If you glance at the skies tonight and spot a pig flying past a blue moon, it may only be the second most surprising part of your day.
Because at 12:28pm on this unlikely Tuesday, the Taxpayers’ Union endorsed a Green Party tax policy and urged the National-led government to support it.
Don’t get too excited. It wasn’t the $20 billion wealth tax. It was a proposal from the party’s local government candidates in Wellington to change how rates are calculated.
Instead of taxing properties on their total value, including buildings and improvements, the Green candidates want to base rates solely on the value of the underlying land.
Jordan Williams, executive director of the Taxpayers’ Union, said the current system effectively penalised the kind of development that makes cities more liveable.
“The Greens are right on this one. Taxing land, rather than housing and development on land, creates the right incentive of avoiding land banking or not putting land to its most productive use, such as housing,” he said.
“Local Government Minister Simon Watts should reach over the aisle and grab this phenomenal policy to realign rates as a tax on land for services provided to a property, rather than operating as a tax on improvement.”
Lower rates for most
Green Party councillors Rebecca Matthews and Geordie Rodgers, along with associated-but-independent mayoral candidate Alex Baker, have separately proposed reforming the city’s rates system.
They said the change could reduce future rate increases by up to four percentage points for most households, by shifting more of the burden onto large undeveloped lots in northern Wellington.
Derelict houses across the city—often held for future development, zoning changes, or better market conditions—would also face higher taxes. The aim is to nudge owners to build or sell.
But government ministers aren’t rushing to back the idea.
Simon Watts, who is also Minister for Revenue, said he hadn’t seen the proposal and it wasn’t a current priority.
“There’s a variety of views in terms of the methodology that you could use for rating. I think those aren’t new conversations,” he said.
“We’ve also got massive reform in regards to Local Government Done Well. We want to make sure that stuff’s implemented properly before we’re starting to embark on other areas of reform.”
Housing Minister and Wellington MP Chris Bishop called it an “interesting idea” but said he hadn’t formed a view on whether it was worth pursuing.
“My initial understanding is that there are pros and cons. Either way, it would be quite a big change to the way our rating system works and I'm not the Minister of Local Government.”
Broken clocks
Green MP Ricardo Menéndez March said he was proud to see his party’s council candidates pushing for local solutions.
While he welcomed support for the policy, he hadn’t expected it to come from the Taxpayers’ Union.
“A broken clock gets it right every now and then. I'm not too bothered about seeking their endorsement, but I think it's nice to see that it's getting support,” he said.
“We hope to see greater representation of our Green Party candidates in local government, so that people can actually see the investment they need in things like water infrastructure.”
Inland Revenue recently published a long-term briefing that analysed the costs and benefits of alternative tax bases, including a land tax. While the report focused on central government policy, some of its analysis could also be applied to local council taxation.
IRD said land taxes were among the least distortive, as the supply of land in a given area is fixed and owners cannot reduce it in response to a tax.
“Property taxes are likely to be more distortive than land taxes. This is because the supply of land improvements, such as buildings, is more elastic than the supply of land. The introduction of a property tax creates a disincentive to supply property, and because supply is elastic, less property is made available,” the report said.
Inland Revenue said 94% of local authorities charged general rates, with 29% doing so based on land values and 71% on total property values. Together, these rates raised nearly 2% of GDP in 2022.
18 Comments
The inclusion of improvement estimates in rateable values for properties of significantly different market value with the same utility value has always been another envy tax.
Well Lab is going to have to out extreme the Greens. Good luck. Does this mean Act will lead a Poll Tax like the UK introduced under Thatcher?
I'm in Wellington and this policy is something that will actually get me excited about the local elections. Good to see Alex Baker backing it - will Little follow suit or keep waffling about Khandallah pool?
2024jul15, Susan St John: As Terry Baucher and I have argued, there are good reasons why land tax, while appealing, has remained a just theoretical option in modern times.
Under Fair Economic Return, see
https://www.auckland.ac.nz/assets/business/our-research/docs/economic-p…
all residential real estate is included, including undeveloped residentially zoned land. The advantage is a much broader base than a land tax alone. FER offers an incentive to reduce empty houses, second homes, overelaborate top end housing. It should encourage a better use of all scarce resources, not just land but housing materials and labour tied up in the distorting use of housing as a store of wealth for the very wealthy. FER can also be progressive ie tailored to total individual holdings where land tax has regressive qualities.
