Equity and Efficiency
Funding Local Government to perform all its functions
Local government’s traditional role of providing services for ‘roads, rates and rubbish’ has broadened to the provision of a variety of community and social services. In addition, it provides support for business, including tourism, conventions, and festivals.
There is a case, in a country as extensive as Australia, for extending local government’s functions to include transport, community justice, public housing and a range of other services – but only if it has the means and responsibility to pay for them. Grants and subsidies from central government are not the answer, as they destroy local government’s independence. Local government needs to be freed from the impediments placed on it over the years, and use the revenue from the land rating system to provide the services required of it.
Local Government Rates and Land Tax
Some sites have natural advantages over others. Greater fertility, better climate, better outlook or perhaps the sites are advantaged by being better served with transport and other public facilities. As a result, they are more desirable as business or residential sites.
These advantages are not due to anything for which the landholder can personally claim credit, but they are reflected in the ground rents - that is, the price people are prepared to pay to have exclusive possession of these favoured sites.
All benefits arising from public expenditure are reflected in the value of land. Land values constitute the true basis from which local government revenue should be derived.
Community services and other advantages are more accurately reflected in site values than in capital values. It follows that rates should be levied on the unimproved value of sites only, and rates now levied upon improvements should be abolished.
Ground rent arises from the presence, efforts and demands made by the people. Justice, therefore, demands that this value, or rent, should be taken into the public treasury and used for the benefit of the people. This philosophy is known as Geonomics.
Is it enough to collect Rates?
Rates provide sufficient revenue to fund the budgeted needs of the local council. However, the services are limited to those which are politically possible, and which the Council can justify to a cash-poor constituency. Many worthy projects and services do not proceed due to the lack of funds. But there is much more money available. Rates collect only a small portion of the publicly generated ground-rent. Most of it still finds its way into the pockets of landholders, or to be more correct, into the value of their land. That pushes the price of land higher, leading to many social problems, including the acute lack of affordable housing.
To keep the cost of land affordable, more of the publicly-generated surplus should be collected for public purposes. That would act as a holding charge for landholders. They would no longer benefit from holding land out of use, so they would have to use it productively or sell it to others who could do so.
Don’t we already have a Land Tax?
No! We have a wealth tax, based on the cumulative total value of a person’s land holdings. It is an unfair tax and offends almost all ‘good tax’ tenets. It exempts most properties, and does not treat neighbours in a like manner. One owner might pay $200 Land Tax, while his neighbour, on a similar holding, might pay $20,000. That level of inequity is bound to create dissatisfaction.
The collection of the rental value of land is fair, equitable and just. It captures for the community the wealth created by the community.
Local government is ideally positioned to collect it:
- It is based on land value only, and rates could, and should, be based on that method too.
- The collection mechanisms already exist within Local Government.
- It could replace the existing iniquitous State Land Tax, and all transaction taxes (eg Stamp Duty) collected by the State government. The money collected could be transferred to the State, thus saving on tax collection costs.
- It would provide Local Government with a growth tax to fund its ever-expanding responsibilities.
- The collection of the rental value of land encourages high quality developments, leading to higher land value.
- Although land rent would then also increase, as long as the increased return is shared between the developer and the public authorities, rational developers will continue to invest, and offer higher quality developments.
- More productive land use will stimulate business activity, thus creating employment and more spending in local communities.
- Land values are affected by community amenities such as cycleways, streetscapes, parks and gardens, and local clubs and societies.
- Collection of land rent provides the funds to create and nurture these amenities, and thus inspire an upward spiral of community activity.
- Land rent does not cost any person any part of their earnings. It is a community-created value that can be, and should be, collected by the community for the community.
- Land value is, in itself, a cost/benefit measurement. A publicly-funded project would not, and should not, proceed if it does not increase land values by the cost of the project.
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