Deloitte partner Mike Shaw on Land Tax option
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1. A land tax proposed for New Zealand could raise $3.8 billion in revenue annually based on taxing all landholdings at 1% of land value. Lower rates like 0.5% were estimated to raise less. 2. There are many issues to consider with a land tax including impacts on different sectors like farmers, disputes over land valuations, potential insolvency of highly leveraged landowners, and political pressures from groups seeking exemptions. 3. Specific sectors that could be impacted include owner-occupiers, residential and commercial rental properties, agriculture, forestry, and industry. Retired citizens with valuable land but low incomes would also be affected.
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Deloitte partner Mike Shaw on Land Tax option
- 1. A TAX SYSTEM FOR NEW ZEALAND'S FUTURE 1 December 2009 Afternoon Session 1 Base broadening – land taxes Discussant: Mike Shaw, Partner, Deloitte
Editor's Notes
- Non distortionary, subject to land owners wanting a low value and potentially will defer development especially if a low value exemption applies Efficient to collect if it is simple to administer, will be more difficult if exemptions/relief provided Land values to drop will depend on the rate imposed, 1% tax expected to drop between 16-25% Re wealth tax, obviously only hits those with land, other areas of un taxed capital are not taxed, e.g. overseas land, art, expensive boats, gold, jewellery etc, or as one official said why not all those with blue eyes!
- Like GST, one school of thought is that all land would be caught and no exemptions given
- Not sure this addresses the perceived or real tax advantages obtained by residential landlords; basically post the initial one off reduction in land values, all other cashflows will remain the same, i.e. lower purchase price going forward offset with higher rates bill!
- Note if tax deductible the net revenue gain will be $3.12B assume all taxpayers pay at 30%, does not take into effect tax losses, different margin tax rates, tax exempt entities (charitable landlords) etc.
- I am not qualified to comment how valuations are determined other than when I look at my land holdings, at times they are a complete mystery to me Land values based on alternative use, sheep and beef farm which is convertible into dairy, golf courses valued based on land that can be developed into residential sections etc. Not that I understand all the different classifications, Councils (and private land owners?), to avoid/reduce land tax, may want to classify land in low value uses, albeit I suspect there is a risk whether the land can be converted back into a high value use.
- I am not qualified to comment what will happen, just another impact that needs to be considered
- Should we have an exemption, compare 2 people owning $500k of land, one being a section in Khandallah and one 10 minutes away as a life style block which is below the threshold!
- Already discussed, would have been interesting if this was introduced just before the credit crisis ands whether the fall of the finance companies would have been more dramatic
- Land value reduction may open up new land for houses as people look to realise value to reduce cash cost of land holdings
- Not sure whether gross or net leases will result in a difference, even net leases which allow landlords to pass the cost on to tenants will be self corrected when the lease is reviewed as most lease reviews are based on gross lease returns