New Zealand and the state of Victoria have several problems in common. These include a housing crisis and a level of government debt that soared during the Covid-19 pandemic.
With an impending election, kiwis will be wondering what policy measures their next government might adopt to address these problems. Recent moves by the Victorian state government reveal some of the possible options.
And a warning. Some readers may find these options distressing.
A key element of the current housing crisis in Victoria is a severe shortage of residential property available for long-term rent. According to CoreLogic, the current vacancy rate for dwellings in Melbourne is just 0.8%. And new migrants and foreign students continue to flood into the city.
The Victorian state government claims that the rental housing crisis is being exacerbated by the number of properties employed in the short-stay market – the market facilitated by platforms like Airbnb and Stayz. According to the government’s recently released ‘Victoria’s Housing Statement – The decade ahead 2024-2034’, there are more than 36,000 short-stay dwellings in the state.
The government’s response to this perceived problem is the introduction of a ‘Short Stay Levy’ from 2025. That levy will be imposed at the rate of 7.5% on the revenues of the short-stay accommodation platforms. The expectation is that those platforms will pass the levy on to the hosts.
It’s not clear whether the government’s primary objective is to raise revenue or to increase the supply of long-term rental accommodation by making short-stay hosting less profitable. However, it has committed to using the revenue raised from the levy to fund social and affordable housing.
Unsurprisingly, there are many critics of the new levy. The short-stay accommodation platforms argue that it will put them at a competitive disadvantage vis-à-vis hotels. The government’s counter argument is that hotels don’t reduce the supply of long-term rental housing.
Tourist operators argue that the new levy will make Victoria a more expensive and therefore less desirable tourist destination. The levy has been dubbed a ‘holiday and tourism tax’.
Another tax in the Victorian state government’s toolkit for improving the supply of housing is the ‘vacant residential land tax’ (VRLT). This is an existing tax that applies ‘to homes in inner and middle Melbourne that were vacant for more than six months in the preceding calendar year’. The tax is imposed at the rate of 1% of the value of the property using the ‘general valuation process’ conducted by the Victorian Valuer-General.
The purpose of the VRLT is to incentivise property owners to either use their property or sell it.
This week, the Victorian Treasurer Tim Pallas announced a major expansion of this tax. First, from 2025 its application will be extended to all of Victoria not just parts of Melbourne. Secondly, from 2026 the regime will apply to unimproved as well as improved land.
The Treasurer described the objective of the changes in the following terms –
We know the best thing you can do to make homes more affordable is supply more of them – this is all about freeing up empty houses for rent and vacant land for new homes, particularly across the outer suburbs and regional Victoria.
Like the short stay levy, the expansion of the VRLT has been met with howls of protest. One of the loudest complaints is that holiday homes around the state will become subject to the tax. The government has said that the VRLT does not apply to holiday homes but it’s not clear if that will be the case for holiday homes owned by trusts, a common ownership vehicle in Australia.
Significantly, the short stay levy and the expansion of the VRLT are not the only adverse tax changes for Victorian property owners this year. In the May budget, the Victorian state government launched a ‘Covid-19 debt levy’. In the words of the government, this is ‘a temporary levy to help pay off the debt incurred during this one-in-one-hundred-year event’.
Temporary in this case means ten years.
In the first four years alone, the ‘Covid-19 debt temporary land tax surcharge’ as it’s called will raise nearly $5 billion from property owners. This will be achieved through a range of changes to the land tax regime including a reduction in the tax-free threshold for land tax from $300,000 to just $50,000.
This will dramatically increase the number of property owners subject to land tax.
As is often the case when governments go looking for extra revenue, one particularly onerous tax increase planned by the Victorian government is targeted at foreigners (who can’t vote). The ‘Absentee Owner Surcharge’ applicable to land tax will be doubled from 2% to 4%.
Kiwi readers living in a country with no stamp duty, no land tax, no short stay levy, no VRLT, and no comprehensive capital gains tax could be forgiven for wondering why anyone invests in property in Victoria.
*Ross Stitt is a freelance writer with a PhD in political science. He is a New Zealander based in Sydney. His articles are part of our 'Understanding Australia' series.
