http://www.prosper.org.au/wp-content/uploads/2013/05/value-capture-feedback.jpg

[#Metro]

[#Metro]

A uniform land tax in Australia: what is the potential for this to be a reality post the "Henry Tax Review"?

John A. McLaren
University of Wollongong

Abstract
Land tax was one of the main issues examined by Dr Ken Henry in his review on "Australia's Future Tax
System" and the review recommended its increased importance in raising revenue in Australia. The classical
economists such as Smith, Ricardo and Mill recommended the imposition of a tax on land. Henry George also
strongly advocated a tax on land instead of a tax on labour or capital. They also contended that such a tax was
both efficient and equitable. This paper will examine the current position with land tax in Australia and the
views of the early economists advocating the benefits of such a tax. The paper will then examine the
recommendations contained in the Henry Tax Review and what would be required to reform this area of
taxation law. The paper will also examine the initiative undertaken by the Australian Capital Territory (ACT)
government in abolishing stamp duty on conveyances and imposing a land tax on all real property in the ACT.
In conclusion the paper will contend that a reformed land tax is of critical importance for future governments
and that it may not only raise considerable revenue but also result in reduced income tax rates for individuals
and companies.

http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1541&context=buspapers
---

Has a witty description involving supermodels in the paper.

[#Metro]

https://www.ato.gov.au/Business/GST/In-detail/Your-industry/Property/GST-and-property/

The way the current GST is put on property sounds complicated. It is 10% when you sell your residential house?

I'd be happy to see the GST increased to 15%, applied to all goods and services and with certain concessions and exemptions removed (eg GST is treated the same for agricultural land as other types of land instead of being GST free; going concern exemption removed; margin scheme abolished).

The trade off for this would be:

- All duties abolished nationwide
- All payroll tax abolished nationwide
- All existing State land taxes removed and replaced with broader based but easier to shoulder land taxes which apply to all property with no thresholds or exemptions

[SurfRail]

^ GST only applies if you are in business, which should remain the case.

http://www.austlii.edu.au/au/legis/cth/consol_act/antsasta1999402/s9.5.html

If you are a developer, the rules are that a sale of new residential real estate is a taxable supply, but second hand real estate isn't (that is input taxed) - ie if you sell units off the plan, you have a GST liability, but if you buy an old house to knock it down and develop the site you don't pay GST.

Farming land has an exemption as well.

Most other land attracts GST when sold unless you can claim a going concern exemption (which is generally activated as long as the property is leased out to somebody because the going concern there is the business of letting the property).

It generally shouldn't matter if you have to pay GST because you can generally claim credits for it.

[#Metro]

But if you have AirBnB, or rent a room, then 10%?

[James]

But if you have AirBnB, or rent a room, then 10%?

This is getting into the grey area that is eCommerce.

At this point in time, these services don't pay GST, but may start paying under changes planned by the current federal government. But  it is complicated. If you're a sole trader/very small business with sales revenue of less than $75,000, you don't have to charge GST. Right now these businesses (like to) class themselves as 'advertising services for individual workers', hence GST would be applicable on an individual basis. The ATO probably has a different interpretation though.

The fact that the nitty-gritty of our tax system is so complicated is probably a sign tax reform is needed.

[#Metro]

Queensland Government Land Valuations Globe, Google Earth KML

https://www.business.qld.gov.au/business/support-tools-grants/services/mapping-data-imagery/queensland-globe

[ozbob]

AFR --> Turnbull seeks ways of tapping into land-value gains from new rail projects

Rail and other city-building projects could soon be funded by pledging to bond holders a slice of the future gains in land taxes generated by rising property prices under options being explored by Prime Minister Malcolm Turnbull.

Sources confirmed Mr Turnbull has made inquiries into the idea of securitising increases in land taxes or rates revenues that would flow from rising property prices located near new infrastructure.

While the concept is not yet at the formal policy proposal stage, Mr Turnbull signalled an eagerness to consider a range of innovative funding mechanisms ...

