Value capture tax

Question:

Would you be prepared to pay a value capture tax to fund infrastructure in your local area? A tax that is based on the value of your property increasing because of the infrastructure?

Stuff reports: quote.

Value capture taxes, which are used in some cities overseas, are paid by property owners on increases in the value of their properties as a result of a local council building infrastructure like a train link, or a new road, or rezoning the property.

It’s one of a number of possible new ways to tax households and businesses to pay for maintaining and upgrading infrastructure in towns and cities, outlined by the Productivity Commission in an issues paper. end quote.

This is not the first time this subject has come up, so it is worrying. All taxes on unrealised gains are inequitable, in the sense that the property might have increased in value, but the property owner does not have an extra cash to pay the tax.

The underlying principle of taxation is that it is meant to be applied fairly. There is nothing remotely fair about taxes on unrealised gains. quote.

The commission will report on its conclusions in the middle of 2019, and issue a final report to Government by the end of November, said commission chairman Murray Sherwin, who acknowledged that proposals for new forms of taxation could raise strong reactions.

The commission said increases in property values as a result of council investments in infrastructure were enriching private landowners, and targeted rates, or fixed charges, were poor ways of taxing them on their gains.

“Neither of these approaches strongly reflects the windfall gains that a private owner receives,” the commission said. end quote.

Private landowners are only ‘enriched’ once a property is sold. While a property is owned, its value on paper might be nice and may allow for extra borrowing against it, but it is not cash in the bank. Taxes of this nature may cause severe hardship for some property owners, particularly those on fixed incomes, or who are retired. quote.

Sherwin said value capture had been used in Melbourne, Australia, to help pay for inner city rail.

Auckland Council is interested in value capture as well. Last month it published a paper on how rapid transit investments lifts property prices.

It found owners of properties close to the proposed light rail project would get “a significant windfall gain” end quote.

I simply do not see why such projects cannot fund themselves. It should be the users of the infrastructure that pay for its development and upkeep, not those who just happen to live across the road. It may be very nice to live close to a railway station if you are going to use it, but not everyone living in the station’s environs will use it regularly. quote.

Local councils were “creatures of statute”, and need law changes to be able to create new targeted taxes leaving them heavily dependent on rates for their incomes, the report said.

The commission found council funding was failing some people – including around 750,000 people with water supplies that don’t meet national standards – and fostering an anti-growth sentiment in cities, especially as current ratepayers were paying for infrastructure that would benefit future generations. end quote.

Current ratepayers are always funding infrastructure that benefits future generations. There is nothing that can be done about that. But as rates calculations are already on a sliding scale – the higher the house value, the more is paid in rates – people with high-value houses are penalised already. Now it is proposed that they will be penalised even further, to pay for infrastructure that they may never use.

This policy will force people to sell their homes in some cases and will pose an unnecessary burden on others. It is a bad tax policy to impose taxes on people who have high-value assets but limited cash. Let users pay for the infrastructure. That would be a fairer system.


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Accountant. Boring. Loves tax. Needs to get out more. Loves the environment, but hates the Greens. Has been called a dinosaur. Wears it with pride.

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