93 Comments
Successive governments seem to have thought a tax in housing would be politically suicide.
Why not scale all funding from central government to local government based on population growth? "Not a pound to the ground" in other words no funding for general maintenance budgets, put it all into growth.
The Victorian State Government has the balls to make decisions for the longer term good. Not unlike the future funding of NZ Super, this is end game stuff that NZ needs to be dealing with right now. Failure to do so will only result in change being abruptly forced on us. Many will find they're unprepared and as a nation how broke we really are.
We will see who builds the new homes and infrastructure our towns and city's need. Private investors or tax payers. The point of a land tax is to keep housing cost inflation inline with incomes. What's the point of international land home values when your average earner is broke paying record rents.
The point of a land tax is to keep housing cost inflation inline with incomes.
Disagree, it's to encourage productive use of land and tax back some of the gains accrued to it from development around it that required no work on the part of the owner. It will keep land prices lower than they would have been. Housing cost inflation (building costs will be unaffected but land cost restrained) are not linked to incomes due the existence of a land tax.
"Kiwi readers living in a country with no stamp duty, no land tax, no short stay levy, no VRLT, and no comprehensive capital gains tax could be forgiven for wondering why anyone invests in property in Victoria." Or even live there.
@ kiwi...as of June 2022 Victoria had a population of 6,613,700...so many choose to live there...including many of NZ's youngest and brightest...amazing how many in here say if Labour where to miraculously get back in,they would head over there too...which leads one to think that if the golden goose of property wasn't alive in NZ,there is not much to keep folk here.
People would live there because they can afford to! We may get the opposite effect here - why would a young person live here and struggle when they can move there and have a life. Then when NZ only has oldies and unskilled immigrants, why would anyone invest here?
The Victorian Government is quickly becoming a poster child for ruining specuvestor behaviour, its a brave and excellent plan that will almost certainly bear fruit. The howls of protest are mostly from specuvestors hoping to sit back and bask in unearned capital gains from doing nothing but continually leveraging existing overpriced land.
When the author writes "Kiwi readers...could be forgiven for wondering why anyone invests in property in Victoria" he might like to change the word "invest" in that sentence to "speculate" which is what these taxes are targeting. True property investment would not be expecting increased capital gains on land (or marginal), building new or denser properties to house more people at a very low or marginal rate of return. That's because housing is a requirement to live. The same model needs to be applied to food/electricity etc, any investment in products people require to live should be deemed to only be able to have marginal returns. There is a place for speculation, that's high risk/high reward technology innovations and financial instruments not based on leverage or peoples savings.
You are putting lipstick on a pig. Victoria has twice the debt per capital than NSW. Its socialist fantasy has collapsed with the harshest Covid lockdowns and cancelling the Commonwealth Games which cost a reputed $300m. The place was run by an Ardernesque commie who cowardly quit when he knew the day of reckoning was nearing.
Those spending choices may not have been wise. However, given the debt exists and must be paid, the question becomes how to do that.
It’s not clear whether the government’s primary objective is to raise revenue or to increase the supply of long-term rental accommodation by making short-stay hosting less profitable.
Who cares? Both need to be done by the sound of it.
"cowardly quit"...wasn't that what John Key did when he realised his halo was becoming tarnished..if you want to blame any one for the last 6 years..blame JK...he could have scraped through the election,then resigned and handed over to Mr English...but the messiah miscalculated.
Must be why I know so many people living there happily who have been able to buy a house and raise a family. Unlike those young people left in NZ who have been on hold for 15 years, are now middle aged and have no chance of ever buying a house still, let alone raise a family.
Young people if you want a good life, head to Australia. People like Te Kooti love to shoot down Australia but you will earn twice as much over time, have retirement savings at a decent rate AND be able to afford a house in a nearby Melbourne suburb: https://www.realestate.com.au/vic/
For instance, compare these two:
https://www.realestate.com.au/property-townhouse-vic-mill+park-143259736
https://www.realestate.co.nz/42302448/residential/sale/lot-2-27-red-hil…
Both 30-40 minutes from the city, 3 bed 2 bath houses. And remember in Victoria you will be earning far more in AUD than you will in NZD.
You can buy an inner city apartment in Auckland for that. What are your friends body corporate charges btw?
