GB’s Economist: Levy the Land
|October 25, 2013||Posted by Staff under Good Press|
The Economist, 2013, the Jun 29th print edition
Property taxes loom largest in Anglo-Saxon economies. In America they still account for 17% of all government revenue; in Britain and Canada the figure is around 12%. Only 2% of revenues come from annual property taxes in Germany and Italy; in Switzerland it is a mere 0.4%.
A small share of national tax revenue can belie the importance of property taxes for the local governments that tend to levy them. In Australia and Britain taxes based on property are the only source of local-government tax revenue. America’s local authorities get around 70% of their revenue from property taxes. But, overall, property taxation plays a relatively small role.
That’s a pity. Taxing land and property is one of the most efficient and least distorting ways for governments to raise money. A pure land tax, one without regard to how land is used or what is built on it, is the best sort. Since the amount of land is fixed, taxing it cannot distort supply in the way that taxing work or saving might discourage effort or thrift. Instead a land tax encourages efficient land use. Property developers, for instance, would be less inclined to hoard undeveloped land if they had to pay an annual levy on it. Property taxes that include the value of buildings on land are less efficient, since they are, in effect, a tax on the investment in that property. Even so, they are less likely to affect people’s behaviour than income or employment taxes. A study by the OECD suggests that taxes on immovable property are the most growth-friendly of all major taxes. That is even truer of urbanising emerging economies with large informal sectors.
Property taxes may even restrain housing booms by making it more expensive to buy homes for purely speculative purposes.
Almost 20 countries that have recently introduced new property taxes, or are considering doing so. Namibia recently introduced a land tax on agricultural land; Ireland is reintroducing a tax on residential property that was abolished in 1997.
Yet these taxes are wildly unpopular, often spawning opposition quite out of proportion to their scale. Mario Monti, Italy’s former technocrat prime minister, lost the election earlier this year for many reasons but his much-loathed decision to raise a tax on property played a substantial part. Asked in surveys what is the worst or least fair tax, Americans consistently cite property taxes.
Most American homeowners pay their property taxes in one or two lump sums during the year. Around a third (mainly those with mortgages) have their tax payments bundled in with monthly mortgage payments. For property taxes to become a much bigger source of revenue, governments must apparently ensure people don’t realise how much they are paying.