Tim Pallas protects land tax revenues – and the people of Victoria

The Victorian Treasurer yesterday dismissed belly-aching by holders of valuable parcels whose private joy over the strong rises in land prices comes with a sting – their State Land Tax went up too.

‘‘The government is not considering reducing land tax rates in response to a cyclical upturn in land values,’’ Mr Pallas told the AFR’s Larry Schlesinger.

Schlesinger observes land prices have surged by as much as 160 per cent in the last two years according to CBRE – which is reflected in the municipal land valuations used to calculate land tax.

By definition, the holders of expensive land have the means to pay their land tax. If they do not, selling out after such strong rises will be painless and profitable.

The blatant hypocrisy of landholders is exposed in the endless glossy property advertisments in Fairfax that energetically point to ‘holding incomes’ from car parking, slum housing or tumbledown warehouses to meet this known and predictable charge. Land tax oppresses no one.

Land tax is the single best revenue base available to Victoria and a very useful automatic stabiliser. If land prices had gone down, not up, land tax would have retreated, cushioning landholder losses – although the two year assessment delay blunts this virtue. Prosper urges Mr Pallas to upgrade to annual revaluations, easily done with computer assisted mass appraisal of the existing two year valuation cycle that re-prices half the land every year.

Rent-seeking through landholding is a lazy and parasitic placement of capital. The diversion of two generations away from load-bearing risk-taking investment in business has destroyed Australia’s industrial base – and people wonder why living standards are falling (real gross national disposable income per capita).

Don’t take my word on this. Consider:

No doubt exists that rent seeking in general leads to serious inefficiencies in this direct sense, but its indirect damage is even worse. Drawing the bulk of intelligent and energetic people in society into activity that has no social product, or may have a negative social product, is more important in explaining the stagnation of these societies than the direct social cost of the rent seeking. Gordon Tullock.

Schlesinger helpfully puts the bleeding holders’ position: ‘‘I’ve objected to my latest valuation, but have been told to go jump in the lake,’’ said one investor, who owns commercial buildings in the CBD ‘‘Some landlords are going to go broke.’’

Anyone failing in the biggest land boom in Australia’s history richly deserves their fate.

The top land tax rate of 2.25 per cent kicks in on individual landholdings over $3 million – not including the buildings. Do landholders on this scale deserve relief? I reserve my sympathy for the poor and down-trodden.

Victorian revenue from land tax is forecast to rise 28 per cent this financial year and exceed $2 billion for the first time, boosted by the land tax surcharge on absentee owners to 1.5 per cent from January 1 2017. Good. I see no earthly reason why we should tolerate rents generated here being spent in the hot spots of London, New York or Hong Kong.

The continued exemption from tax of land deemed primary production within urban zones is an insidious sop to landbankers – but that is a fight for another day.