November 21, 2004


Way to go, Victoria:

Victoria's contentious land tax is forcing businesses to close, with the loss of jobs, higher rents for caravan park residents and millions of investment dollars leaving the state.

The latest victim is one of Melbourne's oldest hardware and timber businesses, which was forced to sell up this week to pay a $120,000 tax bill.

At the Wantirna Park caravan park, one of the biggest providers of low-cost accommodation in the eastern suburbs, pensioners and retirees have been forced to find another $500 a year to pay rent.

Peter Heath, the owner operator, said the rent rises had been unavoidable because his land tax had ballooned from $20,000 in 2000 to a staggering $175,000 this year.

The evil of this tax is as The Age's Russell Skelton explains: "Land tax has become inflated because it is levelled on the potential value of land, rather than its existing use." In other words, many people are being taxed for something they aren’t doing.

Posted by Tim Blair at November 21, 2004 10:39 AM

Sounds a bit like California before Proposition 13 (a state ballot initiative that limited property taxes). Every year property values would rise; properties were re-assessed for tax purposes; the percentage of value paid in tax kept increasing; and everyone's taxes kept going up uncontrollably. Old people were frightened about losing their houses; bureaucrats kept spending recklessly on boondoggles without accountability; and businesses started to leave the state. Finally the shit hit the fan in 1978.

Property taxes in California are now limited to about 1½% of assessed value, and the valuations can rise only 1% per year. Naturally, the lefties whine about all the "lost" revenue, even though California takes in zillions in taxes.

Thank you, Thank you, Thank you, Howard Jarvis and Ronald Reagan, for saving California property owners.

Is it time for the good people of Victoria to do something similar?

Posted by: Butch at November 21, 2004 at 10:56 AM

Land taxes are the most universally punitive and unjust taxes of all. One who owns (or mortgages) nothing will argue otherwise, but here in the Northeastern US, as elsewhere, reassessments for tax purposes are based on a high percentage of existing market value. Never mind that comparability between properties is hard to determine. The rule is sufficiently broad to advantage the tax collector.

In rising markets, some townships in my area have discarded the old ten-year intervals for reassessment for shorter intervals...say four years, so the inflated values can be captured more frequently. In declining markets, the old ten-year intervals remain in order to keep the higher valuations in place longer.

Loan sharks and other con men would have been embarrassed in other times for even considering anything like this. The State in all its forms is the ultimate criminal. The effect in areas undergoing gentrification is that entire segments of the existing population are crunched, and anyone of modest means is excluded.

Are scaffolds hard to build?

Posted by: Crazy Chester at November 21, 2004 at 11:18 AM

Let's just hope all those expats Victoria is trying to lure back don't hear about this.

I miss Kennett.

Posted by: gaz at November 21, 2004 at 11:46 AM

When I first looked at the issue, I thought "what's the problem?". Having a tax based on the potential value of the land just encourages it being put to best (most valuable) use.
Then I saw the details.

5% FIVE PERCENT?? In addition to Council rates, so the effctive tax is more like 7%?

Doesn't apply to owner-and-occupiers?

So here we have a tax that affects those too poor to own their own houses (as rents will rise), those small businesses nearest residential areas (so encouraging greater transportation costs), and that will have the effect of making cities "people hives" where only the wealthy people can afford to live, but have no place to work or shop. As for those not independently wealthy, they're SOOL. They must move outwards in an urban sprawl, thereby requiring many more dollars of government investment in infrastructure (schools, sewerage, etc). Probably much more than the tax will raise - but which can be put off indefinitely.

Let me guess, a Labor government.

When's the next election due in Victoria?

Posted by: Alan E Brain at November 21, 2004 at 12:23 PM

Time for Kennettism Mk II.

Posted by: C.L. at November 21, 2004 at 01:05 PM

How could you miss Jeff the Hair? He has to do a thousand years working with depressed people at Beyond Blue to atone for privatising power leading to untold chaos.However the cunning Steve Bracks is doing exactly as Gallop did in W.A. leaving us with a monumental surplus and massive vehicle license and property transfer fees - plus nany other uneccesary encumbrances. However Jeff has seen the light with an election on the near horizon and facing an almost certain defeat.Won't save him though.

