New land charges versus the dreaded GST

THE NEED for tax reform is almost universally acknowledged to be valid and appropriate.  Yet generally it has been discussed in terms of a goods-and-services tax  [GST] and emphasis is being thrust upon it as though public-opinion  polls did not indicate that a clear majority of Australians are opposed.

  The merits of a public charge on land values is rarely discussed publicly, even though the principle is widely used for local purposes (notably in Queensland and NSW) and imposed in operation with state taxes

Canberra Times
"New land taxes versus the dreaded GST"
Geoff Forster, Melbourne
August 30, 1999

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  A community charge on land value (or perhaps better, site rental) is the least distorting to the economy of all means of public revenue.  The valuation valuing mechanisms for collecting it already exist.  As with local rates, compliance costs are usually zero.  Such a community charge cannot be evaded (and cannot be moved to the Bahamas!)

  If charges on land values were gradually increased, current taxes on personal and corporate incomes could be substantially reduced without recourse to a GST.

  One wonders why land (unlike air and water) is treated like a man-made commodity to be traded for private profit and withdrawn from the market for speculation, thereby making it more expensive for commerce, industry and home seekers.

  Once introduced, a GST will almost certainly be increased, as has been the case with virtually all countries which have it (Britain, New Zealand, Denmark, Israel, Italy, etc.).  A GST is patently regressive and indeed unfair, especially to disadvantaged groups.  Its compliance costs are considerable, and will mean that more groups, especially small businesses, become unpaid tax collectors for the government.

  Prime Minister John Howard stated some time ago, "I do not deny that all taxes, with the exception of those on economic rent and inherited wealth, have some adverse employment and economic growth effects" (Australian Financial Review, Dec 10, 1999).

  For elderly people with low incomes but valuable homes, a land charge can be deferred and become payable by their estates, as is often done by municipalities already.

  The implementation of land value charges would require far fewer modifications that what is involved currently with the Income Tax Assessment Act, which now exceeds 6000 pages in length.

  The proposal being advocated does not entail abolishing freehold title or exclusive possession in perpetuity.  It is essentially a matter of acknowledging land as a community resource and the payment to the community for the privilege of exclusive occupation in accordance with the surrounding advantages that are available.

  A community charge on land values does not penalise economic activity or land use; it does, however, deter the speculative withdrawal of vacant land from the economy, especially land surrounded by community amenities.

  A community charge on land values would strengthen care of, and undergird concern for the environment.  Urban sprawl would be reduced and the awareness of land as a natural resource to be carefully and responsibly used would be reinforced.

  The principle applies not only to sites, but also extends to natural resources rentals for minerals, oil, forests, etc., as well as to electromagnetic spectrum (radio and television).  It could be extended to anti-pollution taxes as well.  Empirical evidence over many decades from localities in Australia shows proven socio-economic benefits, notably in the area of building activity.

  Quantitative considerations cannot be discussed here owing to reasons of space.  While community charges on land values would not reach the magnitude of current taxes at all levels, the need and justification for current taxes would be lessened for various reasons.

  Naturally the details of implementation need some fine tuning, but the importance of the basic principle first needs understanding and recognition.  At least it should move into the arena of public discussion and rational debate.

  After all, is there any real reason to believe that the GST will substantially lower unemployment, reduce the gap between the rich and poor, facilitate housing access and simplify revenue collection?

  Geoff Forster is the recently retired honorary secretary of Tax Reform Australia Inc., based in Melbourne. -- Geoff Forster, Canberra Times, August 30, 1999.
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