Ron Gilbert, a prolific letter writer on matters economic, and sometime correspondent to the Oped pages, has long been campaigning to have change-of-use, or what we once called betterment charges abolished. He's a former senior Treasury officer who is always sound on his classical economic theory, which makes me rather hesitate to disagree with the conclusions he draws from that theory. With some delight I announce today that I, for once, do agree with him, if for reasons which will make him aghast.
Ron wants to get rid of betterment charges because they are inefficient, economically and practically, uncertain, and lack the cardinal values of clarity, simplicity and transparency. I agree with him. He also thinks them inequitable and illogical. Perhaps his most scathing (but true) remark is that the betterment tax scheme (which has about it elements, beloved to some ideologues, of soaking the rich) probably costs more to administer than it raises.
On that account alone, I think we can do better. Simply on the ground that the taxation of land is, or ought to be, a wonderful, and particularly equitable and logical, way of raising revenue to provide the public with schools, policemen and nurses and other things that they need.
And, as it happens, there are far more easy ways of having the public cop a backhander every time they allow a developer to do something he (or she) is not otherwise entitled to do. It's just a common or garden land tax, far easier (and cheaper) to administer, simple, transparent and efficient, suffering no problems of uncertainty, and guaranteed to raise far far more money, and over a sustained basis, than any betterment taxes. Since it could be collected simply by putting a surcharge on the rates, indeed, the gathering of the tax should not need to involve a single extra public servant.
Perhaps those who established Canberra were daft, as RS suggests, but it was not only a romantic (and bipartisan) attachment to the theories of the American prairie economist Henry George which determined that the land would be leased, rather than sold, to settlers. There was, for example, the Treasury view of the day that the development of Canberra should ultimately pay for itself through land sales, rentals and local land taxes. There were the bad experiences of the 19th century, in which bold rich men had defied governments and gone out to squat on large tracts of land, later claiming (fairly successfully) titles. And there were the ecological and environmental disasters caused by rapacious land exploitation (ending up in the terrible 1880s and Federation droughts). These made sensible people decide that in future there would be closer controls over the way people ''could do what they liked'' on land they claimed to own.
And there was also an idea - as right today as it was nearly 100 years ago - that in very real ways the land of the area reserved for the national capital should be owned by all of the citizens of Australia: it was their capital.
The Ron Gilberts of the day insisted that no right-thinking man or woman would buy a square inch of the new territory because of uncertainty and insecurity of tenure. Nor would banks advance a razoo, they said. This argument resurfaces from time to time: one sometimes gets the impression that some of those who advance it are urging this attitude on banks. But it is nonsense many times over. Almost all of London is leasehold, even if the blokes issuing the leases (chiefly the Duke of Westminister) are private owners, not the state. And they exercise their rights (yea, even to betterment taxes) with much more rapaciousness than the tender-hearted ACT Government. All of the shops inside, say, the privately-owned Canberra Centre are short-term leaseholds, most on terms very disadvantageous and insecure for the leaseholder, but somehow leaseholders can borrow against the ''titles''.
Henry George was important too, but one did not have to adopt his full range of ideas. One could note, for example, his point that land was there and that one could not evade paying taxes on it. Or for very long anyway. There was already an active tax dodging industry 100 years ago.
There was George's idea - which RS thinks dubious - that increases in raw land values should accrue to the community because the community ''creates'' the increases. What this means is that a quarter acre near Uluru could be bought for 10c, but the same land at say Civic is worth, say, $800,000. Why the difference? It is because the land near Civic is near shops, services, markets, jobs and so on, not because of any particular virtue in the land, or the land buyer. In due course such land might become more valuable because, as a result of further developments, it is even more richly situated. RS argues, weakly, that some of the extra value comes from the actions of developers themselves, or (even more dubiously, as one will see from the US at the moment) that it happens naturally over time. Here he is trying to disaggregate from the collective set of actions by others which represent the community at large.
Change of use arises when someone who leases land, say for a house, wants to turn it into a factory. As the first, it is worth, say $400,000. It was bought at this price because its purpose was restricted. As a factory site, if that use is now to be permitted, it could be sold tomorrow for $2million. The rationale for betterment is that the leaseholder never paid for that right, and, if he is now to be permitted to exercise it, he should pay all or some of the difference. That seems reasonable in principle to me, but if extracting it is inefficient, I'd substitute instead a land-tax surcharge on the rates, let's say for five per cent of the value each year. A person with new or extra value in their land simply pays back rather more to the community. Perhaps more over time, of course, but who would object to that given the extra value they had received?