FAQ: The dreaded Land Tax

You've convinced me Lev.....where do I sign up for this increased Land Tax Bill....sounds perfect for me as a property investor. :rolleyes:

I gather everyone on this forum would also agree with your proposals to increase Land Tax.....but hang on....wasn't the premise of this thread something along the lines of "What can I do to reduce my LT bill ??"

The start of your dissertation was along the lines of "assuming you are from a council board or state legislature"......but none of us are Lev.....we are private property investors on the other end of the Land Tax Bill.....you know, the giving end - not the receiving end.

I can very well see how LT may be just nirvana for all Govt instrumentalities....but then I don't give a toss about them or their objectives. I'm paddling my canoe and care about my canoe.
 
They finally accepted our application, and took our PPOR off the land tax bill for future billing (thankfully before the next bill came out), but we never saw the money we had paid on our PPOR again. :(
Can you ask for a refund? When I finally got around to lodging my unit trust claim (whatever you filled in for NSW to say that the units of the unit trust were all owned by the same family) with the NSW OSR they stopped sending me threatening letters for the Land Tax for this year. I figured that cos I'd been so slack and not lodged it in 2005 or 06 when they sent the form to me, that I had kissed that money good bye. Imagine my surprise when I got a check for $3800 from OSR last month - about 6 months later :)

A friend of mine rented out a house, then moved into it for a number of years in the ACT. He's since moved out again, and I mentioned he'd then have to register and start paying land tax. He said he'd never stopped - he didn't know any better! He rang the ACT Government, and they sent him a refund for about $3500. So it does happen:)
 
The best way to minimise land taxes is to not hoard vacant or near-vacant land in high-price areas. Build on it instead - and to get your local council to adopt a site-value rather than capital-value rating system, as the latter punishes those who improve their lots.
Do you really understand how land tax and local council rates are applied???

From the quoted text it appears that you actually have no idea. How does building on your land minimize your land tax? Whether I have empty land or a block of units on my land my land tax bill is the same as the basis of the valuation is on the unimproved value. I might be mitigating my land tax liability by collecting rent but I am certainly not minimising my liability as my liability stays the same.

Similarly the council rates are based on the same unimproved values.

To even kid yourself that a tax helps anybody but the prevailing govt raise revenue is a joke.

It may have started of as an incentive to build on vacant land but this need disappeared a long time ago and now it is simply a lopsided revenue raising exercise.

I say lopsided as it targets a group that is an easy target due to its minority representation. For all the rates and land tax I pay I only get one state vote and one local council vote.

In fact if you look at most state taxes they are none represented taxes, payroll tax, stamp duty and obviously land tax. And why is it that the state only levies none represented taxes? Its because they don't have the balls to actually levy a tax where it needs to answer to the people who elected it. Have a look how quickly they changed their mind on the recent NSW land tax changes, because they suddenly were going to loose votes.

Cheers
 
Lev gets to play with statistics and economic studies, which is a far cleaner environment, and there is much more freedom to make sweeping, high-principled comments. The rest of us, investors that we are, have to grub around in the dirt.

Ah well. If the government raised land tax it'll just tighten rental supply further, and our rents will increase to compensate. Supply and demand (and greed and fear) doesn't always listen to nobel laurelates.
Alex
 
Do you really understand how land tax and local council rates are applied???
Yes, quite thoroughly.

From the quoted text it appears that you actually have no idea. How does building on your land minimize your land tax? Whether I have empty land or a block of units on my land my land tax bill is the same as the basis of the valuation is on the unimproved value. I might be mitigating my land tax liability by collecting rent but I am certainly not minimising my liability as my liability stays the same.
On the material I have provided it should be abundantly clear that any increase of tax on land must be contingent on reduction in taxes on labour and capital. If one builds on vacant or near-vacant land then one's overall tax bill will be reduced.

To even kid yourself that a tax helps anybody but the prevailing govt raise revenue is a joke.
This is incorrect. A tax on land with a contingent reduction on taxes on labour and capital will reduce the incentive to accumulate land and increase the incentive to invest in labour and capital - that's hardly rocket science. The result is more buildings, more employment, more goods and services i.e., more produced wealth.

