Land taxes are currently structured in such a way that the State Government gets more money if land prices are high. This is an incentive cycle that needs to be broken.

Stamp Duty

Stamp duty

Stamp Duty

Stamp Duty is a state government tax that is charged every time you buy a property. You can read more about it in Land Taxes. is charged as a percentage of the price of the property sold, so the more the property costs, the more money the state government gets.

Stamp duty

Stamp Duty

Stamp Duty is a state government tax that is charged every time you buy a property. You can read more about it in Land Taxes. should be replaced with a flat tax of maybe $300.

Suddenly, the State Government would no longer have the incentive to keep house prices high. Additionally, they would reduce the costs of buying a house. But on the downside for the State Government, they would no longer be receiving the income from the Stamp Duty

Stamp Duty

Stamp Duty is a state government tax that is charged every time you buy a property. You can read more about it in Land Taxes. . There's a solution to that problem too, as you'll see later in this article.

Land Value Tax

No doubt you will recall from the Land Supply and Demand article that one of the things that is keeping housing prices high is that some people have bought large chunks of land, and are just keeping it rather than using it. The solution to this problem is a Land Value Tax

Land Value Tax

Land Value Tax is a tax on the value of the land, but not on the value of the things on the land (such as buildings); buildings are not taxed, land is. You can read more about it in Land Taxes. .

A Land Value Tax

Land Value Tax

Land Value Tax is a tax on the value of the land, but not on the value of the things on the land (such as buildings); buildings are not taxed, land is. You can read more about it in Land Taxes. is a tax charged on the value of the land, but not the developments on it. For example, say you buy a place for $500,000, and 60% of that ($300,000) is the price of the land, then you are taxed only on the $300,000.

Land value taxes have their own problems. These can generally be alleviated by some carefully placed exceptions. I would recommend exceptions for the following:

• Each person gets an exemption for one property that they own more than 50% of. In the case of married couples, they get an exemption on two properties that they jointly own.
  
• Rural land

Non-rural exemptions would be capped at ten times the median wage. Suppose, for example, that the median wage is $40,000. Any land under $400,000 would not be taxed. So on the $500,000 property above, there would be no tax if it were the person's only property, or no more than the second property for a couple.

The beauties of this scheme are many:

• Ordinary people are not taxed
  
• As there are no taxes for ordinary people, they will be better able to afford land than the big business interests. The big business interests will still be able to buy land, but land will over time naturally move into the hands of ordinary people, rather than corporations
  
• It allows the State Governments to be weaned from their addiction to Stamp Duty

  Stamp Duty

  Stamp Duty is a state government tax that is charged every time you buy a property. You can read more about it in Land Taxes. without taking as much of an income hit
  
• As couples can buy an additional property without incurring this tax, it means that they will be more able to become investors in the rental property market, which will keep down rental costs as well under the new scheme
  
• It gives State Governments an incentive to release more land; as rural land is not taxed, it will be in their best interests to rezone it, thus releasing it for residental or commercial use.

The purpose of this tax is to control land affordability (just as interest rates are used to control inflation

Inflation

Inflation is the amount that the price of goods and services go up. For example, if your wages go from $10/hour to $20/hour, but potatoes go from $1/kg to $2/kg, then your wages haven't gone up in real terms, because one hour's work still buys 10kg of potatoes. Inflation is generally regarded as a bad thing because, while your work is worth just as much in the example above, your savings are worth less. ). As land affordability goes down, the percentage of this tax should go up. But when affordability goes up again, the percentage of this tax should go down.

The tax will need to be at a low level, at least initially. I suggest a fraction of one percent (say 0.3%), so that on land valued at eg. $500,000 (with a total property value of say $800,000), but eg. belonging to a corporation, it will be $1500/year. But as land prices adjust downwards in response to the new scheme, the amount of tax paid would go down.

As land prices adjust to the new scheme, the percentage can be gradually adjusted. If housing costs increase relative to wages, it can be increased to keep prices down, which would decrease inflation

Inflation

Inflation is the amount that the price of goods and services go up. For example, if your wages go from $10/hour to $20/hour, but potatoes go from $1/kg to $2/kg, then your wages haven't gone up in real terms, because one hour's work still buys 10kg of potatoes. Inflation is generally regarded as a bad thing because, while your work is worth just as much in the example above, your savings are worth less. , and thus decrease the likelihood that the Reserve Bank would increase the interest rates. Thus interest rates could be a more precise instrument for affecting inflation

Inflation

Inflation is the amount that the price of goods and services go up. For example, if your wages go from $10/hour to $20/hour, but potatoes go from $1/kg to $2/kg, then your wages haven't gone up in real terms, because one hour's work still buys 10kg of potatoes. Inflation is generally regarded as a bad thing because, while your work is worth just as much in the example above, your savings are worth less. . It might even be useful to have the Land Value Tax

Land Value Tax

Land Value Tax is a tax on the value of the land, but not on the value of the things on the land (such as buildings); buildings are not taxed, land is. You can read more about it in Land Taxes. rate controlled by the Reserve Bank.

Of course, all this is no substitute for a suitable land release

Land release

Land release is a euphemism for the process whereby the government rezones land from a lower density zoning (such as rural) to a higher-density zoning (such as suburban). If the government hadn't restricted the land, it wouldn't need "releasing". You can read more about this in Land Supply and Demand. policy, but, as stated above, it will encourage land release

Land release

Land release is a euphemism for the process whereby the government rezones land from a lower density zoning (such as rural) to a higher-density zoning (such as suburban). If the government hadn't restricted the land, it wouldn't need "releasing". You can read more about this in Land Supply and Demand..

Conclusion

The State Government should flatten the Stamp Duty

Stamp Duty

Stamp Duty is a state government tax that is charged every time you buy a property. You can read more about it in Land Taxes. , and supplement its reduced income with a carefully constructed Land Value Tax

Land Value Tax

Land Value Tax is a tax on the value of the land, but not on the value of the things on the land (such as buildings); buildings are not taxed, land is. You can read more about it in Land Taxes. scheme as suggested above.