The Tax Deductability of Home Owner's Rates

by Robert Keall

The prospect of increasing Rates by making them a charge against taxes inevitably leads to a comparison between Rates and Taxes.

  1. Taxes as we know them:
    1. Enter directly into costs, as with a Petrol tax, Sales tax or Duty.
    2. Inhibit production, as with the pro-rata income tax in which the Government becomes a silent partner in every productive endeavour supplying none of the risk capital, none of the responsibility, but sharing the gains to at least 50%. Production becomes, in fact, a heavily punishable offence.

  2. Rates as we know them:
    1. Restrain land prices. 75% of Rates in New Zealand are collected from the site value of land. This sum ($66m. In 1969/70) capitalised at, say, 5% equals $1320m. and represents the amount by which land prices would increase if rate revenue were shifted to some other source. In other words land prices are restrained by this amount. This attractive feature of a tax on land values is common ground among economists and is a powerful reason why it must be made possible to intensify the present method of Rating. Cheapening the price of land is essential if labour is always to find employment and is to enjoy the full benefit of its wages.
    2. Rates discourage the withholding of land from use. And the more intensive the Rates the greater the incentive to put the property to profitable use or dispose of it to someone who will.
    3. Rates ensure at least a minimum use of natural resources sufficient to cover the Rates and guarantee that everything in excess of the minimum is tax free, at least as far as Rates are concerned. Rates are thus the true incentive tax providing a penalty for under-use and allowing a bonus for maximum use.
    4. Rates provide the impetus for constant renewal and regeneration; the incentive to demolish out-worn old buildings, and to replace them with bigger and more modern ones; the impetus for urban renewal not decadence and sprawl.
    5. In New Zealand every man who finds employment in improving property or using it to advantage, automatically creates job-opportunities for three or four others. As Rates encourage this in a positive way they are the healthy stimulus to a sound economy rather than the false stimulus of an inflation with its disastrous consequences.

Rates are thus different in character from taxes and to set the one as a charge against the other permits an intensification of the good at the expense of the bad. Making the Homeowner?s Rates tax-deductible does just that.