A major cause of the current concern over Rates is the recent escalation in land
values. A significant factor in this has been the attraction of property
investment on the basis of tax set-off or Negative Gearing (lately called Positive
Under this design losses on the property investment are set off against other
taxes. Thus the Govt is actually funding and so causing the escalating land values.
Lifting the interest rate worsens the problem by increasing the tax loss, so further
reducing the tax liability and increasing the attraction!
The revenue loss carried by other taxpayers and fostered by Government should be recovered by:
—negative Gearing in reverse—to fund Local Government.
- A national Land Value Rate, collected on behalf of Central Government, by and shared with,
- The reduction and ultimate abolition of G.S.T. and its compliance costs.
The Land Value Rate should initially have interim gradations of income/land value. There
should also be greater flexibility for the Land Value Rate to be payable now or be a charge
against the property or set off against other taxes—at the payer's option.
These are interim accommodations to people not to property (eg: low income earners such as
Infrastructure/Natural Monopoly reticulation is a core function of Central and Local
Government which has a direct cost/benefit reflected in land values. The capital cost
of this benefit must be recovered in the short, medium and longer term from the land
values so enhanced, rather than be privatised. The deceptive conflation of land and
improvements as property confuses public and private property. The current
sacrosanct industry of privatising public property is destroying society—assisted by
One effect of the national Land Value Rate would be to restrain further increases in
land value. Any charge on land value reduces the price by the amount of the charge
capitalised at the current rate of interest1.
Land price only arises because the community fails to collect the annual economic
rent properly due to it, which is then capitalised as selling price. Thus the
charge reduces the selling price. It is not passed on!
Land value is a differential value. It has no cost of production. This differential
value is reduced by any charge levied on it. Thus any Land Value charge restrains
the escalating base which is the underlying cause of both the Rates problem and
- 100% bank lending, available because of our relatively high interest rates.
Raising interest rates does nothing to deter or diminish the attraction of
negative/positive gearing. It may even exacerbate it by increasing the tax
losses and thus the tax rebate.
Raising interest rates adds to our Current Account Deficit and has been
demonstrably ineffective in restraining land values.
- Deferred capital outlay and maintenance. For years this has been the aim of
Local Government in the interests of keeping the Rates down. This has pushed
land values up and adds to the problem.
- Increased immigration and used vehicle imports, without providing the
infrastructure to cope (see 2 above), now adds to the problem which
must be addressed.
- Direct charges, User Pays and Uniform Annual Charges have operated to
reduce Land Value Rates from about 80% of Local Government revenue to
about 40%. Whatever justification there may be in the Local Government
context, the lower Rates have contributed to higher land values.
- After Land Value Rating was made possible in 1896 changing from Capital
Value to Land Value rapidly became popular and by 1986 was almost universal,
because the majority of Ratepayers (homeowners) gained a Rate reduction. The
average ratio of improvements to land value was about 3:1. Capital Value
Rating, had encouraged the speculator but penalised the investment of labour
and capital. Land Value Rating reversed that by removing the charge on improvements
at the expense of those below the average ratio.
- Now after 100 years, or even 50 years, the buildings have depreciated and the
land values have escalated. The ratio has been reversed! Many homeowners now
live on National Superannuation, with Rates (on Land Value or Capital Value)
beyond their ability to pay. Reverting to Capital Value is a minor, misleading
alleviation, because the land value is still the major component. Prospective
homeowners can neither rent nor buy in. The Kiwi saver plan will perpetuate
Land Value Rating on the basis proposed accommodates temporary hardship and assists
prospective homeowners. Thereafter it reduces interest charges. i.e. higher Rates,
lower interest payments, lower taxes and higher wages.
- It usually means lower rates for the majority of Ratepayers.
A common ratio of improvements to land value has been about 3:1. Properties
developed above this (usually homeowners) get a Rate reduction at the expense
of those with a lower ratio—usually under-developed or vacant sites held
for speculation, and old commercial properties with tax—deductible Rates.