The affordable houses being touted in Melbourne are as far out of the CBD as Pokeno. I'm not anti moving to Australia one bit but I do find it is over-hyped in terms of housing affordibility. You can still buy a small villa walking distance to Wellington CBD for $1m, try that in Melbourne.
Lets also not forget where these taxes go... OH LOOK! FUNNELLED TO PRODUCTIVE BUSINESSES!
https://www.stuff.co.nz/business/prosper/300980382/what-australia-is-do…
Lol could you make your mind up, is it socialist or commie? IMO as soon as people start throwing these words around all credibility in the discussion/debate is lost.
And to think that prior to capitalism, prior to feudalism, prior to empires, prior to theft of the commons, we were all once socialists/communists.
No one is investing in property in Victoria. Why do you think they have a rental crisis? And most of those AirBnBs are in regional areas, so the loss of tourists will hit their economies hard.
Both people and businesses are fleeing Victoria. While they can replace the population loss with fresh migrants, the businesses they are losing are not so easy to replace. A lesson for NZ. Sure, house prices may not go up if everyone leaves and business shut down but is that what NZ really wants?
https://www.news.com.au/finance/business/lets-not-panic-victorian-busin…
"In the year 2022/23, there was a decrease of 7606 registered businesses compared to the previous year. However, New South Wales and Queensland experienced an increase of 11,031 and 8147 registered enterprises, respectively."
No thank you. Rather not pay rent to live in my own home. Political suicide, with good reason.
Cheap TV’s would be great - let’s slap an ongoing 500% annual “imputed rent” tax on all TVs - they will become cheap as chips given that demand will plummet. That’s a win right?
Rather not pay rent to live in my own home.
Have I got a deal for you, vote TOP and we'll call it a Land Tax. No rent due to live in your own home!
Cheap TV’s would be great - let’s slap an ongoing 500% annual “imputed rent” tax on all TVs - they will become cheap as chips given that demand will plummet. That’s a win right?
No. Land is an exception in that if you tax it, it becomes cheaper. TV's will become more expensive with a tax applied, a bit like petrol went up once the tax went back on. However, I'm really pleased you've worked out that a land tax will lower the cost of housing. If you think making housing more affordable is a good idea like me (and the state of Victoria) then vote TOP as they have the land tax policy to do it.
Just a small correction if I may.
A land tax will temporarily lower the cost of housing.
Over time things adjust and an equilibrium will establish itself. When that new equilibrium forms, we can expect a far more efficient use of the land ... and a far more efficient use of capital in general.
Ever wondered why NZ's productivity is so low? Look no further - we waste capital on low value 'property investments' where the only thing of any real long term value is the land rather than the house upon it.
But it can also result in decline. Probably not relevant to NZ as land taxes would be applied over all NZ but some states in 'Merica got carried away with land taxes and people just hopped over the border to next state. That sure lowered the cost of housing, big time. Interestingly, the same isn't seen to the same extent with countries as people aren't quite so keen to switch countries, e.g. Europe.
Oh, and I should add, when that new equilibrium forms, we'll go back to moaning about house prices again. ;-)
I welcome clarifications, corrections and spelling mistakes being pointed out. Also, complete disagreements as it helps me refine and possibly change my position if I'm unable to defend it.
I think a land tax could permanently lower land prices (literally tax people off the land if they are too high). There are other factors and a 1% land tax won't be any match for a doubling of the population for example. It's an 'all else being equal' assumption. I wouldn't agree about a decrease definitely being temporary, but it could be temporary if adjustments weren't made for other variables going forward.
Agree on capital being tied up as a complete waste, entire lives worked to obtain shelter unnecessarily (unless you're in the FIRE industries).
Also agree the US example probably isn't the best as in that case they had an option to substitute (possibly people on the Victoria and NSW boarder have the same option). It happens at the margins but one lesson from it is that if you're doing a land tax, do it on everything - don't pick and choose for example excluding the family home as that creates little 'boarders' like your US example.
A land tax will temporarily lower the cost of housing.
A land tax encumbers the lien a bank places on a residential property after it purchases a mortgage from the potential owner.