Posted by: crash at November 21, 2004 at 01:05 PM

Exactly the reason why California enacted Prop. 13!

Posted by: Steve at November 21, 2004 at 01:11 PM

"Having a tax based on the potential value of the land just encourages it being put to best (most valuable) use."

It's an atractive argument, but flawed in my opinion. Who determines highest use? Those who stand to benefit from an inflated valuation, I'll bet. Over time, land will be put to its best and highest use; however, land development does take time. Does a pensioner always have the time and energy to put his or her land to the best and highest use du jour? Maybe, maybe not. Should he be forced to sell, or to pay confiscatory taxes until he dies, just because an assessor says that a developer could build condominiums?

Doesn't this scheme invite intimidation, with a crooked assessor ascribing to a property a grandiose "potential use" that exaggerates its real value, in order to force an owner to sell to a "friendly" buyer? And doesn't it promote overdevelopment of land and speculation, as owners scramble to "keep up with" the taxes imposed by assessors who risk none of their own capital in the process? Finally, doesn't such a scheme make it practically impossible for a buyer to determine the true cost of owning a property? Between ever-escalating "highest uses" and rising rates, taxes become an imponderable cost that will ultimately hinder, not help, the process of optimizing land use.

Ultimately, a developer will almost certainly have the opportunity to improve the property; but in the meantime, the owner should be allowed the quiet enjoyment of his property without fear of confiscation or condemnation. Let him sell to the developer when he wants, or let his heirs sell after his death. And for Pete's sake, let the market (and not bureaucrats) determine the best and highest use of land, in all but extreme cases.

Posted by: Butch at November 21, 2004 at 01:14 PM

It's a bloody disgrace. Thanks to the GST, pokie taxes and excessive traffic fines, the states have never had more money. And all they do with it is create more regulations in health-related, building and transport industries so their union mates can enjoy cushy jobs making business harder to carry out. Tradesmen such as plumbers now have to attend compulsory health and safety days to keep their licence; mothers' clubs can no longer raise funds from cake stalls because their humble offerings are not prepared in a licensed commercial kitchen; and homeowners now have to get a council permit costing hundreds of dollars to put up a fence. And who's enforcing all these unnecessary regulations? Why the Labor lackies who once worked for trade unions but got the boot as membership plummeted. And who's writing all the regulations? Useless fucking Labor lawyers. In addition, State Labor governments are giving coppers, ambos and nurses pay rises far in excess of that negotiated in private industry. The mafia has more scruples. The plus side is you know it cannot continue indefinitely, but how many poor buggers will go to the wall before common sense can prevail?

Posted by: slatts at November 21, 2004 at 01:22 PM

"It's an atractive argument, but flawed in my opinion. Who determines highest use?"

The point is if you can't pay the tax you sell the land. If nobody is willing to pay the assessed value, you can dispute the assessment--and you will win.

I live in Japan where I pray for this kind of tax. The business districts around train stations are full of moribund shops that should have gone out of business long ago to make way for clean, well-run business that serve the customer.

Posted by: Will at November 21, 2004 at 01:23 PM

Land tax has become inflated because it is levelled on the potential value of land, rather than its existing use.

A Liberals wet dream. Everyone is potentially a millioniare, so everyone should be taxed like they are millionaires. That will force people to get a good job - just so they can pay taxes.

Posted by: perfectsense at November 21, 2004 at 01:33 PM

Japan is so crowded that many areas can be reasonably considered "extreme cases" for the purposes of land use. That's not quite like the eastern suburbs of Melbourne.

I'll bet we've all seen seedy neighborhoods such as the one near the train station in your town. Eventually, the owners will die, or the leases will expire, or someone will buy the properties. The first is is, er, inevitable; the latter two are voluntary arrangements.

Taxes, on the other hand, are involuntary. They can be capricious, pernicious, and downright scary. Confiscatory taxes worry me for a variety of reasons, including those stated above. And why should owners have the burden of regularly challenging unreasonable assessments?