- It promotes employment, because:
Given these incentives every person who gains employment in primary industry or property
improvement of any sort generates four more job opportunities downstream in secondary and
tertiary industries. If another 10% of our primary work force, i.e. 25,000 were employed
in housing, farming, forestry, fishing and transport another 100,000 would find work
(ex Auckland Star, 1.5.88).The labour market finds its rightful, dominant place.
- It reduces the price of land which means a lower outlay, a lower mortgage
and greater accessibility for home-builders, farmers, developers and property
improvers of any sort.
- It deters the speculator and under-user of land with a constant unwearying
stimulus for improvement and better land use.
- It ensures the optimum use of land free of further penalty—truly an incentive
tax, both stick and carrot. Thus it tends to bed in and become accepted.
- It generates steady urban renewal as in Sydney and hitherto in Wellington,
rather than deferred boom and bust as in Auckland. Renewal in Wellington has
slowed noticeably since reverting to Capital Value.
In these ways Land Value Rating reduces the disparity between the easy rich and the unemployed.
Any other form does the opposite—four fold.
- It has been widely endorsed by:
- The Royal Commission on Local Government Finance 1958.
- The New South Wales Royal Commission 1967.
- A Brisbane City Enquiry 1989. It is mandatory throughout Queensland. By the late
1980s 92% of all Australian municipalities used Site Value Rating.
- The Wellington City Committee 1989.
- The Internal Affairs Department Coordinating Committee 1989 which concluded
"... there should be a nationwide uniform base for Rating" and
"... undifferentialled Land Value Rating is the only rating system fully
consistent with efficient resource allocation. It encourages an optimal use of
high-value sites because rates based on land penalised inefficient usage of the
site ... a landowner is nonetheless required to contribute financially to the
community on the basis of that property's potential."
- The 90% of municipalities in N.Z. that by poll adopted it and likewise could
have rejected it.
- All the newer areas of Auckland—North, South, East and West which have long
enjoyed it and clearly intend to retain it. The recent change in Manukau is
not yet vindicated.
- The Cities and Districts of Palmerston North, Waitakere, New Plymouth, Horowhenua,
Kaipara, Tararua, Waimakariri and Franklin, where proposed reversions to Capital
Value were rejected, most of them heavily, by as much as 8:1.
- The growing number of American cities that now employ the 2-Rate system levying
5–6 times more on the land value than on the improvements with startling effects
on building permits and employment.
- It is environmentally friendly. By optimising land use it maximises
the natural, undisturbed environment. It discourages urban sprawl.
Capitalised annual "economic rent" (land price) is the underlying
cause of currency inflation.
Money is a measure of value for the labour content of goods and services,
for the purpose of exchange now, progressively or later. Introducing the
capitalised future value of a gratuitous licence which has no labour content
into that exchange process expands that measure, but with no corresponding
increase in goods and services. Too much money chasing too few goods = inflation.
Over time the value of the labour products diminishes, whereas the licence value
appreciates, compounding the effect.
The inflated/devalued currency is most rapidly reflected in higher land price
which inflates/devalues the currency. It creates a pernicious spiral on which
some live high whilst the majority strive to survive on the treadmill. Easy
money accelerates the process. Collecting the "economic rent"
annually (Land Value Rates or Land Value Tax) or by a
Development Levy, eliminates
the"business cycle" of boom and bust.
- It recovers some of the community-created land value for community purposes.
There is thus a unique, important, moral imperative in Land Value Rating
which is entirely consistent with its other virtues.
Court actions against councils have recently been brought on the grounds there
was no equitable relationship between Rates paid and the benefits enjoyed. These
actions, until recently, had only ever been taken in areas Rating on the Capital
Value—quite rightly. There is no connection between the private investment of
capital and Council services. Reticulation of any sort is better used by high-rise
improvement than extended for miles. Community services and other advantages are
more accurately reflected in site values than in Capital Values. Land Value is
itself a cost/benefit measurement.
- Those who seek to shift the charges off the land onto buildings, alcohol, petrol,
people—anything, thereby increasing the eventual unearned, tax-free gain from
speculating in land or under-using it, rather than putting it to its optimal use
- Those who themselves or as a front for others (above) claim that Land Value Rating
leads to over-intensive use of land and/or the destruction of the ambience of yester-year,
and/or undue pressure to change. It doesn't and it needn't. Old buildings can be
protected with Preservation Orders and Town Planning Ordinances. We don't have to
put the whole of society into a strait-jacket of decadence to accommodate a few
relics, however worthy. Special Valuations for Rating purposes can accommodate
those caught with a zone change entitling them to an Existing Use valuation
until the use changes.
