FAQ: The dreaded Land Tax

Discussion in 'Accounting and Tax' started by always_learning, 6th Jun, 2003.

  1. Dis

    Dis Member

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    I notice the reference to Robin Hood earlier in the thread but to me it sounds more like the Sheriff of Nottingham.....The Government rides through the suburbs demanding taxes for living on their land. Doesnt matter if you have an income or not.

    Ye live on the King's land...Ye pay the King's gold! :eek:
     
  2. lev_lafayette

    lev_lafayette Lawful Good Anarchist

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    That is exactly the case for renters; the site-rental value of land will always be independent of the owner. The question is whether this is accumulated privately (which leads to higher land prices) or publically (which reduces land price).

    After all, they don't call it "real estate" for nothing (derived from the Spanish "real" for King i.e., "King's Estate"). The question is, who is King of land and what results beckon from such a kingdom?

    As Thomas Paine put it: "Men did not make the earth...It is the value of the improvement only, and not the earth itself, that is individual property...Every proprietor owes to the community a ground rent for the land which he holds."
     
  3. Puppeteer

    Puppeteer Member

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    You bump into the strangest people in the strangest places....

    MoooOOOoooo @ Lev ;) (private Joke)

    Anyway

    Unfortnately Relative scarcity of land is not going to be changed by any taxation policy, except perhaps to tax children.

    Land is a fixed asset. The population is growing. The acreage per person is getting smaller, hence land is becoming more scarce, and hence more valuable.

    To reduce the value of land, we as a population of the planet, need to stop multiplying!

    No, actually, in many cases, the increase in the value of real estate is due to the work of the owner. There is a "growth" factor slightly above the inflation rate, which probably reflects the growing scarcity of land by population increases, but the big money in real estate is to take a empty block of land, and to put something on it.

    This is why developers, develop land, and put in infrastructure like roads, power, plumbing. In most cases it is the developer that invests in the infrastructure of a sub-division, not the government. The government often puts in the requirement to provide the infrastructure and makes the rules about how the sub-division will be developed, but it is private capital that does this.

    Does the developer make money off this development - yes, and so they should. They took on the risk, so they should get the reward.

    Does the community benefit - usually, if the development is done right, because there is new infrastructure and general growth.

    Does the government benefit - yes, because there are now more houses to put people into, that the government doesn't need to provide, the value of the land has increased and it can gather more taxes, and an unproductive piece of land is now productive.

    The government has had a go at doing this on our behalf in the past, and it has failed miserably in many instances creating areas little better than slums. Examples are area's such as Koongamia and parts of Middle Swan, in Western Australia, which were so called "Homeswest" suburbs.

    These areas, even now, decades on, are living with the legacy of such plans, and I know from experience that it is working class families that are improving individual lots, not the government.

    Government provided infrastructure can certainly increase the value of land, but often it is provided in response to changing population dynamics or to open up new areas of land.

    Increasing Land Tax will simply make it less attractive for landlords to hold property (particularly with the current system of taxing developed land as well as vacant land), decrease the attractiveness of land as an investment, and hence reduce the desirability of private enterprise to improve land.

    This wouldn't be a problem if governments do the same job with the same efficiency's as private enterprise, but the fact is that currently they stuggle. Heck, they can't even build a railway to Mandurah without engaging private company's, and even then efficiency is decimated by political agendas.
     
  4. Dis

    Dis Member

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    Under your scheme the owner is in effect the government (whether or not the title is in my name). The site-rental value will most definitely be dependant on the owner because this will be where 90+ % of the government's taxes come from.

    Currently someone may pay 25% of their wage in taxes and 25% of their wage in rental / mortage etc. Under your scheme they would pay 50% in rental with the landlord passing on 25% in land tax. If that person lost their job they would still have to pay the same $ value regardless of their income. That will make for a very insecure person.

    Its Spanish for "Royal" FYI ;)
     
  5. lev_lafayette

    lev_lafayette Lawful Good Anarchist

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    As mentioned numerous times in this thread, you cannot pass on a land tax to the renter; it's already incorporated in the rental value. If you try to increase the rent of a property due to an increase in land tax and a neighbouring landlord with a vacancy does not, what do you think will happen? This has been known and acknowledged by economists for literally hundreds of years.

