The new year opens with a stunning report on how 'Badly designed housing policies played an important part in triggering the recent economic and financial crisis'. Link to the OECD website. A tour de force which will surely be referred to by academics and politicians in years ahead. Virtually every economic crisis in history has been the result of an intimate and increasingly frenzied dance between banking and property speculation. The findings should be avidly studied by anyone with an interest in improving economic policy. The Organisation for Economic C0-operation and Development deserves high plaudits for it at the Davos meeting of the World Economic Forum next week.
The report investigates policies and outcomes for dozens of countries and shows how several factors interact: credit availability, loan-to-value ratios, land shortage, supply and demand, planning restrictions, rent controls, tax-breaks, ownership, responsiveness to demand, prices, price volatiliy, mobility of labour, poverty, rent controls, et al. For example there is a wide disparity world-wide in labour mobility. 2% in one country moved home in a year compared with nearly 15% in the most mobile. The report suggests such factors as: purchase transaction costs, unresponsive markets in bringing new supply, and price disparities within countries which bring credit difficulties for movers from low to high cost areas.
The OECD recommends that the true underlying property value be taxed. They don't anywhere say 'Land Value Tax' but use the academic: 'levying on cadasteral values' (p5) - that is, land values, in a paragraph about bring property as an investment to a level playing field with other investments. Also mentioned is a tax on imputed rent - which arises from land value. The report shows up the skew in favour of the property owner against the non-owning renter and within that, a skew towards the top-end owner.
In the UK someone has suggested scrapping Stamp Duty on the buying transaction and replacing it with an annual value tax on every property which would be about double the current annual Council Tax. The tax-take to be split between local and central government. This would start to bring fairer taxation. Until a countrywide survey of land values was in place, a rough and ready measure could start soon as follows. It should be accompanied by a measure so that the taxpayer is able to to account for any income tax already paid (i.e. central government's share). Thus:
Existing Council Tax £1500 p.a.
New Council Tax £3000 p.a.
Deduct Income Tax already paid to a maximum of £1500 (on main residential dwelling only)
Amount due £1500 pa as before.
The 'shortfall' from those paying less than £1500 income tax would have to be waived on welfare grounds as it would have to be in the transition period of any such new property value tax introduction. And anyway, whatever income tax had been paid and used as 'relief' would already have been received by the Inland Revenue so no reduction in tax revenues would occur. (Note added: The amount of the abolished Stamp Duty would be covered because only the main residence would qualify for income tax relief, leaving multi-property owners and other payers of Council Tax paying more.)
The next phase would be to cut income tax rates and jack up the new property tax to yield the same amount, with fair measures for hard cases of poverty. The housing market would start to free up and the beginning of a tax shift from income to land values [LINK]: with all its benefits would have begun. Other harmful taxes such as VAT etc, which tax creativity to be trimmed ASAP. All for the chop in time.
posted by Charles Bazlinton author of The Free Lunch - Fairness with Freedom
The report investigates policies and outcomes for dozens of countries and shows how several factors interact: credit availability, loan-to-value ratios, land shortage, supply and demand, planning restrictions, rent controls, tax-breaks, ownership, responsiveness to demand, prices, price volatiliy, mobility of labour, poverty, rent controls, et al. For example there is a wide disparity world-wide in labour mobility. 2% in one country moved home in a year compared with nearly 15% in the most mobile. The report suggests such factors as: purchase transaction costs, unresponsive markets in bringing new supply, and price disparities within countries which bring credit difficulties for movers from low to high cost areas.
In the UK someone has suggested scrapping Stamp Duty on the buying transaction and replacing it with an annual value tax on every property which would be about double the current annual Council Tax. The tax-take to be split between local and central government. This would start to bring fairer taxation. Until a countrywide survey of land values was in place, a rough and ready measure could start soon as follows. It should be accompanied by a measure so that the taxpayer is able to to account for any income tax already paid (i.e. central government's share). Thus:
Existing Council Tax £1500 p.a.
New Council Tax £3000 p.a.
Deduct Income Tax already paid to a maximum of £1500 (on main residential dwelling only)
Amount due £1500 pa as before.
The 'shortfall' from those paying less than £1500 income tax would have to be waived on welfare grounds as it would have to be in the transition period of any such new property value tax introduction. And anyway, whatever income tax had been paid and used as 'relief' would already have been received by the Inland Revenue so no reduction in tax revenues would occur. (Note added: The amount of the abolished Stamp Duty would be covered because only the main residence would qualify for income tax relief, leaving multi-property owners and other payers of Council Tax paying more.)
The next phase would be to cut income tax rates and jack up the new property tax to yield the same amount, with fair measures for hard cases of poverty. The housing market would start to free up and the beginning of a tax shift from income to land values [LINK]: with all its benefits would have begun. Other harmful taxes such as VAT etc, which tax creativity to be trimmed ASAP. All for the chop in time.
posted by Charles Bazlinton author of The Free Lunch - Fairness with Freedom
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