My own neighborhood in San Diego was pretty seedy 4 years ago, but it's suddenly improving, and quickly. In contrast, many ritzy neighborhoods go down the drain over time; some come back.

To the extent possible under the ciscumstances, I'd say let the market take care of land use, and keep taxes constrained.

Posted by: Butch at November 21, 2004 at 02:08 PM

Gee, a Labor government fucking up Victoria again.

What were the odds?

Posted by: Tex at November 21, 2004 at 02:10 PM

So you buy the land.

You make the improvements you see fit to your land.

And some bureaucrat who has probably never built or run a business in his her or its life decides you have not made the most profitable use of your land according to him her or it, and decides to tax you as though you had?!

And this is an ATTRACTIVE argument? You guys have had Labor over there for too damn long. You're catching the English disease...

Posted by: richard mcenroe at November 21, 2004 at 02:14 PM

Having a tax based on the potential value of the land just encourages it being put to best (most valuable) use.

Most valuable usually means "less vegetation", so I can't see environmentalists thrilled at this.

At the Wantirna Park caravan park, one of the biggest providers of low-cost accommodation in the eastern suburbs, pensioners and retirees have been forced to find another $500 a year to pay rent.

I hope a fuss is kicked up about this if nothing else.

Posted by: Andjam at November 21, 2004 at 02:17 PM

Don't know if it matters, but here in Texas we don't have state income tax.
Most of the money comes from other forms of taxation, sale &use, specialty taxes, etc... the majority of our property taxes go to our school districts (mine about 80% and the rest to the county).
We have what is called a "Homestead Exemtion" which knocks about $10,000 off the top of the assessed value, and also a (not statewide) elderly and disabled waiver- which basicaly freezes your taxes at what it was when you became eligable to use it.
Whoever gets the property after you is liable for the difference in back taxes, though.

Posted by: Roo at November 21, 2004 at 02:28 PM

What a great way for the politicians to obtain money! That took some creative thinking. Not actual value, but potential value is taxed. I'm surprised some politicians haven't tried that in the US.

Whenever more money is needed, just increase the land's potential value. Blame the property owners for being slack offs if the land isn't being used to its potential. It's a great scheme.

A tax based on potential value is criminal. I mean, how far in the future is this potential value? Who decides?

Can the owners, or their heirs, get their money back (with interest), if the potential value isn't realized in X number of years?

What's the chance the voters will repeal this law and place limits on how much money can be picked from their pockets? If I were going to run for office in that area, this would be one of my platform issues.

Posted by: Chris Josephson at November 21, 2004 at 03:38 PM

One might wonder if this tax scheme could work in the opposite direction- assessors deciding that properties could lose value based on potential usage and then reduce taxes accordingly--

Anyway, nice economic argument, Butch. Do you know of any US property taxes based on potential use?

Will, of course you live in Japan and would know the downside, but to a tourist the contrast of ramshackle shops next to lovely upscale businesses and amazing hi-rises in Tokyo humanizes the place! Still, why do you suppose that real estate ripe for more capital investment lags behind in a crowded Japanese city? Can't developers offer landowners tempting prices and buy them out, or is there some traditional basis to keeping businesses and property in the family?

Posted by: lazy fare at November 21, 2004 at 04:00 PM

Gee - why not calculate income tax based on your 'potential' earnings if you had a really really good job.

Bast'd f'cking socialists - I second the remark about scaffolds...

Posted by: Kip Watson at November 21, 2004 at 04:21 PM

I am not sure if the seedy property in Japan is due to annual property tax rate. I don't know the current situation, but a few years ago, the Japanese income tax on land sales was about 90% of any gain. Due to the high inflation of property values over that last three decades, if you sold your land, you had no chance of taking the net proceeds and replacing the property in another location. Thus land owners were locked into their historic locations. In order to induce people to sell, the Japanese Mafia show up at one's doorstep and "persuade" them to sell.

Posted by: perfectsense at November 21, 2004 at 04:33 PM

Lazy fare — There's a growing problem in many parts of the States for local governments to use eminent domain as a rationale for forcibly acquiring property, not for community use but to resell to businesses they feel will generate more tax revenue...