In fact if you look at most state taxes they are none represented taxes, payroll tax, stamp duty and obviously land tax.

Have a look how quickly they changed their mind on the recent NSW land tax changes, because they suddenly were going to loose votes.
Indeed. Despite the recommendations of the Harvey Report ("Review of State Business Taxes, 2001" in Victoria and those of the Australian Productivity Commission ("Directions for State Tax Reform", 1998) strongly recommend removing stamp duty (a tax on transactions), payroll tax (a tax on employment) etc, but with a revenue-neutral replacement with land tax. This however is considered politically unpopular, despite the fact that it would work. Regrettably, sometimes what is popular and what is true is not the same thing.

Ah well. If the government raised land tax it'll just tighten rental supply further, and our rents will increase to compensate. Supply and demand (and greed and fear) doesn't always listen to nobel laurelates.
Alex
Ummm.. No. Supply and demand are unchanged.

"The striking result is that a tax on rent will lead to no distortions or economic inefficiencies. Why not? Because a tax on pure economic rent does not change anyone's economic behavior. Demanders are unaffected because their price is unchanged. The behavior of suppliers is unaffected because the supply of land is fixed and cannot react. Hence, the economy operates after the tax exactly as it did before the tax — with no distortions or inefficiencies arising as a result of the land tax" [Samuelson and Nordhaus. Economics, 16th ed., p.250].

This has been known for a very long time and is confirmed by evidence.

"A tax upon ground-rents would not raise the rent of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist and exacts the greatest rent which can be got for the use of the ground." [Adam Smith, Wealth of Nations (1776), Book V, Chap. 2]

You've convinced me Lev.....where do I sign up for this increased Land Tax Bill....sounds perfect for me as a property investor. :rolleyes:
It is good for those who wish to provide property (i.e., buildings). It is perhaps not so good for those who speculate on vacant and near-vacant blocks.

I can very well see how LT may be just nirvana for all Govt instrumentalities....but then I don't give a toss about them or their objectives. I'm paddling my canoe and care about my canoe.
An appropriate metaphor by which illustration may help. Assuming that public funds are required for canoe development research, maintenance of river banks and so forth, from where do you think that public revenue is best raised? From the producers of canoes or from use of the river? If you choose the latter, you will reduce the incentive to produce and develop canoes - they will become more expensive. But if you choose the latter, neither supply nor demand are changed and canoe manufacture and river bank maintenance is unfettered.
 
Mason Gaffney, Professor of Economics, University of California.
Lowell Harris, Professor Emeritus of Economics, Columbia University.
Jacques Thisse, Professor of Economics, Centre for Operations Research and Econometrics, Universite Catholique de Louvain, Belgium.
Daniel R Fusfeld, Professor Emeritus of Economics, University of Michigan.
Carl Kaysen, Professor of Economics, Massachusetts Institute of Technology.
Elizabeth Clayton, Professor of Economics, University of Missouri at St. Louis.
Tibor Scitovsky, Emeritus Eberle Professor of Economics, Stanford University.
Warren J Samuels, Professor of Economics, Michigan State University.
Guy Orcutt, Professor Emeritus of Economics, Yale University.
Zvi Griliches, Professor of Economics, Harvard University.
William Baumol, Professor of Economics, Princeton University.
John Helliwell, Professor of Economics, University of British Columbia.
Giulio Pontecorvo, Professor of Economics and Banking, Graduate School of Business, Columbia University.
Harvey Levin, Augustus B Weller Professor of Economics, Hofstra University.
No-one Australian? No-one currently working? Just because you have overseas references, doesn't mean it will work in Australia.

What is your hidden agenda? I assume you don't own any land...
 
On the material I have provided it should be abundantly clear that any increase of tax on land must be contingent on reduction in taxes on labour and capital. If one builds on vacant or near-vacant land then one's overall tax bill will be reduced.
Lev,

We are coming from a 180° opposite viewpoint on this subject. You're looking at this subject from a Govt-revenue side of things. I'm looking at it from a private citizen-cost side of things. Our objectives are not the same. By definition, what is good for one side is bad for the other.


