Land value tax
Back to Tax White Paper Submission
Why tax land?
We believe that taxing land is an economically efficient, fair, easy and environmentally friendly way to pay for infrastructure that we all desire. Land is a good candidate for taxation because it is hard to move.
We believe that land tax is an effective way to pay for infrastructure, and we aren't alone. The Henry Tax review recommended it in 2010, yet no government has taken up the proposal.
Landowners are getting free infrastructure
We believe landowners have been getting somewhat of a free ride. Land has value and it tends to increase with time. Land does not increase due to scarcity alone; we have plenty of it in this country! The main reason land increases in value is due to increased connection to infrastructure. This infrastructure includes schools, roads, public transport, hospitals, etc. This infrastructure is largely built, or at minimum facilitated, by government funding through taxes.
The current system sees value transfer from poor to rich
Having a new train station pop up somewhere close to your front door is the property owner’s equivalent of winning the lotto. Yet we pay taxes to build infrastructure, whether we own land or not. As such, a person who does not own land, but pays taxes is having some of their tax value transferred to landowners, which seems unjust if we consider that landowners are typically more wealthy than those who are not.
Land tax incentivises infrastructure development
We often hear people complain about not having a train station or a school nearby. Land tax creates an incentive to continually improve infrastructure and increase the quality of life of residents. Infrastructure projects that have a net positive increase in value to society (e.g. infrastructure that unlocks value through increased economic activity or saves the community money) will have a positive impact on land values. Those increased land values will in turn increase tax revenue that will pay for the infrastructure built.
In particular, the infrastructure that is built will be paid for in a fair way, that is decided primarily by market prices. It can be hard to tell how infrastructure will add value to the occupants ahead of time. By taxing land, we get people to contribute to infrastructure projects that actually add value to their land. For example, improving adding a new train line to the western suburbs will primarily improve land value in the western suburbs.
Good for the environment
Land tax makes for efficient use of land. In particular, putting 4 units on a block instead of a single house would attract the same amount of land tax. Less land used means less farmland and bushland ripped up for suburbs. The increased population density means less time spent travelling, greater efficiency of public transport (and therefore greater use of it) and less land used for roads per person.
Land tax also discourages the practice of unproductive land banking, where owners buy lots and hold on to them for many years. By taxing the land, it turns the land into a liability unless it is generating value for the owner. This will prevent land from lying dormant, which can drive up local land prices while decreasing the population of the area which has negative consequences (such as increased potential for crime).
Don’t we already pay land tax in the form of stamp duty?
Yes, but it is the wrong approach. In particular stamp duties, being levied at a fixed rate per transaction rather than as a rate over time as with a land tax, create an incentive to buy and sell property less frequently. The number of transactions in the property market is decreased. These lost transactions have value. For instance they correspond to people upsizing or downsizing their home as their family circumstances change, or moving to towns with better job prospects. Economists refer to all these potential benefits left unrealised due to a tax as the deadweight loss.
Stamp duties, furthermore, are levied (unlike a land tax) on the improved value of a property (which includes if you do things like install a home theatre in your house). The aim of land tax is to not tax people’s personal improvements to their home, but to pay for the infrastructure that services a plot of land.
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