Have skimmed the article but this opening statement immediately made me think of how CGT has been framed "outlined why currently untaxed housing income should be included in the tax base"
This caught my eye. "The rational for FER is that funds held in housing should generate at least as much as having the same funds in the bank or similar conservative investment" Interesting that shares aren't included, probably because they know many shares are already taxed.
Somewhat oblivious of the share market, not just NZ, where there is already CGT/FER style tax on many shares. FER style tax on many shares is the DDD (? Dunne Dividend, fill in the ? yourself) A claim for high wealth individuals is that they are exempt from tax on long term investment in shares. If that's the case so are your Joe Blogs. Not all shares are equal from a tax perspective.
Not unsympathetic to it but the devil is in the detail. Any form of tax be it CGT, FER or any other scheme to tax an increase in the value of residential property on housing should exclude the family home.
They also allow interest on a registered mortgage to be deducted from the asset value before assessing tax.
Always bemused that apparently Councils can rate (tax) Land and Property on it, but Govt will not bring in an asset tax?
There is no difference
I understand ACT also support rating land and not improvements.
Is National too scared to upset its land banking backers?
Get on with it.
Land is a particularly special type of asset because it can't be taken away (no worry about capital flight!) hence why the best option to tax/levy.
NP District Council is way ahead of the pack. The rates have been based on land value for at least 20 years. The real question is the Rating Valuations Act fit for purpose and I say it's not. I can show how it needs another factor to be included in the land value assessment but that would need a short article. I'm also going to have fun and games with QV when the new valuations come out in September. A section close by sold within the last year for less than 50% of the land value of my property.
It would be interesting to see if the NP region has seen different development patterns as a result of this rating method, or if any real change wouldn't actually happen. I don't suppose there is any easy way to see this?
There is still a fair amount of land banking going on. I've seen sections ready to be sold on the market for at least six months. It may just be the state of the local housing market althouh GN's table a few days ago showed NP property increased 5% over the last year.
Improved value is the only fair way to rate properties. A retired pensioner living on a high value section for 50 years in an old small house will pay significantly higher rates than a 45 year-old in their prime earning years, living in the burbs on a cheap section but with a million dollar mansion with media room, double glazing etc etc built on it. The mansion/house would be ignored for rating purposes. The little old pensioner would be forced from their home.
No he wouldn't. He could take out a reverse mortgage.
That's a feature not a bug when your goal is to incentivise efficient use of land. The pensioner can either move to free up that space, around me that would probably turn into apartments for 4 young families. Or as suggested above, they can turn their equity into cash and pay for the privilege of inefficient use of prime real estate.
You can either concentrate on the inequity of the unfortunate pensioner who didn't ask to be put in such a situation, or realise that they are only in that situation because they benefited from an enormous windfall through the relentless rise in land prices provided by the rest of society.
A friend in Australia tells me that:
*In Australia state governments charge land tax based on the value of freehold land, whether vacant or built on (residential, commercial & investment properties) and occupied or not. The exemptions are the principle place of residence, primary production, and charitable accommodation.
*Victoria's are the highest, with general rates starting at $500 for land value up to $100,000. Top is $31,650 for land over $3 million plus 2.65% of amount over that.
*There's an impressive surcharge for absentee-owner land, wih total payable starting at $2500 for land worth $50k plus 4% of amount over that. Top is $151,650 for $3 mil, plus 6.65% of amount over that. Absentee owners are people who do not ordinarily reside in Australia, and were either absent from Australia: On 31 December of the year prior to the tax year, or for more than 6 months in total in the calendar year prior to the tax year. There are similar provisions for corporations....
*As well as the state tax, the local governments charge rates, (taxes) for property. Victoria charges on property value (land plus buildings).
*Queensland councils rates are based on the calculated unimproved value of land rather than total property valuations. Typically there's a rate for owner-occupied propery and higher rates for rental, retail and industrial property.
The exemptions operate to keep prices up and encourage things like spending as much as you can on them (eg oversized family homes, farms that only farmers sons or overseas corporates can afford).
No exemptions and the value of the asset will fall to a value that makes it work.
Morgan nailed it 20 years ago. But most were to stubborn or stupid to accept the pureness and equality of his tax proposals.
Wonder how this would apply to Maori land holdings. Does TPM have any thoughts?
Therein lies another reason issues don't get dealt with. Other prime example is allocation of water rights.
Gee, that's one for the books... I fully agree with two entities I rarely agree with :-).
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