"Mining" is more likely to occur when an excessive, speculative price has been paid,
propped up by a mortgage with cheap money leaving little over for wages. Bringing
the price back to reality with an ongoing charge in favour of the community
distributes prosperity and eases the pressure.
- Those who claim Capital Value Rating reflects the ability to pay. This specious
argument fails to distinguish between that "ability" derived from the
investment of private capital and labour which is no concern of local Government,
and that "ability" or benefit which is derived from holding natural
resources serviced by the Council, which is the legitimate concern of local Government.
Personal income is no concern of Council.
The failure to make this distinction between individual rights and the community's rights
characterises the Marxian solution to wealth disparity. From this the world now turns.
Making this distinction correctly is the issue of this age as it provides the only equitable
basis for the operation of a free market economy. Land Value Rating makes this distinction
neatly, between public and private property.
- Those who claim Capital/Rental Value Rating distributes the Rates more "fairly".
A fair Rating system is not one which merely distributes current costs equally—to the
disadvantage of the poor, incidentally, as with a Uniform Annual Charge (UAC). Rates are
related to property held. It is therefore important that they are related to those
unimproved land values generated by the community not the capital values generated by
the private investment of labour and capital.
Moreover, as a Land Value Rate reduces the price by the amount of the charge capitalized,
the site user either pays initially to a vendor or progressively, to a small degree, to
the Council. The principle of User Pays is eagerly directed at as many Council services
as possible by those who seek to relieve property of Rates, thereby increasing the land
values. However the principle of User Pays applies first and foremost to the user of the
site (and other natural resources) either as purchase price, or progressively as Rates in
favour of the rest of the community, as a means of recovering the community-created land
value to pay for Council services available to all. Land Value rating is a significant step
along that road.
Litigation, outside the provisions of the Rating legislation, has established:
Quote: Cr. Joceline White, Waimakariri District Council (in the vote retaining land value
rating), "... favoured land value because she regarded the rates paid on her land as rent for
the privilege of using it during her lifetime"—The Press 8/6/95.
- a minute cost/benefit analysis with apportionment accordingly is not the intention.
- a Council has to use the dispensations available to achieve an equitable cost/benefit
Until 2006 Auckland City was the last remaining instance of Annual Rental Value Rating—a
relic of the 19th century2. The original Provinces of N.Z.
drew their revenues from the sale and lease of land. When the Provinces were replaced by Local
Government in 1876, Rates were based on the Annual Rental Value, as in England. Within 6 years
it became apparent that with most properties being sold rather than rented, the Capital Value
was a more realistic base. Accordingly Councils were permitted to switch to or from Capital or
Rental value by resolution. Both are based on the composite value of the land and improvements
and are but the capitalised/annualised version of the other.
About this time the writings of John Stuart Mill, Henry George and others drew attention to
the unearned increase in land values generated by growing communities whether from pressure
of population or derived from public works. As a result, Sir George Grey and his associates
not only introduced a Land Tax but also a measure allowing local Rates to be collected from
land values alone if a poll of ratepayers required it. The measure was blocked by the Upper
House for three years but, in 1896, it became possible for 15% of ratepayers to demand a poll
be held to decide if the Rates should be collected from the Unimproved Value only, exempting
Under this dispensation, hundreds of Rating Polls were held, so that by 1982, just 86 years
later, 90% of all Municipalities had, by poll, adopted Land Value Rating, which accounted for
80% of Local Govt revenue. The main dissidents were remote rural areas, a few Counties with a
dairy factory carrying a big proportion of the Rates, the old Boroughs on the Auckland isthmus
largely parasitic on Auckland City, Lower Hutt, then a dormitory suburb of Wellington without
its own hard core of land values, and Queenstown—a Wild West-type speculators paradise.