    *nods* My mistake. My Spanish is usually better than that.
     
  6. Melbear

    Melbear Member

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    Who's to say the landlord up the road will not increase his rent? There've been rental hikes in the last year for whatever reason, and I don't see too many landlords who haven't done it.

    Especially if ALL landlords costs have just increased, I reckon we'd ALL raise our rents to try to cover the costs.

    *Edit* Blast! Now I've gone and prolonged the discussion, something I swore not to do!
     
  7. lev_lafayette

    lev_lafayette Lawful Good Anarchist

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    Indeed! You should call, how long has it been etc (now I sound like a Jewish grandmother)

    There are three ways the relative scarcity can be changed.

    a) A decline in population, as you suggest, reducing demand.
    b) The Commonwealth and State governments releasing more land, increasing supply.
    c) Taxation policy that reduces the maximises the use of land.

    The value of the improvements yes; to the unimproved site value, no.

    It will make it less attractive to hold land; but (if coupled with reductions in building taxes), more attractive to build.

    Supply and demand says. If they want to fill their currently vacant property they will offer a lower price. Ultimately the person who offers the lowest price for an equal product will be the one with the highest demand.

    One can't help it with an interesting topic :)
     
  8. Ausprop

    Ausprop Member

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    this is what I don't get... how could you pass on the land tax to a tenant when the land is vacant? unless it is for agistment? Youy clearly stated here that you are arguing for land tax on umiproved land only:

    Quote:
    Originally Posted by Ausprop
    I'm still trying to understand if you are proposing for a massive increase in umimproved land tax or upon all land developed or not?

    Quote Posted by lev_lafayette
    Increase on the unimproved value of land with a contingent reduction in all other taxes on useful labour and capital and especially those related to housing first. As mentioned in the first post I made, there is some justification for taxes on cigarettes, alcohol etc however (i.e., incorporating externalities, public health issues etc).
     
    Last edited: 15th Dec, 2007
  9. nonrecourse

    nonrecourse Banned

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    Joseph Gobbles "if you repeat a lie often enough it becomes fact"

    ANSWER What does that mean? The books title says it all "who owns the world the hidden facts behind landownership"Your rose coloured glasses don't like the glare of reality:eek: As I said in an earlier post your argument is fatuous and reeks of an attitude that if you don't agree with me your not intellegent enough to be taken seriously. On my side of politics Malcolm Turnbull made that mistake with the republic he was going to tell the average battler who sort of republic was acceptable and they rolled him not because they loved the queen but because they were not going to be dictated to by some egg head ( read economist). Who owns the world is an excellent text for anyone in Australia who intends voting for a republic the next time around. The real issue is when the crown passes the land titles over who controls it... the republican government ( in fee simple ) or the individual (allodial title). Only the United States,France and Switzerland operate under the (allodial form of ownership.
     
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  10. lev_lafayette

    lev_lafayette Lawful Good Anarchist

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    Unimproved land value is not just when it is vacant, but the vacant ("unimproved") value. The cost cannot be passed on in a market economy because neither the supply nor demand of the good has changed. In produced goods and services, because the cost of production has changed then supply falls. Where supply is static, this doesn't occur. Samuelson and Nordhous (Economics, 16th edition, p250) explain it better than I do.

    nonrecourse, if you're going to engage in ad hominen attacks, constantly fail to use the simple posting methods that vBulletin offers and consider basic economic tools like the Gini coefficient "as gobbly gook would make any Pol Pot aspirant proud" I will simply ignore you. If you condemn an economic proposition simply because it is old without addressing the content, I will simply ignore you. If you claim that land tax has something to do with the Stalinist regimes of the Soviet Union or China RPC, I will consider that false representation for ad hominen purposes - because they are two examples of states that did not institute land tax (as opposed to Australia, Great Britain, Canada, the United States, China ROC etc, which have).

    If you don't understand something, don't get angry at the person who understands something that to you do not. Do not engage in wild, incorrect speculations as a means to attack the person. Either ask for an explanation (as Ausprop has done) or look it up in a encyclopedia. Terms like Gini Coefficient and Bundle of Rights are basic in economics and law respectively.
     