Posted by: richard mcenroe at November 21, 2004 at 05:08 PM

The amount of money raised from land tax is pretty small as a proportion of the state budget ($700Million out of $28Billion).

If the Libs had any balls they would be running around promising to abolish land tax. However, Doyle the loser, is calling for 'relief'. Just like he wants 'relief' on stamp duty. Ahhhh 'relief', sounds so good.

Posted by: Mike Hunt at November 21, 2004 at 07:21 PM

Domo arigato gozaimasu, perfectsense.

Richard, I agree that municipalities, etc. invoke eminent domain too often and for less than compelling need. E.D. seems like a combo of crony capitalism AND statist communism, that is quite unnatural and given to abuse. Land tax based on potential value seems unnatural and potentially counter-productive.

Zoning, some design review, and "current market" based taxes at reasonably low rates are all the infringements most property owners should bear and well-run cities should need, in addition to all of the other assessments they impose. Anyway, aren't tax-breaks and targeted incentives more effective in spurring the development that cities want? Isn't the carrot always better than the stick?

Posted by: lazy fare at November 21, 2004 at 07:38 PM

Australia really needs a Lew Rockwell style libertarian party.

Posted by: Benjamin at November 21, 2004 at 08:16 PM

As a Victorian who escaped the madness, all I can say to the majority of Vics who voted for Bracks is boo hoo fucking hoo. Most of them were old enough to remember Cain and Kirner so why exactly did they vote Labor the last 2 times?

Fuck my state.

Posted by: firstiraqthenchirac at November 21, 2004 at 09:04 PM

This tax on land sounds like a Henry George philosophy. I thought the Henry George League had been moribund for several decades, but it appears to have made a comeback.

Posted by: Walter Plinge at November 22, 2004 at 07:19 AM

Mike Hunt says:

However, Doyle the loser, is calling for 'relief'. Just like he wants 'relief' on stamp duty. Ahhhh 'relief', sounds so good.

He's not thinking of "easing the squeeze", is he? ;-)

Looks like with the Libs the way they are in Victoria, the State is in for another few years of Labor yet. With that prospect, another meltdown aka State Bank is entirely possible, eh?


Posted by: JPB at November 22, 2004 at 08:10 AM

Benjamin says:

Australia really needs a Lew Rockwell style libertarian party.

Maybe this newcomer to our political scene could be a potential candidate?

I do like the "The LDP is committed to individual liberty, civil society, free markets and *small government*."

The "small government" bit sets them apart from all the others at this stage.



Posted by: JPB at November 22, 2004 at 08:16 AM

Victoria is a weird land full of idiotic Labor voters who are really living in the 1950s where socialism is still worth trying. Victorian voters every so often have to be sensible and elect Tory governmentsa to clean up the awful mess made by Labor. But after a whi;le the idiot voters decide that there is a way of having your cake and eating it too, so they vote in Labor again. As Dr Johnson said of second marriages: It's the triumkph of hope over experience."

Posted by: Toryhere at November 22, 2004 at 08:16 AM

I have an idea! Let's do what the olde english used to do, and tax also on how many windows each building has! They could really rack in the bonanza that way. Big big bucks!
Land tax is nothing more than a land grab from the general public. Making taxes so high they can never pay them causes them to lose their ownership. That's not socialism, that's old fashioned communism.
Someone needs to start up a business of building scaffolds and new rope.

Posted by: mshyde at November 22, 2004 at 09:59 AM

Actually Land Tax in Victoria is based on the Unimproved Site Value of the land. That is what the land is estimated to be worth if you demolished any buildings and removed any services that were connected. I used to work on their computer systems some years ago. Previous comments about the tax based on "potential value" or "future potential value" are incorrect. Primary residences are exempt.

Also Land Tax, at least for businesses, is claimable against Income Tax.

Land values in Melbourne have skyrocketed in recent years and you could put an argument forward that the Land Tax rates should be lowered, but that is different to abolishing the tax.

Posted by: F at November 23, 2004 at 10:08 AM