From International Business Journal:
The Organization for Economic Co-operation and Development released a report on Tuesday calling on Germany to raise its property taxes dramatically and reduce taxes on labor. The group, whose membership is made up of 34 of the world's leading market economies, also made similar recommendations for Denmark, Norway and the UK over the past month.
For Germany, the organization recommended tripling its property taxes, while reducing its wage taxes and social security contributions, which currently make up 64 percent of total tax revenue, compared with the OECD average of 52 percent, according to the German language Immobilien Zeitung. Property taxes, meanwhile, amount to only 1 percent of total revenue collected, against an OECD average of 3 percent*. The group also called on Germany to reform its assessment mechanisms, as many properties are valued far below their true market worth...
The International Monetary Fund also made a similar recommendation to Norway this month...
The OECD has been a strong proponent recently of land value taxes, which date back to Adam Smith but were most vigorously promoted by 19th century economist Henry George. He promoted a land value tax—which is assessed on the unimproved value of underlying land, not penalizing intensive development like many property taxes today—as a replacement for all tariffs and levies, however the OECD has settled on a more moderate position, instead advocating a shift in emphasis away from other taxes and towards the land value tax.
Land value taxes can be tricky because of practical difficulties in estimating a plot's value, especially if it is a unique piece of land, or if land parcels like it do not change hands very often. Newer computer-assisted methods of land appraisal have made this job easier, though, and many countries around the world have adopted the tax.
The responses..?
The two groups' advice, however, was rebuffed by Norway's minister of finance, Sigbjorn Johnsen, who said at the press conference on Wednesday: "I have no plans to increase housing taxes."**
Denmark was subject to the same advice last month, with the Nordic Labour Journal reporting that the OECD advised the country to cut income taxes and increase property taxes. The Danish government plans to incorporate some of the OECD's recommendations into its 2012 tax reform, but a property tax hike will not be on the table. As the NLJ writes, "[t]his is because property taxes were ring-fenced in the coalition agreement covering this parliamentary term."
* In the UK, we have a quasi-Land Value Tax on commercial land and buildings (called 'Business Rates') which alone raises over 4% of total government revenues; we also have Council Tax on residential land and buildings, which is a mixture or Poll Tax and a modest property value tax, which raises another 3.5%.
** That'll be no surprise to Kj, I guess.
Friday, 17 February 2012
OECD, IMF on top form
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40 comments:
"I have no plans to increase housing taxes."
Either something has been lost in translation, or that is an interestingly delphic reply.
That'll be no surprise to Kj, I guess.
No surprises there. A quick run through of the articles and comments in major newspapers (which omits any reference to LVT) a couple of days ago when this story broke, and you'll be served KLN's 1 through 195.
On a brighter note, since friday's newspapers are usually intentionally jolly, today's front-pages includes: "Price-feast on houses for 4 more years: You will gain millions" and "This is where vacation homes have appreciated the most". I'm not making this up.
-Kj
B, yes, he's clearly going to give the matter serious consideration.
Kj, can you run some of the finer KLN's through the translation mincer and post them here? Do they have Poor Widows In Mansion in Norway as well?
So the UK already has a relatively high level of property taxation? Interesting!
MW: there are no finer KLN's. They are all quite basic.
How can you solve the housing shortage by making it expensive to have a home? .
A removal of the interest deduction, combined with increased property taxes will not help young people into the housing market, rather the contrary, it is a gift to the wealthy and well-established.
Property tax makes it less attractive to own.
Income tax is fair!
OECD thinks it is important to break up families and deprive them of their miserable acquired shelters as protection against an Arctic winter in a land where summer is a theoretical construct.
Increased property taxes will mean that landlords will add to the rent. This will affect those who can not afford their own home and always will be forced to rent.
Property tax is a tax on money you've been taxed on already
The OECD's proposals in relation to the housing market will lead to a collapse
-Kj
One faux-lib did sneak in:
If people have the opportunity to buy land without paying property tax, this is something they can do to protect themselves from being robbed of purchasing power by inflation.
-Kj
BE, yes, rather surprisingly.