As a passive property investor, holding houses, offices and factories, I don't have any tax bill in terms of labour or capital to offset. From a macro Govt viewpoint, you have heaps....but once again this is no concern to me. I only have land tax imposts. If you argue this should go northwards, and as recompense I get to reduce my tax bill from a labour and capital standpoint, how does that help me and thousands of investors who don't directly employ a cast of thousands.


Lev, may I ask you a few questions.

1. Do you pay Land tax in Australia ??
2. Do you invest in direct property in Australia ??
3. Do you really expect me to pay any heed to a reference by a guy named Smith written in 1776. That's before the First Fleet got here !!

I need to go and make some money. Bye.
 
From the small amount I've read, this fellow is suggesting we throw out our current tax system and replace it with his... and is looking at it from a 'total economy' viewpoint. tax land not labour hey? Interesting academic idea ;) The poor who work but don't own anything wouldn't pay tax, and the 'rich' who 'own everything' would pay it all :rolleyes: Are you a communist Lev? :p

Somehow I don't see any aussie government introducing it (though times can change....), but I reckon the ASX would do well if it ever was introduced.................
 
No-one Australian? No-one currently working? Just because you have overseas references, doesn't mean it will work in Australia.

What is your hidden agenda? I assume you don't own any land...
Here's the hidden agenda... Google reveals all...
http://prosper.org.au/node/4
www.prosper.org.au said:
One obvious avenue is to renege on the shameful proposal to cut the top rate of land tax from 3.5 to 3 percent. This $200 million dollar gift to the biggest landlords in the state stands in stark contrast to the need to invest in our children and their future.

Landlords are well recognised as the least productive class in society. Perhaps the ALP needs to decide whether it is the Australian Labor Party or the Australian Landlord Party. It will be interesting to see whose interests they end up supporting.

Sincerely,

Lev Lafayette
Media Officer,
Prosper Australia
1st Floor, 27 Hardware Lane
Melbourne 3001
Victoria Australia
Tel 03 9670 2754
 
Oh dear Levvy.....I think you've just been busted and in the wrong forum.

Nice work Steve....good bit of research....obviously still on the rig and obviously still no HSE incidents to attend to...:p
 
"One obvious avenue is to renege on the shameful proposal to cut the top rate of land tax from 3.5 to 3 percent. This $200 million dollar gift to the biggest landlords in the state stands in stark contrast to the need to invest in our children and their future.

Landlords are well recognised as the least productive class in society. Perhaps the ALP needs to decide whether it is the Australian Labor Party or the Australian Landlord Party. It will be interesting to see whose interests they end up supporting."


the most disappointing thing for me was the way the argument was put forward i.e. that there was a genuine intent to reform matters and that the tax shouldn't apply to developed property. Instead we have been left with the empty hollow shell of a left wing rant.

land tax in its current form is a dirty insidious tax that steals from both the most productive in society as well as the vulnerable (e.g. pensioners who have held their land for a long time) and sees its repercussions in the form of increased costs of ownership and hence reduced supply to some of the most needy in society.

the burden is now being shared twice - once in the form of GST and also in the form of state labor govts that have ramped up a massive tax grab and refuse to hand anything back. The economy is still being crippled with a host of nuisance taxes including payroll tax, stamp duty on vehicles, stamp duty on housing, stamp duty on investment loans, stamp duty on housing mortgages, stamp duy on GST (in insurance), land tax that has ballooned with the housing boom, emergency service levies, DLI service fees, to name just a few
 
From some perspectives land tax is the best and should be the only (or nearly only, "sin taxes" included perhaps) tax as it encourages more investment in productive capital (e.g., housing) or productive labour (e.g., services etc) rather than unproductive activity ("sitting" on an empty bloc). Land values increase because of other people's action, so in a sense deriving income from increases in unimproved land value is unjustified. It is very popular among economists for example across the political spectrum.QUOTE]

How does land tax encourage housing exactly? If you convert vacant land to housing your land tax bill goes up. They sure as eggs don't bring the land tax down when you build. Are you saying that because it costs too much to hold it vacant due to the land tax and you are therefore forced to develop it? (and sell I presume) If so that contradicts my own personal experience.
 