Raising taxes on property, leaves less value to be capitalized into bank loans, thus guarding against future indebtedness.
Raise that tax enough and banks will seek other sources of collateralised lending.
Raise that tax enough and banks will seek other sources of collateralised lending.
And hence the bank will be more incentivised to move their portfolio form being so heavily weighted in residential property and to being more weighted towards business lending, allowing for more people to access loans to start businesses with new ideas, goods and services that will benefit the local economy in the forms of jobs, and hence tax revenue, and ideally increase our export sector.
Good model. It's another way of taxing the rich more.
Or put another way, if you have more than one property, you are rich (even if you've foolishly leveraged yourself to the max before becoming rich even happens), so you're subject to paying more tax.
Don't like paying tax? Sell. Exactly the same for any other asset class.
And when you look at it from a "taxing the rich more" angle - one can quickly surmise NZ isn't only not taxing the rich enough ... We're actively helping them get richer!
It must be very disconcerting for many people seeing all the ironclad reasons they've put up for why a Land Tax is impossible in NZ being disproven with evidence so close to home in the present day.
To them I say, fear not, you could always sell to avoid the tax and enjoy the benefits of renting existing tenants locked out of the property market receive.
Yet you seem to have no qualm with income tax which on the face of it is far worse. People work 40 hours a week, give up their most valuable commodity which is time, but then have to pay up to 39% of their income in tax. Contrast this to someone who has inherited property, not worked a day in their lives but gets to collect massive rewards for doing diddly squat without paying a dime toward the society they benefit from.
People who actually work for a living get a raw deal and we need to start changing that.
People paying 39% tax are only paying that on income over $180,000. That puts you in the top 2.9% of wage and salary earners. So you are wealthy by NZ standards.
The proportion of individuals with wage and salary income over $150,000 has increased from 0.6% of salary and wage earners in 2002 to 5.1% to 2023. In 2023, 2.9% of individuals receive wage and salary income of $180,000 or more.
https://www.ird.govt.nz/about-us/tax-statistics/revenue-refunds/wage-sa….
I was referring to those that like to put it in the 'technically too hard to implement', 'we already pay rates', 'the sky would fall in if we did' amongst other camps.
Seeing it happen won't change their mind about it being a good idea, but it does show all the lazy excuses about why it's not possible up for what they are (nonsense). Then we can get the discussion back onto if it is a good idea or not.
To your point, how long do you think you'd be able to keep your land if you didn't pay the rates? Any answer other than forever = you're already in the socialist world you speak of.
Why would you implement a land tax ( edit or a wealth tax) before:
Implementing a transaction tax based on a fixed percentage of every real estate transaction
Implement a foreign buyers tax which goes to local govt.
Tell me why a land tax is better. Loser buys the winner a coffee.
Neither of those options represents a reliable source of revenue, a LVT can be a stable and predictable source of revenue that doesn't carry the same distortionary effects and deadweight losses that taxes like your examples above bring. In fact, in the Australian Capital Territory, they are phasing out stamp duty and replacing it with a LVT.
A Land Value Tax (LVT) operates in a manner similar to property rates but exclusively targeting the value of land itself. The primary advantage of this approach is its ability to incentivise the efficient utilisation of land and capital, which is not shared by the other tax models you've mentioned. Presently, land enjoys massively favorable and distortionary tax treatment, leading to an overvaluation of land assets compared to personal incomes.
This is important because land prices going up as they have has exerted a substantial and potentially detrimental influence on society as a whole. When land values surge, it triggers a domino effect on various sectors. An upward pressure on wages ensues, as employees struggle to meet the rising cost of living. Businesses, too, find themselves compelled to allocate more funds towards rent payments, which can stifle their capacity to operate effectively. Landlords are motivated to increase rental prices to achieve higher yields, while capital expenditure may take a backseat, with a larger proportion of capital diverted towards land rather than productive enterprises. It also has to be mentioned that when people are really struggling, it leads to more crime and social tensions. When hard work is dissociated from higher incomes, it makes society as a whole significantly more fragile.
Exacerbating the situation even more is the fact that New Zealand stands almost alone among OECD countries in having no capital gains tax, stamp duty, or asset tax in place at all. This huge overreliance on workers' incomes becomes glaringly unfair when one can amass millions through property investments without contributing a cent towards the society that played a pivotal role in generating that value.