But like I keep saying, Business Rates is more or less like LVT, which is why the price bubble in commercial was much, much smaller than in residential. I even met one bloke who bought a row of shops in the mid 1990s, sold them in early 2000s and made a loss!
Council Tax on the other hand is 3/4 Poll Tax and 1/4 property value tax, with a cap about two-thirds of the way up; i.e. the top one-third of houses all pay much the same as regards the property value tax element, about £1,500 a year.
Kj, I see the Norwegians are on top form:
A removal of the interest deduction, combined with increased property taxes will not help young people into the housing market, rather the contrary, it is a gift to the wealthy and well-established.
Aha! So LVT is "a gift to the wealthy?
Does Norway not have Poor Widows In Mansions who would be forced to sell the family home? She is the equal and opposite to the "gift to the wealthy" and the two cancel out!
"an Arctic winter in a land where summer is a theoretical construct."
I see that the Norwegians aren't having any of that global warming crap, then.
I'm surprised to see the comment about property taxes being ring-fenced in the Danish coalition agreement. A major partner in the coalition is the Radical Liberal Party, which favours land taxation and if I recall correctly was one of the biggest gainers at the last election.
Wassa 'kln' then?
B, no they aren't, the poor buggers.
RA, so they sold out, what's new?
L, KLN = "Killer Argument Against LVT, Not".
It's quite amazing the turnaround in IMF/OECD advice over the last few years. Particularly when you consider that Joseph Stiglitz got turfed from the World Bank for saying much the same thing 12 years ago. Wonder what's got into them? Not that I'm complaining.
Good one.
Dont forget that the international banking lanlords have allowed Greece to propose a high property tax which aint that bad.
They forgot to neutralise it with a cut in sales and income taxes. Pity as that will make the people say the lvt is their nemesis.
BTW. At StPauls today I had to laugh. They were saying:
"Look, LVT is a terrible mistake. Even Robin Smith does not support it."
D, I'm also pleasantly surprised, I'd love to meet our man (or woman) on the inside and give him (or her) a pat on the back.
Anon; the Greek resi property tax is peanuts, it's lower than the OECD average and a lot less than UK Council Tax. Although it's design is probably more sophisticated than UK Council Tax - it's much more proportional to the value of the house/site.
Re St Paul's, that must have been after I left, he was still supporting it at 2 o'clock.
MW: we do have a couple of old ladies in mansions, the conservatives tries to drag them out from time to time, but they don't pull the same weight as in the UK I think.
The OECD, bless their hearts for going in the current direction, carries a lot of antipathy for previously having adressed a lot of things that are central to the scandinavian model; pensions, labour issues, govt. spending in general. This will probably just add fuel to the fire.
-Kj
RA: They must have bartered it away for the fat tax then.
-Kj
Kj: "we do have a couple of old ladies in mansions... but they don't pull the same weight as in the UK I think."
In the UK, old ladies in mansions push their weights round in those little shopping trolleys.
"How can you solve the housing shortage by making it expensive to have a home?" By optimising the use of land by levying a tax on its annual rental value. It discourages hoarding.
But what is this business about it being tricky to value land because it changes hands only rarely? Property (land and buildings) is being leased all the time. If the value of the building is decapitalised, and subtracted from the total, it gives you the annual rental value of the land. The problem arises when people try to levy a tax on the selling price of land. But the aim of LVT is to collect a proportion of the rental value, so it is the rental value that should be determined, not selling price which is a bad proxy for it. Furthermore, existing taxes such as the business rate are part of the annual rental value so should be added to the actual land rental values paid when the assessments are made. eg If the residual land rental value is £20000 and the UBR actually payable is £5000, then the annual rental value is £25000.
Physiocrat: To be fair to the wailing public, property taxes as has been implemented from time to time haven't been in the form of a land-value tax, and OECD did not communicate that they recommended a land-value tax, but just any property tax. The gentleman from the OECD presenting this was even quoted saying that "an increase in property taxes may lead to a slowing of the growth of construction over time".
That's where the problem is, I can't go around arguing that any property-tax would achieve more housing without explaining the difference. All property taxes would impact land values first, but assessed on buildings or as the current miniscule property tax is, the size of primary rooms (!), they would impact new-builds.