A pox on your land tax

Yeah Robin Hood.. Not a bad character, quite a good analogy really. But how about addressing the actual substance instead?
ANSWER;
The actual substance of your argument is to steal from the most productive individuals of society and hand it over to bean counters who produce nothing but profess to have the people's interest at heart. As a young man I visited East Germany in the early 1970's to see the workers paradise and I came away with a healthy disrespect of those who would take away from the real movers and shakers and hand it to those who live in an ivory tower and tell the masses they know best!!!

Is it better to derive public finances from productive capital investments, from labour or from resources used? Do you think that a local council's rates should be derived from the value of the site, sans improvements, or the value of the building and improvements? Which do you think will encourage productivity, employment, good and services, housing etc?

ANSWER
I think you allow individuals to decide the best way to build a productive society. Looking at how Australia has allowed its citizens to build a future for their children through sellf directed work is an example we can be proud of.

There is a reason why all senior economists from across the political spectrum say the same thing on this matter.
ANSWER
Most senior economists cannot chew gum and walk at the same time.
The public has a healthy scepticism and these egg heads and their predictions.People produce goods and services and are the providers of all the wealth we enjoy..... A pox on your nirvana
 
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So Lev - trying to get past the econospeak,( I mean using words like unfettered - straight out of a text book) what is it that you are really trying to say?

Is it the a land tax should be applied to every parcel of land regardless of who owns it or the use to which it is put? In other words a land tax on the PPOR.

If this is the case then the govt is never going to do this as they will not have the fortitude to take on the electorate.

Personally, I tend to agree with the view as with this sort of system (land tax on all property) all property owners are then in the same situation as against the current instance where some landlords who fall below the threshold have an unfair pricing advantage in the rental market.

By taxing all property the actual cost per property is fairly low and as such a reasonable impost per property (if PPOR are included). It would still amount to a substantial figure where multiple property are held but nowhere near the current slug.

The problem with this type of situation where you say replace income tax with a land tax is that it would act as a disincentive for home ownership which in the end will hurt governments as they need to house the aged.

Cheers
 
you could argue a tax on air if you could be bothered, just as some egg head in WA today argued there should be a tax on babies... as if australia needs less population!
 
No-one Australian? No-one currently working? Just because you have overseas references, doesn't mean it will work in Australia.
Not working? Everyone in the list I provided was working, afiak. Just because someone has reached the heights of being an Professor Emeritus doesn't mean they stop working! (It means they have retired as a Professor in good standing, but they continue to teach, engage in research and publications etc)

Although I've already given Australian references I shall give a few more that I know off the top of my head.

Professor John Freebairn, Director of the Melbourne Institute of Applied Economic and Social Research, University of Melbourne.
Professor Frank Stilwell, Chair of Political Economy, University of Sydney
Professor Herb Thompson, Associate Professor, Murdoch University
Terry Dwyer, Visiting Fellow to the Asia Pacific School of Economics and Management, Australian National University
Professor Emeritus Peter Boyce, School of Government, University of Tasmania (not an economist, but...)

It works well everywhere, just as the laws of supply and demand work everywhere. If you tax productive investment you get less production. If you don't tax resource holdings sufficiently, you'll have more resource holdings and because they are relatively fixed in supply, that will drive up the price.

What is your hidden agenda? I assume you don't own any land...
Why would you make that assumption? A landowner is not a person who has taken leave of their senses.

I have no hidden agenda whatsoever; I am quite explicit in what I support; less tax on goods and services, with public finance derived from site-rent. The reason I support is because it is the best way to produce wealth for everyone; and most especially for those who derive interest returns from apartments, houses etc from their capital investment.
 
