Martin Wolf wrote an excellent article attacking the culture of speculation that the absence of betterment taxes sets off and the massive financial damage they do. Until then I saw the issue as you have presented it – a funding issue, an equitable and efficient opportunity to raise revenue, the better to reduce taxes elsewhere. But I think Wolf is right – it’s a kind of original sin at the heart of our financial system. The CIS Peter Saunders who is now firmly ensconced back in the UK used to warn us of the moral hazards of all this – without his institution ever doing much to my knowledge to promote the taxation of betterment.

Paul –

I will take a determined effort to introduce land taxes.

I’m glad you’ll make this a personal mission. But seriously, I agree that the biggest problem facing any scheme is the political will and capacity to get anything done. But that’s the story of rents through history I guess

Georgist ideas were very influential in early 20th century Australia – part of our progressivism, now sadly lost. In particular, South Australia, as well as being the first state in the world to give women the vote, based its tax system on land value increment. They even implemented that wonderful self-enforcing mechanism that George suggested: the taxable value of the land was whatever the taxpayer wanted to state it was – the only catch was the state reserved the right to buy it at that valuation!

The premium paid on housing close to transport (particularly rail) is very high. This probably explains why CityRail (NSW) passengers have higher incomes that the rest of the state.

People are on the train primarily so they can to get to work, those who are unemployed, retired, on single parent pension, etc. don’t feel the urge to ride back and forth on the train all day. I’m completely sure that if you did a statistical survey of people in peak hour traffic and people on peak hour trains you would find the people in the cars earning significantly more than the people in trains.

Sticking with rail, higher fares would likely effect the price elastic customers who have traded time for money (or space) by living further from the station. They will take to driving instead (with other negative effects) whilst the price inelastic customers who paid more to live close will still push up housing prices and pay the higher fares.

So on the understanding that people have very little choice about going to work in order to earn a living, you have just pointed out that every single person catching a train to work is in fact contributing to the public well being partly be buying a ticket and partly be choosing not to drive. Having admitted that, might be time to drop the “unearned increment” concept.

Besides, in the very long term, land prices don’t increment much faster than inflation anyhow, so taxing the capital gain is just a way of ensuring that the “tax by stealth” nature of inflation equally bites those who try to hedge against it by buying an asset. Any time government gets their budget out of control they just have to print a bit of money, inflate the currency then hold their hand out for tax on all the capital gains. If the same government fronted up to the same people and told them they were going to extract the same tax directly they would be out on their ear. It’s a scam.

good points. Land taxes are certainly the easiest way to go. Another would be to auction off the right to redevelop land. That wouldnt tax the increase in house prices but would cream off the rents made from property redvelopment.

of course, all these things depend on the Henry Review being alive. I will take a determined effort to introduce land taxes.

I wonder if this would be a case where a plutocratic voting scheme would be equitable. Ie forecast the likely tax required to finance a new project and give people votes in proportion to their likely tax.

MTR in Hong Kong benefits from a similar LVC system. They now run Melbourne’s metro. If only more knew how train lines were funded in early Oz, ie Glen Waverley.

Fred Harrison’s Wheels of Fortune (free download) explains the history of infrastructure financing.