-Kj
Phys, yes agreed to all that, except I think that current selling prices are a very good guide to relative rental values.
The first decision is 'how much LVT do you want to raise?' and then the next question - which is not so important - is 'how do we apportion it?' as long as big, desirable, expensive plots pay more tax than small, not so desirable, cheap ones, that is the main thing.
Kj, I'm not if such taxes do dampen development, and if so, they only reduce development at the very margin and increases development in expensive areas.
In the UK we have Business Rates which taxes about a third of total rental value of commercial land+buildings, and then income tax/corporation tax takes another third (so the landlord ends up with less than half the gross rent), but there are still plenty of people who want to build new commercial premises where they are needed.
It's the lack of Business Rates on vacant or derelict sites which is the problem - so speculators leave these sites vacant of derelict. if we had full Business Rates on vacant and derelict sites, then we'd have full-on Land Value Tax in all but name.
As far as I can make out, Robin Smith's lack of support for straightforward LVT is due to the failure of this proposal to get anywhere in the UK, so he came up with the idea of allowing landowners to pay LVT voluntarily and getting tax cuts as the pay-off, with the land being sold on subject to the LVT liability. Personally I can't see how this could be done without a comprehensive valuation, but I am agnostic on the proposal.
Selling prices are no good at all as a guide to the relativities of land values for land in commercial and residential use, as the former is subject to much higher rates of tax which depresses the selling price of commercial property. This was one of the conclusions that was drawn from the Vale of White Horse valuation.
Vacant site can only be valued under UBR valuation on the assumption that the sites were developed for something, and what would that something be?
On day one of proper LVT, the assumption must be that the valuation is in accordance with any planning consent. In the case of a lapsed consent, the local authority could re-apply itself and grant the consent - in effect, it would be a renewal. If there was no consent, someone would have to come up with a scheme and apply for consent. That someone could be the local authority itself, and an outline consent might suffice, with a period allowed for submission and approval of the detailed design and construction of the building.
In effect, the local authority would be saying that it had no objection to the construction of, say, 10,000 sq metres of offices and we will give you, say, three years to get the building designed and constructed, and after that we will levy the LVT charge on the assumption that you have put up the building. It would of course be open to the owner of the land to make the case that he could not let or sell the 10,000 sq metres of offices.
Phys: "Selling prices are no good at all as a guide to the relativities of land values for land in commercial and residential use, as the former is subject to much higher rates of tax which depresses the selling price of commercial property."
Well yes, obviously, but it's easy to factor that in.
Basic maths says, under full-on LVT, the average rate/sq yard of developed land in the UK would be in the region of £35/sq yard (the median would be lower than that, £25 or something).
As a matter of fact, the average Business Rates per sq yard is about £17/sq yd. So to get the ball rolling, we just double whatever Business Rates currently are on any site, work out the tax for surrounding resi land and then find a harmonised rate that is in the middle of the two.
I've checked a few specific sites (where I live, where I work) and this sort of system works just fine.
Don't forget, we are not promising to work out to two decimal places what the actual rental value of each and every site is, we are just trying to collect the bulk of the land rents. So if a flat rate for a whole postcode sector means that some sites pay tax on a lower official value than actual market value, so what? They'll still be paying more than now, and that is the main thing.
"Vacant site can only be valued under UBR valuation on the assumption that the sites were developed for something, and what would that something be?"
The same as everything else surrounding it.
If it's a vacant plot in the middle of a housing estate, we assume that there'd be a house on their. If it's a vacant plot on an industrial site, we assume an aluminium shed would be on there. If it's a vacant plot in a city centre surrounded by ten storey office blocks, we assume that a ten storey office block would be on there.
If the local council refuses such planning - say only five storeys instead of ten - then the owner of the site gets a corresponding reduction in LVT, and the LVT "lost" will come out of that council's budget.
That is what had to be done to adjust the values in the VWH study. They also had to have the hope value stripped out. So the resulting values were only loosely related to selling prices.