We are coming from a 180° opposite viewpoint on this subject. You're looking at this subject from a Govt-revenue side of things. I'm looking at it from a private citizen-cost side of things. Our objectives are not the same. By definition, what is good for one side is bad for the other.
Evidently you're unaware of win-win in economics. ;)

As a passive property investor, holding houses, offices and factories, I don't have any tax bill in terms of labour or capital to offset. From a macro Govt viewpoint, you have heaps....but once again this is no concern to me. I only have land tax imposts. If you argue this should go northwards, and as recompense I get to reduce my tax bill from a labour and capital standpoint, how does that help me and thousands of investors who don't directly employ a cast of thousands.
Actually you do have these bills. You pay them indirectly everytime you purchase goods and services. Every time you finance a building, every time you purchase a coffee.

3. Do you really expect me to pay any heed to a reference by a guy named Smith written in 1776. That's before the First Fleet got here !!
Do you pay heed to a chap called Pythagoras? He was doing something with geometry in c500 BC. Just because something is old doesn't mean it's wrong.

Oh dear Levvy.....I think you've just been busted and in the wrong forum.
Er, I made my (prior) associations obvious on my first post.

From the small amount I've read, this fellow is suggesting we throw out our current tax system and replace it with his... and is looking at it from a 'total economy' viewpoint. tax land not labour hey? Interesting academic idea ;)
It's hardly my idea, and it's hardly academic. It has been applied, in part, across the globe for the most of the twentieth centure. In every economy where it has been introduced, productivity and wealth has increased. That sort of empirical evidence begins to stick out after a while..

ANSWER
Most senior economists cannot chew gum and walk at the same time.
Yeah, that's real easy to say when you're not one, isn't it? :p

The public has a healthy scepticism and these egg heads and their predictions.People produce goods and services and are the providers of all the wealth we enjoy..... A pox on your nirvana
Then why put onerous taxes on the producers of goods and services and allow resource holdings to go relatively tax-free? Don't you understand incentive structures? If you tax labour and capital there willbe less goods and services produce. If you let resource holdings go relatively untaxed there will be an incentive to hoard. Land tax contingent on less tax on housing means lower land prices and lower housing prices.

Great job, YYM. The least productive class of society. Oh dear. Well, sticks and stones.......
Actually that was a paraphrase from David Ricardo. Not that I'm even a member of Prosper Australia anymore and haven't been for a year.

How does land tax encourage housing exactly? If you convert vacant land to housing your land tax bill goes up. They sure as eggs don't bring the land tax down when you build. Are you saying that because it costs too much to hold it vacant due to the land tax and you are therefore forced to develop it? (and sell I presume) If so that contradicts my own personal experience.
As mentioned, when contingent on reductions on taxes on labour and capital (I'm assuming a degree of revenue neutrality here). If the tax on land is higher and the tax on houses is lower there's an obvious incentive to build.

So Lev - trying to get past the econospeak,( I mean using words like unfettered - straight out of a text book) what is it that you are really trying to say?

Is it the a land tax should be applied to every parcel of land regardless of who owns it or the use to which it is put? In other words a land tax on the PPOR.

If this is the case then the govt is never going to do this as they will not have the fortitude to take on the electorate.
Well, at least you understand the claim. Public understanding of the issue is a problem, I agree. Although it does have (minority) support across the political spectrum.

you could argue a tax on air if you could be bothered
Fining pollutors is a tax on air.

The problem with this type of situation where you say replace income tax with a land tax is that it would act as a disincentive for home ownership which in the end will hurt governments as they need to house the aged.
How's that the case? The price of both houses and land decreases with an increase in land tax and a contingent reduction in housing taxes.
 
How's that the case? The price of both houses and land decreases with an increase in land tax and a contingent reduction in housing taxes.
hard working aussie families ("working families") will see their largest asset devalued, whilst rents will rise and outgoings for commercial tenants will directly increase,feeding thru into the supply chain and boosting inflation whilst government squanders the spoils on inefficient programs that could be performed much better by the private sector. Does not sound like it serves the interests of the traditional ALP support base at all
 
Well, at least you understand the claim. Public understanding of the issue is a problem, I agree. Although it does have (minority) support across the political spectrum.
god lets hope it remains so, there are enough half brained quack ideas on how to wring money out of productive contributors to society as it is, we need less not more
 
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