Resourcing public revenue

American Journal of Economics and Sociology, The, Nov, 2005

Timing the introduction of annual land rental (and the simultaneous reduction of other revenue taxes or charges) would be the most difficult practical question.

To the extent that it is meaningful to refer to average rate levies among the hundreds of Australian local government councils that presently levy rates on unimproved land value, it can be assumed that probably something in the order of about 15 percent of the annual rental value of land is currently being recouped, relatively painlessly, by local government. Putting it another way, about 15 percent of the annual rental value of land is being collected on behalf of the community (plus, in the case of a small minority of landowners, an additional amount by way of state land taxes). Both local government rates and state land taxes tend to marginally depress the price (but not the value) of land. But if the full 100 percent of the annual rental value were to be collected at one stroke, the selling price of all land would be reduced to zero, with unacceptably dire consequences for anyone who had recently purchased land in good faith for whatever purpose (including speculation). And the impact would be only relatively less traumatic for a recent purchaser of a developed property if the land component of his purchase price were likewise reduced to zero overnight. For the purpose of using property as a security, for example, the value of undeveloped land, or of the land component of developed property, would be extinguished.

There are of course many circumstances in which people's investments can be adversely affected adventitiously and unavoidably (for example, by the diversion of highways away from shops or service stations previously relying on passing trade; or by the advent of new technology). Nevertheless, while long-time landowners would suffer no disadvantage and would enjoy the simultaneous relief from other taxes, the consequences for some recent purchasers of immediately forgoing 100 percent of the annual rental value of their land could be unconscionable. The introduction of full annual land value rental would therefore need to be spread over perhaps up to 10 years (during which time any anomalies arising in particular circumstances in the course of balancing the increasing incidence of charges on land and the declining incidence of other taxes and charges could also be adjusted).

Another practical question (which arises now but to a lesser degree) is that of the impact of increased land rental charges upon property owners who are "asset-rich but income-poor" (and would therefore derive little or no compensating advantage from the elimination or reduction of income tax). The problem arises now in the case of pensioners or retired people living in urban locations that have become increasingly valuable over the course of time (or because of zoning changes foreshadowing more intensive land use). It may also arise in cases of special hardship or sudden unemployment. The solution lies in the fact that land rental is a levy on land and not on persons. It can therefore be deferred and remain, very properly, a charge on the land (until the property is sold, transferred by inheritance, or used for a more valuable purpose permitted by re-zoning).