Read more: http://www.afr.com/news/policy/budget/turnbull-seeks-ways-of-tapping-into-landvalue-gains-from-new-rail-projects-20151011-gk68ct#ixzz3oIHZwQJD

[ozbob]

Boomtown – it's time to make fast-tracks

> http://www.pressreader.com/australia/the-courier-mail/20151012/281749858186694/TextView

[Stillwater]

   Innovative.  Something like this has to happen and, unfortunately, the feds have to show the lead.  States too frightened to float this boat.  This way they can say 'the feds made us do it'. We cannot, repeat cannot, let the state government get away with another transport plan that does not address the funding side of things.

[#Metro]

Glad to see something is finally moving on this front! LVT is one of the least worst taxes.

I'm not so sure about TIF, the base is smaller (less revenue) and it is not so straightforward. Funds have to be pulled from somewhere else to make up the shortfall from diverted revenue. https://en.wikipedia.org/wiki/Tax_increment_financing


Basic LVT would work well because it would also have density stimulating effects, just by itself.

[#Metro]

States are going to have trouble hiding the fact that they DO have the power to raise own revenue.

Reform brawling should force states' land tax hand

It comes down to a well-worn argument. Of the states' present sources of revenue, only one of them is very efficient, inherently progressive and economically responsible and unavoidable: land tax.

Yes folks, broadening and increasing land tax is very much alive if the states are smart enough to co-ordinate and standardise it, making it a bipartisan reform to be phased in over many years to avoid immediate political pain – as the ACT government has done.

http://www.smh.com.au/business/the-economy/reform-brawling-should-force-states-land-tax-hand-20151210-glk5yp.html

[#Metro]

LVT Explainer 2

Municipal governments should finance infrastructure by collecting the unearned income (economic rent) that accrues to land. No new taxes needed. LVT can raise revenue without increasing taxes.

[#Metro]

Land Tax of 1.3% would do the trick!

Thus new KPMG modelling that should be a no-brainer, knockout blow for replacing conveyancing stamp duty with a broad, no-exemptions land tax is more likely to send the average state politician scurrying to hide under the nearest owner-occupied house.

Taxing the family home is very taxing indeed
http://www.brisbanetimes.com.au/business/the-economy/taxing-the-family-home-is-very-taxing-indeed-20160407-go0exy.html

[johnnigh]

Marion Terrill has been publishing some useful material at The Conversation. Today's points out that federal grants for urban public transport have an effective tax rate of 100% of GST revenue clawback from the state.

[ozbob]

^ thanks John, very useful piece.

[#Metro]

Another article today in SMH re land tax.

Absorbing the Land Tax shock isn't so shocking
http://www.brisbanetimes.com.au/business/the-economy/absorbing-the-land-tax-shock-isnt-so-shocking-20160408-go1ls1.html

Taxing the family home
New modelling demonstrates overwhelming gains from scrapping economically damaging stamp duty and replacing it with extremely efficient and equitable land tax. Michael Pascoe comments.

[#Metro]

This one is about the context of CRR.

Cross River Rail: Businesses could prop up $5.2b project
http://www.brisbanetimes.com.au/queensland/cross-river-rail-businesses-could-prop-up-52b-project-20160408-go1f3l.html

Be wary of gov politicians saying the private sector will cover it. They won't. The first question to ask any pollie when they trot this out is "What fraction of the project cost would be covered by it?". It will always be tiny.

In addition, the opponent of value capture has a point. Commercial and investment properties already pay land tax and council rates so in a sense they will already pay for CRR when it is built. BCC will also get a boost to its revenue when CRR is completed as well (due to property price uplifts).

It is the residential land that benefits from the rail line, that are further away, that would be escaping...

[Stillwater]

Wonder what is the GST component of the fares we pay for public transport?

[tazzer9]

Private funding for government projects should be avoided at all costs. 
If the return on investment for building something is so good, a private company would have built it in the first place.
A company will only do something if they stand to make plenty of $$$ from it, so why can't the government just pay for it all and take all the $$$ for itself.
Is it just short term, how do I elected next time thinking.

Anyway, the BCC should be chucking a fair amount of money towards CCR anyway since land value, and therefore the rates will increase around the new stations and in the areas which get vastly improved due to the project. 

[SurfRail]

Wonder what is the GST component of the fares we pay for public transport?

It should be 1/11th of the fare, as is usual for anything else.  As such, you can assume that the state has to remit around $35m or so of GST to the feds each year.  That ignores the GST arising under the supplies of services under each operator's contract.