The consequences of this trend reverberate across the entire economy. While it initially fosters a sense of wealth, this prosperity is built upon a foundation of debt rather than genuine productivity gains or hard work. Recent signs of strain are evident in the postponement of essential infrastructure investments, the decline in capital infusions into businesses, leading to a stagnation in productivity over the last couple of decades, and the recent uptick in crime we have seen can potentially be linked to our growing inequality among other factors.
I'd prefer to see the following statement from those who support a LVT. A LVT cannot be implemented with current land valuations mess which has occurred over the years. A complete re-assessment of land vales needs to be undertaken before such a LVT is implemented. In addition the Medium Density plan needs to be extended to tier 2 cities (New Plymouth being one of them) or existing section sizes and daylight recession angles need to be changed.
I think for any successful implementation of a land value tax it needs to be implemented over a relatively long time scale slowly shifting the tax burden from one source to another, allowing people to plan in advance and allocate their resources accordingly. The above example in Australia is a good example of this as they are slowly transitioning from Stamp Duty to LVT giving time for values to equalise and people to plan ahead.
There are flaws with a LVT, but literally every form of tax has flaws. As far as tax goes a broad-based land value tax is potentially one of the least flawed, especially compared to taxes we already have such as income tax or GST which have a huge amount of negative externalities and deadweight losses which aren't the case with a LVT, and it's becoming increasingly clear that the status quo isn't working great for people or the economy.
I think the biggest barrier to implementing real changes, and peoples understanding of the issues is our current concept of "wealth", and the belief that bigger numbers is "creating" wealth. As the numbers get bigger we need more wealth now and in the future.
Most people don't want to think outside the box, it creates fear and uncertainty, and upsets the narrative of everything. We've created a zero sum game of winning and losing measured by monetary wealth, and most people are in fear of losing.
Been out all day and just saw your hearty response. I enjoyed the fresh breeze. Happy to buy you a coffee regardless :)
Firstly, the idea that a land value tax will encourage productive use of land flies in the face of people who want a house to actually live in.
Land does not earn money unless it is rented in some way, and therefore a huge number of ordinary people would be penalised by a land tax just for living in the house that they have already purchased.
This very clearly will put additional pressure on already struggling homeowners, and that will put upward pressure on wages.
The only sensible thing to do is have an exception to the tax for a Principle Place of Residence. This is what they do in Australia. Oh dear already we are making a mess of the tax. Suddenly couples pretend to "separate" and happen to live in two different houses, how do you enforce that?
A transaction tax is simple and universal. It applies to every transaction and is based on the amount of the transaction.
Secondly, Stamp duty in A.C.T. is quite different to what I proposed.
I proposed a simple, flat rate tax paid on every property transaction whereas A.C.T. has a complex method of calculating stamp duty with exemptions.
Also they have had that tax for a long time and consider it 'old and outdated' - yes that is really one of their reasons for ditching it.
Thirdly, a land tax does not penalise property speculators and in fact encourages speculation. A speculator is incentivised to do a quick reno and flip it for a profit. Rinse and repeat. Holding for a long time is penalised by the land tax.
Compare that with a transaction tax which by its very nature penalises more transactions and does not punish those who hold land.
Fourthly, rates are already a land value based tax. They are not simply a fee for a service, as the fee varies depending on the value of the land. So there is an incentive to match income with the value of land already in place. Elderly widowers for example are already de-incentivised to remain in the family home with only superannuation income.
Rates are enough of an incentive to improve land use. They are significant enough already when compared to the rental income from a property and the mortgage interest costs.
Fifthly, what is included and what is excluded? I see TOP's policy for example excludes rural land and Maori land. A blanket transaction tax would include all land transactions to avoid distortions.
Australian land tax is riddled with exceptions. The same exceptions would no doubt be applied here as the tax is levied regardless of the income the property earns or does not earn.
Transaction tax is a simple universal tax levied at the same point in time when the money is changing hands.
Finally, the acid test, does a land tax solve any of the problems you have said it does? Clearly no. Compare with Victoria.