    Last edited: 17th Dec, 2007
  11. Puppeteer

    Puppeteer Member

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    b) will work, while there's more land to be released, but it is a short term fix at best. Without the decline in population the overall trend is still for more people with the same amount of land. Land value will increase eventually.

    I think you may have forgotten some words from point c, but I get the drift. Taxation policy that encourages land to be used probably isn't a bad thing in itself, but there is significant motivation for owners to develop their land as it is, that being an increase in rental return, for providing more desirable facilities.

    Also, many high and medium density housing projects simply would not have as many dwellings on them as they do today if the owners had been forced to build on them at an earlier time via punitive taxes, so there can be a long term advantage to owners holding vacant land for future development, in terms of the number of dwellings available, or enhanced land use.

    If they had been subdivided and the land used under older zoning regulations, average block sizes would have been larger, with lower density housing. Once the parcel of land has been split up and sold, it is next to impossible to redo it.

    Increasing the amount of use of a single piece of land needs to be carefully balanced with other concerns, such as the environment. Anyone who's been in downtown Lanzhou or Beijing on a calm day could attest to some of the problems that result when land is overused.

    Similarly, unimproved, or minimally improved land is often used for farming or grazing. Should we really be encouraging an increase of intensity of land use in these areas by taxing the farmers because their block of land doesn't have a high density housing project, or factory on it.

    I have to disagree here. If all land was of equal desirability, then it would be the case, but take an example of a parcel of land that a developer develops into a new suburb. It may be in the middle of nowhere, like Ellenbrook, or on the edge of an existing city.

    The developer puts in roads, parks and other infrastructure and sells the lots. A business developer might buy some blocks and put in a supermarket and shops to service the new population.

    Suddenly the desirability of land surrounding this new development has increased and is worth more as it is close to these new services. These surrounding blocks have increased in value with no improvements to the site, and it is due to private developers putting infrastructure onto nearby land.

    Heck, even private enterprise upgrading existing facilities can increase land desirability (and hence value) over a wide area.

    Lev, perhaps you could illustrate the system that you are proposing by way of some examples that show the difference between the current tax regime for a number of different land uses and geography's and your alternative.
     
  12. Ausprop

    Ausprop Member

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    oh I see what you are getting at - then I completely object! I need to consider this claim that the cost can't be passed on because it seems completely illogical. Apart from the fact that supply is not static, surely it will result in an imposition leading to less investors, these people sell up, forcing rents on the remaining supply to go up whislt the capital value for owner occupiers goes down.
     
  13. Ausprop

    Ausprop Member

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    I think this is a superb idea
     
  14. lev_lafayette

    lev_lafayette Lawful Good Anarchist

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    As empirical examples, I can cites Steven Bourassa's (Professor of Economics, Memphis State University) study which was published as: "Land Value Taxation and Housing Development, Effects of the Property Tax Reform in Three Types of Cities, from the American Journal of Economics and Sociology, January 1990, Vol. 49, Issue 1."

    The abstract reads as follows:

    The effects of land value taxation on housing development in 3 disparate cities - Pittsburgh, McKeesport, and New Castle, Pennsylvania - were examined. The cities were representative of 3 different types of city: central city, suburban city, and relatively isolated city, respectively. It was argued that shifting taxes from buildings to land would have different effects in the different types of cities. A liquidity effect, caused by increases in the land tax rate, was expected to operate in all 3 types. An incentive effect, caused by decreases in the tax rate on improvements, was expected in central cities and, possibly, in relatively isolated cities. However, it was not expected to be important in suburban cities. The results found that an incentive effect was present in Pittsburgh, but not in the other 2 cities. There was no evidence of a liquidity effect in any of the cities. The results suggest that land value taxation is a desirable strategy for central cities seeking to encourage development and attract households. Because households are relatively mobile within metropolitan areas, LVT may permit central cities to attract households that would otherwise locate in nearby suburban jurisdictions.

    His conclusion has little ambiguity.

    A more populist version of the same appears in Fortune magazine with the contentious title "Higher Taxes That Promote Development". The full article can be found here:

    http://www.localtax.com/fortune/hightax.html

    I find the following to be an pithy comparative statement.

