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Thread: The Greens' site value tax,a substitute for rates on property

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    Default The Greens' site value tax,a substitute for rates on property

    The Greens' site value tax agreed with Fine Fail in last week's negotiations is designed as a substitute to property tax or rates in order to prevent discouragement to development. Commercial rates are very high in some council areas,so developers must delay development,often for many years,until they can be assured of a return on investment. Since the site value tax applies to the sites instead of the developed structures on the sites,they will want to develop the sites ASAP to generate income and capital gains. The risk of developing will be reduced since there will be no additional rates or site value tax.

    Existing land bank owners will be royally screwed by this unanticipatred site value tax which will reduce the value of their sites by up to 20% probably,if not more, in an illiquid market with few transactions.In addition to paying interest on loans to finance the land purchases where they have borrowed,they will also have to pay the site value taxes with no income coming in from the site. The envious will cheer but there are disadvantages for property development.

    In many cases,developers have carefully accumulated land banks with a view to developing major projects. This accumulation has to proceed slowly over years to prevent holdouts on adjacent sites from demanding exorbitant prices to complete the development jigsaw. As I understand it,there is no provision in Irish law to allow a developer to get a compulsory purchase order on stubborn holdouts in order to complete land acquisitions for commercial developments. Without such a provision,who will have the deep pockets to fund taxed land sites? This could prove a massive barrier to property development and will concentrate the big projects among a few giants,possibly all British owned.

    As for the land site tax on home owners,this will tend to encourage development of well designed houses whereas rates on houses can be a disincentive to good design because the more attractive the house,the higher the rates tend to be. In Rome in the 1980s,I was struck by the drabness of the exteriors of houses. It seems the interiors were often elaborate but the exteriors were kept drab to avoid the attention of the taxman.

    The site value tax could help Dublin homeowners because valuations will tend to underestimate the value of the sites,which are often worth many times the value of the house structure in top locations.

    There will also be a lot of disputes about valuations which will be good business for auctioneers. In basing tax on valuations derived from housing sales prices,calculations on the rateable value of structures must be subtracted from the selling prices of houses. Where the structures vary a lot in a given area,it will be difficult and expensive to provide reliable estimates of rateable values.

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    Isn't this another term for Henry George's land value tax? Anyway, I see no problem in replacing the property tax with this one.

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    Politics.ie Member Squire Allworthy's Avatar
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    So you get taxed on the value of the land and not the value of the structures standing on it? Fair enough as rates are often a regressive form of taxation.

    Initial thoughts are how do you arrive at that site value?

    It is perfectly feasible for the land to be potentially worth more than the current structures sitting on the land. Say there is an area that is being widely redeveloped and densities increased will those who live in houses with gardens be forced to sell up and move because the value of their 'site' has rocketed?

    What happens if land is rezoned and you don't want to sell the family farm?

    Seems to me this is going to create a whole new industry just to collect and assess this tax. What is wrong with local income tax to pay for local services? Too easy?

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    Quote Originally Posted by Squire Allworthy View Post
    What happens if land is rezoned and you don't want to sell the family farm?
    It says non-agricultural land:

    Starting with the necessary valuation and registration process, we will move to introduce a Site Valuation Tax for non-agricultural land. This system will provide a fair and stable basis for offsetting stamp duty on residential property.
    Taxation for Sustainable Development, Page 4, Programme for Government

    I don't know if land that is currently agricultural but has been zoned non-agricultural counts as agricultural or non-agricultural.

    The Smart Taxes Network has a post about the Programme for Government here.
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    Quote Originally Posted by Squire Allworthy View Post
    So you get taxed on the value of the land and not the value of the structures standing on it? Fair enough as rates are often a regressive form of taxation.

    Initial thoughts are how do you arrive at that site value?

    It is perfectly feasible for the land to be potentially worth more than the current structures sitting on the land. Say there is an area that is being widely redeveloped and densities increased will those who live in houses with gardens be forced to sell up and move because the value of their 'site' has rocketed?

    What happens if land is rezoned and you don't want to sell the family farm?

    Seems to me this is going to create a whole new industry just to collect and assess this tax. What is wrong with local income tax to pay for local services? Too easy?
    Income taxes affect productivity adversely as tax rates rise to levels perceived as unfair or confiscatory and discourage work and business activity.Marginal income taxes above 45% are too high for the Irish economy which advertises itself as tax friendly to attract multinationals and their managements and specialists and keep those already here from leaving. Recent budgets have pushed effective income taxes to 51%.

    The seriously rich can always arrange their tax affairs to avoid taxes legally,either by investing in foreign businesses or by moving to a foreign domicile. The attempt by governments to collect more tax from them would only make the Irish tax code unnecessarily complicated,eroding a major competitive advantage of Ireland's business friendly tax system which encourages business investment.

    As for rises in site value that push up the land value tax on people who can't afford it,that is unavoidable. The same problem would arise with rates on houses,for example if a low income area became gentrified with young professionals moving in and driving up house prices.

    With farmland,the rezoning would make it too expensive for many farmers to pay the tax. If the 80% tax proposed by the Greens on selling rezoned land applied (it wasn't mentioned in the recent deal with Fianna Fail),this would amount to confiscation.

    But there may be a loophole in the tax laws through which capitalism breathes,to quote economist Paul Samuelson. For example,the farmer may be able to avoid the 80% tax by keeping ownership of the land through leasing the land to a developer on a long term lease if the law permits. He could then exercise an option to sell the lease back to the developer either immediately or over time for a sum negotiated in advance.
    Last edited by patslatt; 12th October 2009 at 01:27 AM.

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    TCD/Feasta lecture on the upcoming Land Value Tax

    Just found this: www.feasta.org/events/land/2010_03_09_Trinity_talk.htm

    Robert Emmet Theatre, Trinity College
    Tuesday 9th March
    7:30pm
    €10 at the door


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    Site Value Tax?

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    About a hundred people were there. It was mostly about convincing the audience that LVT is logistically and politically feasible rather than talking about Georgism. There were five speakers. Constantin Gurdgiev and the second speaker from Northern Ireland (I forget his name) were both entertaining.

    Anyone else there?
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    Do they Greens have any policies that don't involve the government putting their greedy hand into our increasingly anorexic wallets?
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    Quote Originally Posted by ManOfReason View Post
    Do they Greens have any policies that don't involve the government putting their greedy hand into our increasingly anorexic wallets?
    Local Government has been systematically underfunded for decades. We see this in our creaking water systems, our pot-holed roads, and our shabby public spaces.

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