A good example is urban fringe green belt land used for agriculture. The selling price has, factored into it, the assumption that the belt will be unfastened eventually and then the site will be developed. But it would be unfair to levy a charge on the assumption that it already was developed, when the highest legal use was horsiculture. This is the source of reasonable opposition to the whole concept of LVT. Also, when a reasonable amount of LVT is collect eg 2% of selling price, it causes a problem when prices have got inflated for extraneous reasons even though rental values have not got inflated.
This put pressure on the Swedish system and the 2% property tax was then abolished and replaced by a property charge at 1% which is still better than nothing. The Danish LVT fared even worse and ended up, if I am correctly informed, as a local tax. Selling price assessment might be a good rough-and-ready way of getting the valuations but it gets LVT a bad name in the end.
We should not be advocating it and it is important to put right those LVT supporters who do. It sows the seeds of its own destruction.
Kj, I'm not if such taxes do dampen development, and if so, they only reduce development at the very margin and increases development in expensive areas.
At the levels as of now it doesn't really do anything either way, but I'd object to a national PT on the current basis of assessment, too arbitrary to make for a solid system and creates resentment for it. Either LVT, flat rate on capital values or maybe bring back imputed rents on the income tax.
-Kj
I don't particularly like property tax as an imputed tax. That is the Swedish system. It is not transparent. It is best if the tax liability is attached directly to the land title, which also keeps the thing simple.
Phys: "it would be unfair to levy a charge on the assumption that it already was developed, when the highest legal use was horticulture."
Correct. So treat it as ag land and exempt it from tax as far as I am concerned. All my calculations assume that ag land is exempt.
"Selling price assessment might be a good rough-and-ready way of getting the valuations but it gets LVT a bad name in the end."
I have only ever said that suing selling prices would be a good way to get the ball rolling. From there on in, with selling price of land reduced to much lower figures, we would of course use rental values, and the LVT itself would form a large part of rental values, so it's a question of adjusting the LVT up or down regularly in light of events.
Why exempt ag land? It means that other taxes cannot be cut so much. Some ag land is valuable, some is not, depending on its quality and where it is.
The more that existing taxes remain, the less benefit there is to farmers working marginal locations which are worth next to nothing and who should not be saddled with the burden of existing taxes.
Rental values of ag land are easy to establish as there is a lively market. It is worth noting that traditionally, support for LVT has come from farmers in poor areas.
Phys, for rough and ready calculation purposes we can exempt it.
The total rental value of UK farmland is only about 2% of the total rental value of UK developed/urban land*, the more important thing is to get rid of £3 billion ag subsidies. Farmers will pay normal LVT on their homes/built up areas, which comes to much the same thing and can follow the usual rules that apply to developed/urban land.
* The absolute tip-top best ag land has a rental value of £300/acre, and that's distorted upwards by ag subsidies. Even the cheapest residential areas in Wales, north England have a rental value of £50,000/acre or something; the primest of central London is more like £5 million/acre
So let's tax the £50,000 or the £5 million, but let's not get too picky.
I don't understand this idea that it is difficult to establish the rental value of land. Go to any estate agent with a property you wish to rent out and he will tell you what he would ask as a rental, if he was acting for you. Now correct me if I'm wrong, but I would have thought that the rental value of a house in deepest, darkest Wales is identical to the rental value of the same house in central London. What's different is the rental value of the plot. It can't be too difficult to find an area of the country where the plot rental value is so close to zero as makes no difference, then find one similar house in a more desireable area and after a few simple calculations, you have your rental value of your plot in the more desireable area. How difficult is that?
B, that would be a perfectly sensible way of doing it, I'd be happy with that.
About a third of the buildings in this country are semi-detached houses which are so similar to each other as makes no difference. We can then extrapolate from there for smaller or larger buildings, and interpolate with current Business Rates liabilities (fag packet says full-on LVT would be approx double Business Rates).
The rental value of my flat in Brighton has hardly changed since 2003. During the intervening boom and bust, rents stayed almost static ie they fell slightly in real terms.
Phys, rental values haven't changed much anywhere, we know all that, they go up (or down) in line with local wages, I've explained this time and time again.
But the point is that if we find a flat where the rent is half as much as your Brighton flat, the chances are that selling price of that flat will be half that of your Brighton flat; and however we apportion LVT, the LVT on that other flat will be half as much as on your Brighton flat etc.
It's basic maths.