Melbourne has serious shortage of rental stock and rents are continuing to explode higher. Even if housing were cheaper in Melbourne - and it is not - many or most people cannot afford to buy a house and still need to rent.
All markets need to adapt to demand, and clearly the market in Melbourne is not able to. Landlords are not purchasing properties for rent despite increased demand from migrants - as they need a higher rental income to pay the additional ongoing taxes. So rents are skyrocketing. A transaction tax would not suffer from that problem.
Crime and youth crime in Melbourne is increasing and social tensions are worsening in much the same manner as they are here - which given their degree of taxation on land clearly debunks your theory about crime.
Melbourne didn't have the enormous property price surge that we saw, but Sydney did. And NSW has a land tax. So the idea that a land tax can prevent a surge in property prices is provably incorrect.
In summary, a transaction tax is simple, fair and incentivises the 'good' and de-incentivises the 'bad' property activities. It is a step in the right direction of making taxation more fair. The tax is levied at the same point money is available to pay the tax.
In comparison, a land value tax does not solve the problems that you have stated it does. It punishes those who own property to live in and rewards those who speculate on property. It duplicates the work already being done by rates in de-incentivising property hoarding. It duplicates the work already being done by rates in matching income with property value.
Firstly, the idea that a land value tax will encourage productive use of land flies in the face of people who want a house to actually live in.
Living in a house is productive use of land. What's not is leaving a residential section empty or leaving a house empty. A land tax that has to be paid regardless will make owners at the margin sell or rent it out making more use of the same resource.
Secondly, Stamp duty in A.C.T. is quite different to what I proposed.
Didn't look at it but a transaction tax, like a stamp duty, unjustly penalises those that have to move often and possibly not through any fault of their own (e.g. work transfers). It is unproductive to slow the movement of labour from where the demand is (ie people reluctant to move due to stamp duty or transaction tax for doing so).
Thirdly, a land tax does not penalise property speculators and in fact encourages speculation. A speculator is incentivised to do a quick reno and flip it for a profit. Rinse and repeat. Holding for a long time is penalised by the land tax.
The speculation referred to is that of holding land. So we agree. If it encourages someone to renovate faster due to wanting to avoid land tax from holding as you state then that is also a win since the house is back on the market or available to rent sooner. So you are also agreeing on the effects of a land tax here.
Fourthly, rates are already a land value based tax. They are not simply a fee for a service, as the fee varies depending on the value of the land.
Part of the rates Council's charge may be based on the land value. Agreed, that doesn't also mean no increase in the amount levied on a piece of land is possible (have your rates never gone up from one year to the next?). What is does prove is that land has been and is currently used to raise revenue and therefore all the mechanisms are in place to implement an LVT very cost effectively. Thank you for pointing this benefit of a land tax out.
Fifthly, what is included and what is excluded? I see TOP's policy for example excludes rural land and Maori land. A blanket transaction tax would include all land transactions to avoid distortions.
I agree in that I would like a land tax to be broader than TOP's policy this election for the reason you state. However, I disagree that a transaction tax would be distortion free - it would penalise those that need to transact more often for no fault/choice of their own.
Finally, the acid test, does a land tax solve any of the problems you have said it does? Clearly no. Compare with Victoria.
Melbourne has serious shortage of rental stock and rents are continuing to explode higher.
No one said implementing a land tax would solve every problem, it's about creating the incentives you want, for example to encourage work over land banking. With respect to rents exploding, you must have 'missed' my earlier post where I give the answer for that as population.
Happy to buy you a coffee regardless :)
May I have an iced coffee with ice cream please?
You don’t need exceptions for the family home. Just give PAYE and other tax cuts from the money collected by land tax. You pay land tax but less PAYE and it works out about equal (situation dependent of course - that is why it needs to be phased in). Same as what happened with GST really, PAYE used to be like 50%.
Rates aren’t the same as a land tax as the total amount of rates paid does not increase as land values go up. If every property in your city went up by 100% next year, your rates would not go up 100%, it would just go up the amount the council decided upon. So rates do not prevent land value increase.
I’m not sure a flipper is such a bad thing, they are adding value that the market obviously desires. But a land tax would stop speculation as property is currently not taxed and hence such a great investment it keeps going up.