     
  15. Puppeteer

    Puppeteer Member

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    Interesting Read, but I'm not quite sure how this would relate to Australia. There's no taxation on buildings as it currently stands (at least for Residential property in WA), with the possible exception of council rates which is either calculated on Gross Rental Value or Unimproved Lot Value. The Gross Rental Value isn't specifically a tax on buildings or improvments, but improvements may increase the value depending on the calculation method used.

    Most rural councils (and metropolitan councils with rural areas) use Unimproved Lot Values in any case, for rural, and unimproved land, and these lots are the ones where I assume the alternative taxation policy would be aimed. In this case there could be no reduction in taxes on improvements because there are no taxes on them in the first place. Simply raising Land taxes on this land will do nothing to promote demand to own or develop the land, if the land tax mechanism remains in it's current form.

    Land Tax as it currently stands is based on the Unimproved Lot Value (I'm fairly certain - I'll need to check my last land tax bill to verify) and applies to all land, developed or not.

    The only other taxes on buildings that I'm aware of (and I don't currently invest in commercial property, so I'll let someone else comment on that) is GST on construction.

    The only other tax issue related to buildings is Building Depreciation.

    Maybe reducing, or abolishing land tax for developed lots would give some small incentive to owners to develop, but I can't see the states forgoing the revenue. Heck they still cling onto outrageous stamp duty taxation rates despite pressure from the federal government to reduce it. I can't see them cutting land tax on developed lots anytime soon.

    Increasing tax on undeveloped lots is going to hurt those most who can least afford it, ie Farmers and owners of remote area property. It will certainly provide a disincentive for people going to those areas, which is contrary to the policy of promoting rural and remote Australia as a place to live and work.

    I'm trying to work out how your proposed system would work. Is the suggestion to reduce council rates and increase land taxes? I'm sure the local councils would be happy <sic> to see local government revenues flow to the state government instead of themselves, in the form of land taxes.

    I'm wondering at this stage, why you feel anything has to change at all. Is there significant problems with the current system? It appears to be reasonably fair to the community and directs the lion's share of the overall property taxation to the local government level where it has got a much better chance of being of benefit to the tax payer.
     
  16. lev_lafayette

    lev_lafayette Lawful Good Anarchist

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    Of course their applicable. Economic principles are universal. If you increase tax something you increase the disincentive to supply it. If you reduce tax on an item, you increase the incentive to supply. It doesn't matter if one is in Australia or Zanzibar in the 9th century, the same applies.

    If you want specific Australian examples I refer to the links on post 40 in this thread.

    Those are the direct examples. I suppose a simplified version for Westralians on this would be to say that "Unimproved Lot Value" is better than "Gross Rental Value". However a more elaborate version would also include the income tax on builders, the GST on the goods and services to build, the tax on the profits derived from the rental of buildings etc. All those are a tax on buildings.

    Again, see post 40.

    The reverse is the actual case. If you increase land tax contingent with reduction in taxes on capital and labour, rural areas benefit greatly as their land values are less. Again, see post 40.

    If anyone loses from this proposal it is the holders of prime CBD land.

    Abolish all taxes on labour, capital and transactions (possibly excepting taxes on negative externalities etc) and derive public income from site rental. The actual portions that go to state, local and federal government is moot and utterly irrelevant to the economics of the proposal.

    Yes, there are enormous problems with the current system. Our welfare bill is increasing at a rate of knots, along with taxes on work and investment, and the cost of living. Much of it has to do with the application of the Law of Rent. Surely, you know me well enough to realise that I wouldn't propose something like this unless I had actually researched it to the nth degree?
     
  17. GoAnna!

    GoAnna! Member

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    I believe these theories were formulated when land ownership was in the hands of very few. The average person did not have the means to take out loans to purchase (and build) on vacant land. The holding cost of land for these rich families would have been close to nil and so pershaps some encouragement to have them "release" it back to the general population would have been required.

    Were we to create such a system of extremely high holding costs of vacant land then I think land ownership would return to the hands of a very small minority who dd not have to finance the purchase fo land and therefore could afford such holding costs.

