Site value Tax far fairer than Residential Property Tax
Policy makers, including the Finance Minister Michael Noonan, are preparing to implement an unfair residential property tax in the 2013 Budget.
With only two weeks to the Budget, we propose that the government tear-up their plans for a residential property tax and implement the much fairer Site Valuation Tax (SVT) instead. Site Value Tax is a taxation reform included in the Irish government’s current Program for Government and the National Recovery Plan 2011-2014. It levies an annual charge on the value of all developed and undeveloped zoned land including the site under every building in residential use. It does not include un-zoned land i.e. agricultural land, forestry and peatlands. It does not include developed commercial property currently subject to local rates but it is expected that SVT will replace commercial rates in due course. It does however, include land zoned for commercial uses not currently subject to rates.
Research by Smart Taxes and other groups has shown that SVT has clear benefits over other kinds of property taxes from a number of perspectives; macro and micro-economic, environmental and social. It will assist local and central government to plan and develop effectively while providing a sustainable source of income.
Site Value Tax FAQ
What is the Difference to a Property Tax?
Site Value Tax differs from a property tax in that the property tax is imposed on the value of a property (i.e. the building and the site), while Site Value Tax is based only on the value of the site or land in the property parcel. Land value derives from location and service access, meaning that, for instance, a site in a central location with good transport will pay more than a relatively isolated site. It would also apply to undeveloped zoned land, empty building sites and derelict sites.
What are the Economic Benefits? Unlike other taxes, Site Value Tax does not impose a cost on economically beneficial activity, as VAT does on consumption or PRSI does on employment. Instead, it charges for the benefits of the land’s particular location, which is not created by individual land-owners. Location benefit comes from access to services, be they publicly-funded infrastructure and amenities (roads, schools, parks, etc.), or the community at large (shops, etc.). Site Value Tax enables the investment that creates this location benefit to be returned to the community rather than to the private land-owner.
In contrast to commercial rates or other property taxes, the investment of landowners to improve their property is not taxed. Site Value Tax recognises that this type of investment is productive, and should not be discouraged. What should be discouraged is unproductive activity such as land speculation. Since Site Value Tax taxes all zoned land, it discourages land hoarding and speculation.
Site Value Tax will also replace transaction taxes such as Stamp Duties, Development Levies and Part V type obligations. These are a barrier to the purchase and sale of land, which means that some land-owners will hold onto their land without being able to develop. Instead, we should encourage such landowners to sell their land if they are unable to develop profitably, and so create a clearer market in development land.
For more information on the economic benefits, see:
What are the Environmental Benefits? Land is a finite resource. By imposing a charge on the ownership of land based on its market value, Site Value Tax discourages over-zoning and creates incentives for owners to use land as effectively as possible. This will ensure that land is used more efficiently in future and mitigate urban sprawl.
What are the Social Benefits?
Site Value Tax will encourage economic activity and will discourage the under-use and dereliction of properties. It will also provide a revenue stream for local and national government investment in public services. The tax will include temporary exemptions for homeowners who purchased their land at the height of the boom, while senior citizens will be able to defer payments until their home changes hands. The tax also helps infrastructure investment by allowing the government to capture the rise in land values caused by infrastructure creation. This prevents public expenditure serving to enrich private landowners at the expense of taxpayers.
Stephen Reed, former Mayor of Harrisburg, discusses the effect that Site Value Tax had upon the city’s economy:
Much of the research and experience contributing to the Implementation Paper was derived from a workshop hosted by the Urban Forum Workshop. The papers and presentations that contributed to this can be found below.