Yes, I suspect that there is a large tract of the country where the rental value of residential land is close to zero.
But nobody is giving it away.
Phys, oh yes they are giving it away. There are plenty of places where you can buy a house for less than it would cost to build, problem is, there are no jobs or anything, some of the neighbours aren't very nice, loads of depressing vacant houses and shops etc.
Phys: I don't particularly like property tax as an imputed tax. That is the Swedish system. It is not transparent. It is best if the tax liability is attached directly to the land title, which also keeps the thing simple.
True, but the point is all about incremental improvements to the current tax-system. UK has a council tax system, the nordic countries don't. To move towards taxing land at a higher rate, and income at a lower rate, attaching a clear rental value to land titles and taxing it as imputed rents via the income-tax system IMO is a fine move towards where we want to be. Akin to MWs Georgism without LVT piece.
MW:for rough and ready calculation purposes we can exempt it. [farmland]
Practically, the transaction costs (if subsidies were abolished) in valuing and taxing farmland , which varies in value field by field would probably not give much net revenue. In the long-term, I'd want to include farmland if the values reaches a certain level. There's been quite a move towards speculation in farmland even without hopes of planning permission. A large part of this is probably hope-value or a perfectly rational responses to the ever-changing subsidy-regimes, but I think LVT on farmland would have the positive effect of preserving affordability of land as an input to working farmers.
Kj, ta for back up. I have discussed farmland/LVT at length with Bayard, and we agreed we'll just exempt it, but farmhouses themselves liable to the same tax as any other dwelling/commercial building.
Don't forget the numbers. Average UK farm 200 acres @ £50 rental value/acre = £10,000 at most. But assuming a farming couple and a couple of workers live on the farm, the LVT on the houses alone would be two or three times that, plus a bit more on the sheds, barns etc.
Which leads me on to another KLN, "What will happen to small holders?" The point is that renting an acre of land to be a small holder costs you £50 or £100 a year or something, that's next to nothing (and the LVT would be less). The problem is the house - if we, as a nation, decide we want more small-holders, then we are going to have to be a lot more liberal with allowing houses to be built in the countryside - that's where the big problem is, that's what's stopping people 'going back to the land' (a perfectly valid lifestyle choice, though not for me).
Don't forget the numbers. Average UK farm 200 acres @ £50 rental value/acre = £10,000 at most....LVT on the houses alone would be two or three times that, plus a bit more on the sheds, barns etc.
I know the numbers, my parents recently did a valuation on their farm, and the ag-land itself was worth a tenth of the total valuation, without subsidies it would most likely be something like a couple of percent. Still, it's a valid resource to tax (conservatively)if LVT is a matter of principle, and it wouldn't be a negative for farming either IMO.
The problem is the house - if we, as a nation, decide we want more small-holders, then we are going to have to be a lot more liberal with allowing houses to be built in the countryside - that's where the big problem is, that's what's stopping people 'going back to the land' (a perfectly valid lifestyle choice, though not for me).
I wasn't aiming at the smallholder particulary, by working farmers I mean those that actally produce something for a larger revenue than it spends in costs, i.e. 200 acres and up. If LVT causes urban land to be put to it's best use, it should do the same with farmland, whether it's by the hand of smallholders or larger farmers.
Sure we should allow more building around the countryside. But it opens some questions of what to tax though, should a shed be considered under the rate for full planning permission? A long winding road on private land?
Kj: "But it opens some questions of what to tax though, should a shed be considered under the rate for full planning permission? A long winding road on private land?"
It can't be too difficult to work out the rental value of a shed (next to nothing) or a long winding road (negative), you'd be better off with a short drive leading from the main highway to your front door, as there is less maintenance.
But the rental value of the house will be bigger if it is far away from the main highway (less noise), so let's focus on the rental value of the house and ignore the long, winding road.
Also, any revenue from farmland could go right back in subsidies like R&D, paying for maintaining hedgerows and nice things that tourists and suburban dwellers like to look at -> higher land value on the built land. Win-Win! :)
But the rental value of the house will be bigger if it is far away from the main highway (less noise), so let's focus on the rental value of the house and ignore the long, winding road.
Agreed.
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