    I believe such taxes would only entrench a class divide between the owners of land and the others.

    Are you suggesitng that the average person not contribute to the whole of society through any taxes at all but rather they live of the very few that own land? Why should not everyone contribute according to their means?
     
  18. lev_lafayette

    lev_lafayette Lawful Good Anarchist

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    That part is true; however it is even more the case now than say, fifty years ago.

    That part is not. The Gini coefficient of land ownership, which measures its distribution (1 = one person own all, 0 = everyone has the same) has increased over time rather than decreased. As a proportion of annual income, land costs have increased significantly; mainly because it is relatively fixed.

    Contraindicated by actual experience. For example (there are many, many others), when the Chinese nationalists took over Formosa it was a country afflicted by hunger for the majority and less than 20 families owned the entire island. Implementing Sun Yat-Sen's policy of land taxation, landowners sold off their excess to the population at afforable prices.

    From 1950 to 1970 hunger was ended and Taiwan set world records with growth rates of 10% per annum in their GDP and 20% in their industry. (cf., Fred Harrison, Power in the Land, 1983)

    Basically, people will invest where there is the most positive return. If one discourages land holdings through taxation, their investment monies will go to investments that actually produce things.

    Pay for the resources used is the basic principle. Renters actually already (in effect) pay land tax as it is part of the market value of the holding.
     
  19. nonrecourse

    nonrecourse Banned

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    The State government Land Tax Bandits

    The Australian Financial Review published two articles on thursday 19th of June 2008 on land tax. The first entitled "Polices blamed for rental crisis", on page 60 by Robert Harley and the second on the front page entitled "States urged to slash property taxes", by Mark Phillips. There are no links as you have to be a subscriber to read this online:(

    The first article discusses the amount of older stock mostly blocks of flats that in the past have provided affordable rental accomodation in many Sydney suburbs.But this is occurring in all states because of crown greed. The rapacious Labour State governmennts stand and deliver land taxing policies we are now experiencing is yielding the social consequences of their actions. The low income earners and the poor are pushed to the fringes of our major cities into low income ghetos. How can the state labour governments say they are concerned about the rental crisis when they are the problem !!!!:mad:

    When you see the report by the NSW Independent Pricing and Regulatory Tribunal advocating that the disproportionately high tax burden carried by land owners is a relatively efficient tax, with substantial scope to improve its efficiency......... this is double speak for we are bandits dressed up as policy makers and social engineers who will then point the finger at greedy landlords
    and scream about how negative gearing tears at our social fabric:rolleyes:

    But it gets worse the lead article on the front page continues on page 60 and 61 with a table that compares each states stamp duty and land tax take.......

    Are you ready for it the total amount of;
    Total Stamp duty imposed by state governments each year $102,582,000,000
    Total Land tax imposed by state governments each year 30,607,000,000

    For a sub total of 133,189,000,000... I said sub total that does not include the 10% GST that the states also rip out of the community for a large portion of homes (new PPR up to 5 years old) and all commercial and industrial properties:eek:

    Now lets see its the nasty rich landlords that are ripping us off hmmmm?
     
  20. jcjchung

    jcjchung Member

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    Land Tax & Family Trust

    Am i eligible to claim land tax threshold in NSW? Please tell me I am.

    Property owed by XXX Pty Ltd as Trustee for XXX Family Trust which myself and wife are the beneficiaries. On the State Revenue website, it defines the following.


    A fixed trust is a trust where the beneficiaries are considered to be owners of the land at the taxing date of midnight on 31 December prior to the tax year. Land tax is calculated on the combined value of the taxable land owned above the land tax threshold.

    A special trust is a trust where the trustee is the only person who meets the definition of ‘owner’ for land tax purposes and the beneficiaries are not considered to be owners. If a trust does not meet one of the previous trust definitions, it is a special trust. Examples of special trusts include most family trusts and discretionary trusts. The land tax threshold does not apply to special trusts which, in 2009, are taxed at a flat rate of 1.6 per cent for amount up to $2.25 million and 2.0 per cent there after.


    So what am i? I certainly see myself A fixed trust. Where do you draw the line as the trust deed does not mention who owns the land.