Does Land Value Taxing Work?
What ‘Land Value Taxation’ involves
Land Value Taxation (LVT) means that the value of all land sites is first assessed. In that assessment, no regard is paid to the value of any ‘improvements’, like buildings, drainage, crops, etc., which have been introduced on the land by human activity. An annual tax is then levied on all landowners, which is related to the value of the land they own. Other taxes can then be reduced because the necessary revenue is being collected through LVT.
LVT might be collected for any kind of public authority: for the State; for supra-national authorities like the EU or the United Nations; for regional authorities like the Scottish Parliament or the Welsh Assembly, or for organs of local government. When LVT is collected for the purposes of local rather than national government, it is sometimes called Site Value Rating (SVR).
Land taxing in practice
In other flysheets in this series, we demonstrate the merits of LVT: in this one, we consider the experiences of various countries which have applied a greater or lesser measure of LVT. Time after time, reports about the efficacy of LVT have been commissioned, and time after time they have found that- in the words of the Brisbane (Australia) City Council 1989 report (on SVR) - "in principle, the unimproved value of land is a logical and appropriate basis for revenue raising". That Report noted that a tax on land was virtually impossible to evade; that its administration is simple and inexpensive; that compliance costs are minimal; and that it is an effective mechanism for achieving town planning objectives. Supporters of LVT consider that it would produce many other benefits as well if it were applied on a sufficiently large scale; but these are outside the scope of the present flysheet.
No country yet has the ‘pure’ and complete LVT which supporters of the system would recommend. This flysheet, therefore, does not say "follow the example of such-and-such a country and all will be well." What it does say, however, is that a number of countries have made significant advances in the direction of LVT. They provide many examples which show that LVT is a practical and beneficial policy.
In 1943, a Commission was set up to report on taxes on real-estate. It recommended LVT, but attempts to implement the recommendations were thwarted by lack of maps for assessment. In 1957 the Land Valuation Law was passed, but there were political changes and, as a result, it was not completed until 1977.
The system is now accepted by both political parties. Taxes based on the Commission’s recommendations are applied at a graduated rate, to recognise the greater ability of owners of higher value land to pay the tax.
Agricultural and urban land are both subject to an annual tax of 2% on assessed value. The revenue is redistributed according to a formula which favours communities with less real estate per person. A 30% surcharge is added to the tax on vacant land. For various reasons, assessed values lag behind actual values. When assessments are made, they are displayed locally and are subject to appeals within 60 days.
Nairobi has had taxes on land values since 1921, and a survey by the City Council in the 1970s concluded that a change to taxing improvements in addition would be a retrograde step. Existing legislation allows Councils to tax improvements as well as site values if they wish; but most do not choose to do so. A serious obstacle to the implementation of LVT in rural areas is the lack of registration records.
There are land value taxes in various places, especially to pay for one-off publicly funded schemes, such as the flood control system in Ohio.
There are several remarkable instances of partial SVR in Pennsylvania. In 1914. Pittsburgh pioneered a ‘two-rate’ tax
under which the land value of a property is taxed more heavily than the buildings which stand on it. In 1951, the Pennsylvania State Legislature gave other cities the opportunity to do the same.
The option was taken up by a number of small industrial towns in the 1980s, to revitalise the so-called ‘rust belt’. More recently, larger cities have adopted the measure, which is now recognised by the State’s constitution. Studies have shown that cities taxing land values benefit directly by increasing economic activity.
When oil was discovered in Alaska, it was decided that oil and natural gas sites (which are almost entirely on public lands) should be leased to the highest bidder, not sold. Royalties and other taxes are paid on production. Alaska was able to abolish State income and sales taxes, and to iiiake large contributions to education. It has even been possible for the State to pay dividends to residents.
In this oil state, there are parallels with Alaska. Public revenue comes entirely from the government’s 60% share of the profits from crude oil and gas production, and from corporate income taxes from the remaining 40%, which goes to foreign interests. Since foreign countries invest virtually all the capital, the share of profits received is nearly all land values. The revenue suffices not only to provide for defence, law and order, first class roads, desalination systems and public amenities, but also subsidised housing, education, health care and social security.
LVT has been very much a political football for many years. Its fate has varied greatly from time to time. Currently, the values of land and of improvements are assessed separately and an annual tax of around 1.5% on assessed land values is levied. It must be remembered, however, that General Elections in a country like Denmark are not just fought on the single issue of land taxing, and a government which supports (or opposes) land taxing may well be elected, or rejected, for completely different reasons.
Finland’s forest tax, which began in 1922, is charged on the estimated yield of timber. It is paid annually whether timber is sold or not. The Municipal Act on Real Property (1992) gives municipalities the right to put a higher tax on land as compared to improvements.
SVR was introduced in the Transvaal in 1914. It subsequently spread until, in 1984, 62 of the 112 largest cities in the Republic operated SVR. In recent years, SVR has developed considerably- notably in Cape Town, where some 70% of the city’s revenue is collected in that way.
Some degree of SVR was used prior to 1967 when Tanzania adopted socialism and all land was nationalised. By 1974, SVR ceased. In 1995 a new land policy was adopted. LVT has been reintroduced, not only as an efficient source of revenue for local government, but also in order to manage urban sites and restrain land speculation.
Revenue from land values is captured using a flat rate of tax on the annual rental income of commercial and residential property, revenue from land leasing and a process of nationalisation of land on a selective basis. The Singapore government has enjoyed healthy budget surpluses since 1968, and has been able to lower tax rates on both personal and corporate incomes, and on profits.
Papua New Guinea
The adoption of SVR had its origins in Australia’s legislation before the country became independent. Property taxation is levied on land owned in freehold title, and is based on the unimproved value of each parcel of land. Valuation is made by a Government official, and appeals may be made against his assessment. Because of the rugged and often inaccessible terrain of the island, the tax is only applicable to urban areas.
These examples, although taken from a number of very different countries, do not provide anything like a complete tally of instances where more or less land value taxation has been set into operation. Those wishing to study the matter more fully are recommended to read Land Value Taxation around the World, edited by Robert V. Andelson (Robert Schalkenbach Foundation, New York, 1997) Obtainable from:
HENRY GEORGE FOUNDATION
Suite 427 London Fruit Exchange Brushfield Street, London El 6EL Tel: 020 7377 8885 Fax: 020 7377868ó e-mail: [email protected] www.HenryGeorgeUKcjb.net
— from a leaflet by the HGF