The Member for Canberra, John Langmore, has made a couple of pertinent points about betterment tax in this paper and on ABC radio in the past week.
The debate flared again a couple of weeks ago when I had the impertinence to suggest that the ACT Government would not get much sympathy in its attempt to balance the Budget while it continued to give developers a 50 per cent rebate on betterment tax.
The debate began in 1913, so my contribution was hardly new or original. In 1913, at the founding of the capital, it was decided to have a leasehold system to prevent land speculation. Ever since, administrators, politicians, developers and speculators have done their damnest to pervert leasehold either so they could line their own pockets with the increases in value that come from changes to more profitable uses of land or out of the honest but misguided view that land developers need economic encouragement.
The latter view has been rejected by successive inquiries, including one by Justice Rae Else-Mitchell in the mid-1970s.
Betterment tax is a misnomer. When someone is given a piece of land for 99 years for a single residence they pay the Government some money, called a premium. If the Government (which owns all the radical title over land in the ACT) decides to change the permissible purpose to something more profitable (like medium density or commercial) it charges a further premium.
Professor Max Neutze and others have argued that that extra premium should be 100 per cent of the increase in value created by the change in land use.
The head of the ACT Department of Environment, Land and Planning, Jeff Townsend, argued that it should be something less. At present it is 50 per cent for redevelopment on leases older than 20 years, in other words nearly all redevelopment sites. Townsend says many developments would not go ahead without the discount because they would be uneconomic, and that would be bad for the ACT economy.
Langmore’s pertinent point is that why should development be given what in effect is a subsidy from government coffers when there are many other deserving industries.
He says also that the ACT Government should seek advice from a wider range of people.
Both points highlight a need for diversity.
Indeed, when you look at the ACT it seems the economy and its government revenue base are far too narrow. Far too much of it centres around housing (mainly for federal and ACT public servants) and construction (mainly for federal and ACT public servants). One day the Parkinson’s law bubble will burst. The Federal bureaucracy will stop growing, or at least stop growing at the rate it has in the past.
Then Canberra will have to diversify.
The ACT’s revenue base is distorting efficient use of community resources. The low betterment tax results in a drain of community value to a lucky few and results in developments which would otherwise be uneconomic.
The ACT’s high dependence on other land revenue is equally distorting. The golden goose might stop laying so many eggs. High land tax, compared to NSW and other states, might result in big investors in rental property going elsewhere, leaving the ACT Housing Trust.
Stamp duty is a worse problem. The median house in Canberra attracts duty of $4055, or 2.56 per cent of value. In 1977, the median house attracted 0.97 per cent of value.
The bracket creep in stamp duty over the past 20 years has been appalling. Houses over $100,000 are attracting a marginal rate of 3.5 per cent. That rate was set in 1987 and has not been changed.
A $250,000 house which is not all that much these days attracts duty of $7250.
That is a big slug. It means people think twice about moving to another dwelling. It means they extend rather than move and when they get older and the kids leave they stay put in a house that is too big for them and costs a fortune to heat and water the garden. It adds up to inefficient use of housing, for which ultimately the whole community pays and, perhaps, ironically, not much more, or even less, revenue.
Langmore is right. The ACT Government needs more diversity in advice and more lateral thinking, and heaven knows there are enough capable people among our universities and industry associations in Canberra to give it.
Then Canberra might then get away from its development dependency and start using community resources on a wider range of industry.
It has been good that without the Assembly sitting in the past few weeks that the local debate has moved from personalities to bigger issues.