In recent weeks a land tax revolt has been brewing in Tasmania. Thousands of taxpayers have already lodged objections against strongly rising property valuations, which have led to land tax bill increases of 1000 per cent in some instances.
A recent protest rally reinforced public concerns about land tax bills growing between eight- and tenfold. For example, one rally participant spoke about how land tax liability for a bed and breakfast lodging had grown from $4800 to more than $20,000: a 317 per cent increase.
Other business owners at the rally referred to rapid land tax hikes amid a slowdown in retail activity.
Looking at the Tasmanian land tax structure, it is easy to see why there is a growing sense of angst against the tax.
For a start, Tasmania has the lowest tax-free threshold of all the states, with tax applied from the measly land value of $25,000. South Australia has the second lowest threshold, which cuts out at more than $110,000.
The state's top land tax rate is also relatively uncompetitive compared with the mainland states. My state tax benchmarking report last year found that Tasmania's reference business land tax liability was the second highest across the states and more than 50 per cent higher than the states' average.
The latest Commonwealth Grants Commission report finds that the Tasmanian State Government makes the greatest effort out of all jurisdictions in raising revenue from its land tax.
There is little question that the Bartlett Government has every incentive to squeeze the land tax lemon to plug a projected Budget deficit for this financial year.
Last financial year the Government raised $80 million in land tax revenue. In the Labor Government's first full fiscal year it raised just $26 million. This represents a rise of 208 per cent.
On the back of expectations of rising land values throughout the Apple Isle, the Bartlett Government is anticipating to rake in an additional $10 million in land tax revenue in 2009-10.
Given the real-life accounts of exorbitant increases in land tax liabilities, it is most likely that the State Government's estimate of $90 million in total land taxes for this financial year will be an underestimate.
Some economists and supporters of American writer Henry George's tax ideas dismiss complaints levelled against land tax. They argue that a tax on the unimproved, ground rental value of land represents a perfect, nondistortionary tax that ought to replace most, if not all, other taxes.
Others do not go so far as perceiving land tax as a magic pudding revenue-raiser, but nonetheless argue for more money to be taken from this tax source.
For example, it is likely that the federal state tax review, chaired by Commonwealth Treasury secretary Ken Henry, might recommend an extension of the land tax base as a way of dragging more taxpayers into the government revenue net.
But it is in this area of land tax that there is a justifiably wide gap between the perceptions of the policy elite and everyday taxpayers.
While the founder of modern economics, Adam Smith, favoured a tax on land rents, he recognised the potential problems surrounding frequent revaluations of land values.
If anything, Smith wanted certainty upheld in tax administration. However, it is clear that the independent land valuation process in Tasmania gives rise to the fiscal illusion of significant, often surprising and mostly unwelcome changes to implied land tax liabilities.
Anecdotal reports suggesting recent land tax hikes threaten not only local jobs but the closure of entire businesses indicate the land tax system can indeed influence the allocation of labour and capital.
Tasmania's land tax system is far from being the perfect tax. So, what should be done to make it better? Capping the land tax revenue collected this financial year to the State Treasury estimate of $90 million, and returning excess revenue back to taxpayers, would be a start.
Any future tax relief could be focused on reducing the progressivity of the tax structure by knocking out the top land tax rates. Addressing the low threshold might also be in order. These steps would play a role in improving Tasmania's overall tax competitiveness. They could also be the start of a broader movement to institute stronger fiscal rules to ensure the State Government lives within its means.
If these reforms eventuate, then it could be said that the latest land tax revolt would well and truly punch above its weight, delivering real economic gains for all Tasmanians.
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