It seems that during 1987 the then Government let it be known that it favoured Capital Value
Rating—for the wrong resons. Accordingly, in 1988, devious reversions to Capital Value began.
Christchurch moved from partial Land Value back to Capital Value by Council resolution. We
believe a poll should have been held.
Dunedin fragmented its General Rate into Separate and Special Rates so they could then be changed
by Council Resolution without recourse to the Ratepayers and despite their vociferous protest march.
The Mayor Sir Clifford Skeggs threatened to take his Council to Court. The Council action was not,
in fact, illegal but clearly a misuse of its powers. In 1953 the Dunedin Ratepayers had voted for
Land Value Rating with a dramatic increase in building permits as a consequence.
In Wellington, a year-long Rates Review Committee came down firmly in favour of retaining Land
Value with an adjustment to the Differentials between the City Centre and the suburbs.
Nevertheless, the then Mayor contrived to have Capital Value narrowly adopted but needed an Order
in Council to validate his procedures, which a Q.C. and the local press regarded as illegal.
In The Rating Powers Act 1988/9, the Government withdrew the traditional right to demand a
poll, at the same time as it propounded the merits of "local decisions locally made"!
Since the time of restructuring in 1989, the 90% of municipalities which had adopted Land Value
Rating by poll, has been reduced to about 40%. It must here be pointed out that wherever Land
Value Rating applies, it has been adopted by poll of Ratepayers, representing a lot of work and
profound social concern. Wherever Capital or Annual Value Rating applies, it has been imposed by
Government or Councils, contrary to the express wishes of the Ratepayers in almost every case.
In 1990 the Minister introduced a measure which would abolish Annual Rental Value Rating and make
Capital Value Rating irreversible wherever it was in place or might be adopted, subsequently. The
move failed and the Government changed at the end of that year. Since then, there have been several
moves by Councils to revert to Capital Value. All have been so vigorously opposed by Ratepayers, even
without the right to demand a poll, that the Councils have backed off. A recent instance of this was
the postal poll in Waitakere where a determined attempt by Council was rejected by more than 8:1, in
line with others in Palmerston North, Horowhenua, Dannevirke, New Plymouth, Kaipara, Tararua,
Waimakariri and Franklin. One or two moves have succeeded but have later been reversed. One or two
changes have stuck—uncomfortably. Some have compromised with a mix of Land and Capital Value for
no apparent reasons.
A valid confusing consideration in the moves to revert to Capital Value arises from the amalgamation
of urban and rural areas which previously raised and spent their own Rates. Amalgamation can mean
a highly valued rural property might be paying for urban facilities. The solution is not to revert
to Capital Value Rating, but to apply a Differential Land Value Rate which relates income to expenditure
in both town and country, so that each enjoys the advantages of Land Value Rating but not at the expense
of the other.
Land value in rural areas is related to overseas prices. In urban areas it is related to civic amenities.
Differential Rates reflect this.
The practical consensus now seems to be a basic Land Value rate with Differentials to distinguish
between Residential, Rural and Commercial zones and to offset the advantages of tax-deductibility
enjoyed by some, supplemented by UACs. N.B. The Differentials should not be extended to
allow a hotch potch of inner-city zoning dispensations, or political contrivances.
Rates now required to meet the widening cost of Regional Government due to devolution from Central
Government, should be accompanied by the shared Land Value Rate proposed. Revenue sharing, they
call it! Local responsibility for the allocation of funds is preferable to politically motivated
All Rates in the Auckland Region should be based on valuations—by the same authority—as at the
same date—annually. This is both possible and imperative; a basic essential for any co-ordinated
rationalisation of all functions by all parties.
The principle of progressively reducing GST as a set-off against a comprehensive Land
Value Rate is the same principle as Negative Gearing. But in this case would be used
to fund Local Government instead of crippling it.
1 By contrast any tax on the products of labour—goods and services e.g.
buildings, petrol etc., increases the price.
2 In 2006 Manukau City adopted ARV (Annual Rental Value). The change was fraught with dissent,
illogical reasoning and has yet to be vindicated. Land Value in rural areas is related to overseas
prices. In urban areas it is related to civic amenities. Differential Rates reflect this.