Areport to the Government on betterment tax recommends that the rate be cut to 50 per cent. At present it is 75 per cent, but under exisiting legislation, it is scheduled to rise to 100 per cent on September 1.
Betterment, or change-of-use tax, is charged when a leaseholder seeks to change clauses in the lease to permit the use of the land for a different purpose, for example, changing residential to office use.
There are sound reasons for charging the fee for a change in use. The ACT has a leasehold system. People have bought leases, initially from the Government and later from each other. The leases prescribe certain uses. People do not buy land as such. Often people or organisations get land for charity or sporting purposes. As the city has developed, some of the original uses became no longer appropriate. Also, city development has resulted in greater demand for different sort of land uses. A lot of that demand can be put down to public effort. It has come in the form of government infrastructure and services both to the land and its people over the years. There has been substantial public investment in Canberra. If someone holding a lease wants to take advantage of that past investment by changing the purpose, they should contribute to the overall public investment.
Also higher densities and commercial uses often require more water, stormwater, sewerage and electricity infrastructure and more government services in the future.
A change-of-use fee also serves as a controlling device for more orderly planning.
The report to the Government by Professor Des Nichols recommends a much lower change-of-use fee than at present. His case is a weak one. He wrongly compares Canberra to other cities, notbaly Wollongong and Sydney. Both those cities have different development histories and a different form of land tenure. Both have lower public investment in infrastrucutre. If anything, Wollongong and Sydney should aspire to Canberra’s level of residential amenity and planning, rather than the other way around.
Professor Nichols identified several difficulties with the present system. Some of these can be addressed.
The first is an inconsistency in Government charging. The Government charges rates and land tax on the basis of unimproved value, which in turn is based on a value that includes an element for development potential. However, when it comes to assessing a change of use charge, the Government charges the difference between the value under the old use (the before value) and the value under the new use (the after value). And yet when assessing the before value, it ignores the potential for future use. The simple resolution of this inconsistency is to adopt the rateable unimproved value as the before value in all cases and for redevelopment potential to be excluded from rating valuations. The tax would then be levied on the hypothetical rateable value if the land use were in fact changed.
Professor Nichols saw difficulty in have dual planning controls. One control is the use determined under the territory plan (a form of zoning) and the other is the use determined in the lease-purpose clause. Professor Niocholls recommends in the long term that the ACT go to a pure zoning system. This would be a wayward step that would emphasise development and investment objectives over the amenity of existing residents.
Development and investment are important, but so is existing amenity. Too often in Canberra developers sieze opportunities based on existing amenity. One or two medium density dwellings, shops or office blocks in a suburb may not matter much, but too many will result in a blight. The first few redevelopments in a suburb typically bludge on the ambience created by the gardeners, planners and infrastructure providers of the past. They get a big boost in value based upon existing ambience and amenity.
This is something zoning cannot adequately deal with. Zoning would allow whole sections or even suburbs to be changed. Sensible planning would allow dotted change. That requires single-lease powers.
Indeed, the Govenrment should look closely at the extent of redevelopment and start imposing some percentage limits on medium density and dual occupancy in suburbs and sections of suburbs. Zoning is not the answer. It suits developers, not residents. Residents would prefer limited and restricted mixes of densities rather than open slather on higher density like Kingston and Braddon.
Professor Nichols has pointed to a lack of transparency and simplicity in the present system. He is right. Changes of land use and the charges imposed should be made public. He has pointed also to some difficulties with the way commercial and industrial leases specify lease purposes with too much detail. This deserves attention.
The report argues that in a zoning system, developers could be made to pay for prospective improvements in infrastructure, based on road frontages, numbers of workers or residents and other criteria. However, this is not especially different from a betterment tax, except that it is more open to abuse as requirements could be added or subtracted on the basis of political favouritism.
Professor Nichols’s argument that a developed property brings more rates later on is no argument for reduced betterment. The new rates are to support the cost of putting in and maintaining new infrastrucutre.
There is an argument about uncertainty of valuations and an incentive to prevent existing users from sitting inefficiently on land which would be in the community interest to develop. This would warrant some discount from the full 100 per cent betterment, but not to the extent Professor Nichols recommends.
That would be an unjustified windfall to some developers which would ultimately be paid for in cash and kind by the mass of residents.