Australia has been benefiting from Land Value Taxation since 1906. The states of New South Wales and Queensland collect land rents from the “Site Value Rating” system. What lessons can we learn? Read more…
History of Land Value Taxation (Site Value Rating) in Australia
PROSPER AUSTRALIA
The Prosper Australia Research Institute raises finance for research into economic rents, and for countering the political influence of rent-seekers.
Excerpts:
After 1906 New South Wales placed higher reliance on land taxation and moved to site (land) value rating both to free up land for settlement and encourage the rebuilding of urban slums. New South Wales gradually overtook Victoria in terms of economic activity, population and general prosperity and by the 1980s had clearly displaced Melbourne as Australia’s financial capital.
Queensland like New South Wales had adopted site value rating and exempted improvements. However, Queensland went further to try to collect land rents to help its budget and keep other taxes and charges lower than other states. The progress of Queensland’s capital Brisbane compared to Sydney and Melbourne was even more remarkable. In the 1950s, Brisbane was described as a large country town: by the 1980s it was well on the way to becoming a city of some 2 million people and Australia’s third metropolitan capital.
OVERVIEW OF RATING SYSTEMS
Rates raised on local properties are the primary way in which local councils in Australia collect revenue to deliver community services.
In Victoria councils are currently able to choose from basically two different systems for determining the base on which rates are levied:
- Site Value Rating (SVR): the value of land, not including any improvements
- Capital Improved Value (CIV): the value of land plus any improvements (buildings) on it
Key point: CIV rating provides a financial disincentive to renovate and invest in properties, while SVR maintains the freedom of homeowners to renovate without penalty.
When property owners invest their own money into their buildings, improved values increase, so their rates increase under CIV. This is an obvious financial disincentive to keep homes and buildings well-maintained – the property owner is better off letting buildings deteriorate, as their rates would then be lower. As a result, amenity is reduced and neighbouring land values can fall.
In contrast, a tax falling purely on land values (such as SVR rates) does not deter individual investment. and in fact captures the value associated with community investment. Under SVR, property owners would be free to improve their homes without financial penalty. The occupants (be they the owner or tenants) of the buildings could benefit from improvements, as would the whole community. Urban blight would be reduced, as attractive modern buildings or tastefully preserved heritage stock would not attract higher rates than deteriorating unfit buildings or unsightly vacant lots.
Key Point: SVR promotes development in desirable areas, reducing sprawl
Larger buildings which accommodate more homes and businesses are more valuable in terms of improvements. Under CIV, they will attract higher rates, whereas under SVR they do not. As a result, SVR encourages higher density development in areas where it is permitted and economically viable. This development will take pressure off the urban fringe, reducing the pace of urban sprawl.
Benefits of this include:
- Less infrastructure pressures on the state government and outer suburban councils
- Shorter journeys
- Lower carbon emissions
- Less pressure on regional infrastructure from suburban users
Key point: SVR reduces housing pressures by boosting building activity, resulting in lower rents
SVR encourages increased construction activity, resulting in a greater supply of housing stock. This will put downward pressure on rents and prices for homes, making housing more affordable. (Investors would also gain as they would experience lower rates for their improved properties).
Our view is that Site Value Rating should be maintained as a rating alternative, particularly as it has been adjudged time and again as the most efficient (and progressive) tax base available. Equity requires Councils to balance the ‘capacity to pay’ principle and the ‘beneficiary pays principle’. As governments grapple with the rising inequalities driven by land price inflation, the last thing we should do in the ‘education state’ is to turn our backs on the fairest and most efficient tax. We need a rating base that can raise revenue and encourage good behaviour.
Comment:
Do the points raised by Prosper Australia sound familiar? Common Ground OR-WA has been making the same case for LVT in the Pacific Northwest!
