Green Tax Shift Drawing More Attention
Scottish Commentary on Local Tax Reform
Here are portions of an article appearing in the Sunday Herald (Scotland).
Tax the land and let the green shoots show
by Antony Akilade, Deputy Business EditorMy daily commute into work has been disturbed. Glasgow "landmarks" have been removed or covered up. Gone is the urban waste ground "pond", home to orphan supermarket trolleys and cars left by drivers evading city centre parking charges.
It is now hidden behind 10ft-high hoardings adorned with large banners announcing the imminent release of a new tranche of two- and three-bedroomed luxury apartments.
Why this year and not last? Why not any year over the past decade during which the site has lain derelict?
The cycle of boom-bust in the property market is reaching its peak and a canny landowner has decided that if they do not cash in now, the next window for maximising the value in their asset may be 10 or 15 years hence.
Crossing the Clyde via the Kingston Bridge it is a similar story. The once great industrial hub of the empire is being transformed. Below me, the Clydeside expressway is being bent and twisted to accommodate the plans of housing, retail and leisure developers. And BBC Scotland stands proud in its new home on the south bank of the river, alongside the Glasgow Science Centre.
Behind these developments, the city council, enterprise bodies and other government agencies are implementing inward investment strategies and finding resources to attract new businesses into the city.
Roads, sewerage and community services, such as schools, slot into place, though not always smoothly.
However, with each initiative, developers, landowners and homeowners fill their pockets. And the profits are barely taxed.
As the new SNP minority government gets down to business, a top item on the agenda could be reform of the council tax system. With the SNP, the LibDems, and Greens all having gone to the electorate with proposals for reforming council tax, it would be a fair bet to assume that change is going to come.
The SNP and LibDems want to replace the council tax with a local income tax. During the election, these proposals were attacked for failing to tax unearned income; those who were wealthy enough not to work would escape paying local tax. Questions were also raised as to whether the proposals were practical.
As Alex Salmond settles into his first minister role, we ask that he dusts down his Adam Smith. The 18th-century economist's name is on so many people's lips when asked what makes Scotland great, and yet so much of what he said and wrote is ignored.
In his Wealth Of Nations, Smith warned that a tax on income is very quickly passed on to the cost of goods and services. And that a tax on income is a disincentive to work.
The Greens propose a land value tax - a tax on rises in land value. As such, it compensates the community for the gains made through the infrastructure and financial assistance that the government provides to attract development.
Supporters of a land tax argue that, given that investment comes from the public purse, the public purse should be reimbursed by those who directly benefit - such as property developers and homeowners.
Opponents claim there should be reward for the risk taken in buying land that nobody else will invest in.
But when you know that the government is to embark on, say, a major road-building programme and back it up with thousands of new homes and investment to encourage business, how do you assess the risk? Build it and they will come, the saying goes. And as they do, land prices rise. Where is the line between entrepreneurialism and opportunism?
The land value tax proposal was first put before Holyrood during the last parliament by Green co-convener Robin Harper. It was subsequently considered in the Burt review of local government finance in 2004. Burt and his colleagues expressed interest in the tax, but said it was not viable, on the grounds that too little was known about it.
The committee took two years to complete its task and cost the Executive £270,000. Burt could have logged on to Google and typed in "land tax". Examples of successful implementations are found around the world. In the US, a number of cities opted for a two-rate system that taxed land and buildings separately 20 years ago.
Harrisburg, Pennsylvania was the second most "distressed" city in the US in 1981. Since then, it has received more than $1.2 billion in new investment, reversing nearly three decades of decline. When the scheme was introduced, there were 4200 vacant buildings; 10 years later there were fewer than 500.
Scotland is in no position to dismiss this regeneration effect. As the former first minister Jack McConnell pointed out, too many of our small towns are in terminal decline.
The Burt review also examined proposals for a property tax. But a property tax is based on the market value of the property rather than the cost of land. The difference is crucial. What incentive is there for landowners to improve idle property if to do so results in a higher tax? One way around that would be to follow the lead of mediaeval English king Edward III and penalise owners who fail to improve their properties.
The whole issue has been further brought into focus by the experience of those who have invested in Spain. Last week, City economists warned that the Spanish property market is on the brink of imploding. Property prices have risen 150% in 10 years; the price of land has risen 188% in the same period. There is now a glut of new houses being built to meet the demand of people looking to make a quick profit. The Spanish government has stepped in with a law designed to control the speculators whom the government blames for spiralling prices.
The law requires 30% of all areas designated for construction to be dedicated to social housing and allows for planning decisions taken over the past two years to be reviewed under certain circumstances. Whether or not this legislation will be enough to deter speculation in the future remains to be seen. However, it is unlikely to prevent the crash.
But as Harper says: "Sometimes things are so simple that people don't think they'll work."
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