Killer Arguments Against LVT, Not (117)

Over at The Cobden Centre, 'Chef' (presumably ChefDave?) does his finest and earns this:

mrg: Current has given examples in the past of how usable land isn’t necessarily inelastic in supply. Marshland can be reclaimed, trees can be planted in deserts, etc.

In general, the value of land can be increased significantly by investment. Most people in the UK could afford to buy a property in the North East, but most wouldn’t want to live there. Investment could change that.

If you tax according to the value of land, you discourage the improvement of it.

The simple, real life example of Business Rates (a tax on the rental land and buildings which falls mainly on the land element) shows that this is clearly not true. As it happens, a derelict or vacant site is not liable to Business Rates, and the liability is only triggered once buildings are built, but commercial buildings are built nonetheless.

Further, a lot of investment is carried out by the government; if they know that they can build a new road for £1 million and that this increases rental values by £200,000 a year, provided they can collect half those extra rents in tax, then the new road is worth building. In the absence of the tax, there is little incentive to build the road.

Or try this thought experiment: you inherit two identical plots of land; one to the north of Basel (in Germany) and one to the south (in Switzerland), upon either of which you could build an office building which you could rent out for the same profit of CHF 200,000 a year/EUR 155,000 a year. Happily enough, you have also inherited enough money to pay for the construction.

Germany has negligible taxes on land; Switzerland has much higher taxes on land, let's say it's EUR 100 a year on the German plot and CHF 100,000 on the Swiss plot (whether the land is developed or not); also, let's assume rental income is tax-free in Switzerland and taxed at 50% in Germany (I made up that last bit).

All things being equal, which plot would you develop first?

The answer "I would sell off the Swiss land" doesn't hold water, as you can only sell it to somebody who assumes the CHF 100,000 a year liability, so the selling price of the land is depressed accordingly.
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UPDATE 20.50: seeing as nobody has answered the question yet, here's the answer (click and highlight to reveal): The Swiss land tax of CHF 100,000 is due every year whatever you do, so it is a sunk cost and can be ignored in decision making. Your choice thus boils down to (a) build an office block in Switzerland and earn CHF 200,000 net of 0% income tax; or (b) build it in Germany and earn EUR 77,500 net of 50% income tax. CHF 200,000 > EUR 77,500, so you would build it in Switzerland.