Thank you for your reply you bring up some interesting points. Instead of a coffee maybe donate $5 to a charity of your choice or something haha. Or even an interest.co.nz subscription so you can have a 𝓫𝓮𝓪𝓾𝓽𝓲𝓯𝓾𝓵 𝓰𝓻𝓮𝓮𝓷 𝓽𝓲𝓬𝓴.
A transaction tax would significantly curtail the number of transactions, which, in my view, doesn't seem advantageous, especially when we already have a reasonably effective brightline tax in place to deter property flipping without adding additional value.
The primary concern we face with speculation revolves around individuals acquiring property and leveraging the equity in those properties to purchase more real estate. This untaxed equity grants asset holders a significant advantage over first-time homebuyers who must painstakingly save for their deposits, a far more daunting task than borrowing against existing equity due to the fact that every cent of that earned income is taxed. A transaction tax does little to address this issue and can actually reward those who hold onto assets for longer, inadvertently encouraging land banking, which disrupts our economy's efficiency.
Regarding homeowners, many would benefit more from a substantial reduction in income tax from a broad, low-rate land value tax. The idea isn't to introduce more taxes but to shift how revenue is generated. Introducing exclusions, as you mentioned, would complicate matters and undermine the effectiveness of the tax, similar to the complexities introduced by excluding certain items from GST, emphasizing the superiority of a straightforward, comprehensive land value tax.
I've never proposed implementing a land value tax with numerous exceptions and exclusions that dilute its benefits. A broad-based land value tax remains the most effective approach, just as what you propose would not be effective if it had numerous exceptions and exclusions.
This issue carries over to some of the examples you provided below. While Australia does have some land taxes, but they suffer from numerous exclusions and carve-outs that limit their effectiveness.
Thirdly, a land tax does not penalise property speculators and in fact encourages speculation. A speculator is incentivised to do a quick reno and flip it for a profit. Rinse and repeat. Holding for a long time is penalised by the land tax.
Again I'm not actually sure how this is a huge issue. The problem isn't people buying property, making improvements, and selling it for profit; rather, it's individuals acquiring property, making no improvements, and profiting solely from land appreciation.
Which flows into your fourth point. Rates are a property tax, not a land value tax. There is a massive difference between the two. Property taxes discourage construction, maintenance, and repair because taxes increase with improvements which is not the case with a LVT. Basically, it rewards people for doing nothing and punishes those who want to actually do something with their land.
Another significant advantage of implementing a land value tax is that it would create a genuine incentive for landowners to promote the construction of more affordable housing. In the existing system, the negative consequences are predominantly borne by renters and individuals who do not own land, while landowners reap substantial benefits. This phenomenon is evident in homeowners opposing any new developments that might potentially lower the value of their land. However, with a comprehensive land tax in place, there would be a tangible advantage to moderating land values and encouraging increased development. Our current system inadvertently encourages people to resist development to artificially inflate the value of their land holdings.
In Australia, the implementation of land tax has been flawed, with numerous exceptions and carve-outs diluting its effectiveness. The recent tax changes in Victoria will take time to yield results, making it challenging to draw conclusions. The Henry Tax review of 2010 commissioned by the Australian federal government recommended that state governments replace stamp duty with a broader land value tax.
While a land value tax isn't a silver bullet, at this point, any tax on capital, even a stamp duty as you advocate for, would be an improvement over the current situation. It's unreasonable that we heavily rely on income taxes to fund everything while providing significant tax advantages to asset holders. Failing to address this issue will likely exacerbate inequality and its associated negative social costs.
A land tax would not selectively dis-incentivise the type of leveraged speculator you want it to.
All the speculator needs to do is flick one property and the tax is paid on all of them.
In the meantime the ordinary landowner is still paying the tax with no compensating income aside from a small tax cut.
Leveraging property in the way you point out is also highly risky and exposed to drops in market pricing. The current slump is what will put this type of property owner under pressure, not increasing tax.
Property prices are driven by the price and availability of money and so the idea that a land tax will control the price of property is wrong. The effects will at best be temporary. If interest rates remain elevated then property prices will continue to slide and risk taking leveraged investors will be forced out. If interest rates drop and banks are willing to lend then prices will increase again.
