Gavin R. Putland,  BE PhD

Tuesday, December 06, 2005 (Comment)

Ball in Property Council's court

The imminent arrival of the four millionth Queenslander was the cue for the Property Council of Australia to make yet another complaint about lack of infrastructure.

The benefit of an infrastructure project is manifested as an increase in property values in the area served by the project. If the project passes a cost-benefit test, the cost can be covered by reclaiming only part of the benefit through the tax system, leaving the rest of the benefit as an unearned windfall for property owners in the affected area, without burdening the taxpayers outside that area.

A holding tax on uplifts in land values indeed recovers only part of the benefit, because property owners' tax bills do not increase unless their land values do, and their land values do not increase unless, in the judgment of the market, the owners are better off in spite of the tax implication. The higher the rate of the holding tax, the wider the range of projects that pay for themselves through uplifts in land values, hence the larger the number of projects that actually proceed for the benefit of property owners.

If the Property Council wants to encourage pro-infrastructure policies, it needs to stop thinking of infrastructure as a free gift from taxpayers to property owners, and start thinking of it as an investment by property owners for property owners, with the tax system acting as a catalyst.

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