An income tax offset will not balance for the vast majority of households. The reason is that the income tax base is much wider than the number of homeowners. So any reduction in income tax deduction needs to be spread over many more people than a land tax increase.
Also, a land tax offset by income tax is punitive for single people, they pay the full tax but only get half of the tax cut.
Non owner occupiers who hold property for a long time are the same people who provide the rental stock. A land tax will push more landlords into a loss. So pressuring them with a land tax will directly result in a decrease in rental property and an increase in rents. The fact they have held for a long time means that they have a smaller mortgage compared to new entrants and therefore can tolerate lower rents before selling. Every one of these long property holders you eliminate is much less likely to be replaced. Removing renters from their homes will worsen crime and social tensions.
I find it hard to believe that anyone would defer maintenance or property improvements because of the impact on their rates as a property tax. I have certainly never heard of that before.
You have jumped the shark suggesting that anyone would happily have a multi-story affordable housing dwelling built next door to them to lower the price of their land to reduce their land tax. That just isn't realistic.
Another problem: If a land tax drove land use change as you expect, then that would result in land rezoning which would cause step changes in land values. Those step changes would be very disruptive to homeowners as the resulting tax increases could easily force them out of their homes, cause school relocation for children and the associated disruption and distress.
In the New Zealand political climate it would be extremely difficult to get a land tax across the line. There would be huge opposition to it as it directly hits people in the pocket with a new tax. As I pointed out any income tax reductions cannot possibly match the new outlay. I have no doubt that any NZ govt who introduced such a tax would be kicked out at the next election. The only option would be the same 'flawed' implementation as Australia where owner occupiers are excluded.
On the other hand a transaction tax could be implemented without such a political backlash. Homeowners and long term property holders would be ambivalent as it doesn't directly affect them. As I pointed out in my original post this would enable the foreign buyers tax to be pivoted to local govt. Local govt desperately needs additional tax income and this is one way of providing that.
The Victorian Government is a state government and is not like the Federal Government and so their finances operate in a different manner. The Federal Government is the issuer of the Australian Dollar and the owner of the central bank while the Victorian Government is only a user of this currency and so a state government will spend taxation while a federal government won't.
Our Government like the Australian Federal Government is the currency issuer and so doesn't spend taxes. Taxation can be used to influence public behavior in the housing market though but not to finance its spending as taxation only deletes currency in the central bank after its spending.
The absentee-owner land tax is an absolutely brilliant idea.
But I can't see our two biggest parties bothering to tackle this. Act certainly wouldn't. That's why I'll be voting for Winston for all his faults.
The Chinese owner of two townhouses in Auckland rents them out while he applies his work skills in Australia. He neglects an acceptable standard of maintenance in the property next to me, aided and abetted by the Real Estate Agency that "manages" it.
Note that residential property rental management by licensed real estate agencies is not regulated by the Real Estate Agents Act. Inotherwords, real estate agents are not accountable for how they conduct the residential property rental side of their business, especially with regard to fulfilling maintenance obligations on common areas. I hold both Labour and National parties responsible for not licensing residential property managers.
The Chinese owner of two townhouses in Auckland rents them out
If out of the country for more than 21 days (or similar) they have to have a NZ based representative/property manager. I've long advocated for some method of excluding those unfit from preforming the roll including Mum and Dad investors that don't have a clue.
However, I doubt they even declare the rent to IRD (based on known cases like this but not your specific case). Hence why I advocate for an LVT, owner can go wherever they want and not declare rent but they'll definitely have to pay the LVT just like the have to pay the rates.
All these options for reaching into honest hardworking house owners pockets. Have spent the next generations budget by ballooning out government debt, can't tax the current workers earnings because most don't have enough to feed and house themselves as it is so only option is to reach back to those that managed to get ahead.
Achieve freehold status after years of work, saving and sacrifice and the buggers want to tax us out of our homes to repay the cost of keeping baristas employed through covid, so the latte lovers could rely on them being there when lockdowns lifted.
The only way for these taxes to help would be if they were ring fenced and dedicated to the provision of new infrastructure to assist with the supply side constraints. But how likely is that?
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