MUNICIPAL TAXES

Dominion, Volume 34, Issue 182, 30 April 1941, Page 9

MUNICIPAL TAXES

Economist Studies New

Zealand System

UNIMPROVED VALUE

Work For International Committee

Investigating New Zealand’s system of municipal taxation, on behalf of the International Research Committee on Real Estate Taxation, the committee’s director of research, Mr. H. Bronson Cowan, of Peterborough, Ontario, Canada, is now in Wellington. The committee aims, through a field of study in New Zealand, Australia and South Africa, to gain first-hand information from public officials and business and civic groups as to the effect on municipal administration and on economic and social conditions of the policy of partial or total exemption of improvements from municipal taxation and dependence on site values or ground rents as principal sources of local revenues'. The vice-chair-man of the committee is Mr. F. C. R. Douglas, M.P., chairman of the finance committee of the London County Council.

Interviewed yesterday, Mr. Cowan said that the system of raising municipal revenue by taxation on unimproved land'values was first adopted in New Zealand 40 years ago; today 67 per cent, of the urban population of the Dominion lived in municipalities under that system. In the United States of America taxation was based on the capital value of buildings and land, and in England it . was based largely on rental value; in effect there was not much difference between these; latter two systems. ... The load of municipal- taxation,'-Mr. Cowan said, was heavier bn cities in the United States apd .Canada than on cities in New Zealand, because they had to bear the cost of education and law enforcement, which here was met by the central Government. In England the Government gave direct grants to cities to help meet education costs. Growing out of the depression and unemployment, the burden of taxation on improvements betame so great in the United States and Canada that it was largely instrumental in bringing the building industries almost to a standstill. Dew mew buildings were erected and existing buildings deterior-, ated rapidly. Land Speculation. The comparatively light taxation on unimproved land encouraged wild speculation. For example land values in Chicago increased from 2,000,000,000 dollars to 5,000,000,000 dollars between 1923 and 1928, and fell back to 2,000,000,000 by 1933. Nearly 100 banks in Chicago alone failed on that account during the Since 1930 tens of thousands of buildings in Canada and the United States had been tom down by their owners to escape the taxation on them. “In the city where I live,’’ said Mr. Cowan, “a recent investigation showed that the 17 largest manufacturing plants were being .taxed 23 2-5 times more on their buildings than on their land. This is an indication of bow oppressive the tax on improvements becomes on business.” The effect of these conditions had been greatly to reduce the demand for land for building purposes, with the result that assessed valuations of land and buildings in . Canada and the United States had decreased several billion pounds in the last nine years. This caused much concern to municipalities. The situation became so serious that the United States Government asked the national resources committee to make a special investigation. In 1937 the urbanism committee of the national resources committee reported, in part:— .' “Gambling -in land values has contributed to alternate booms and depressions, raising false hopes, encouraging over-ambitious structures, wiping out private investors, and all-in-all, has been one of the major tragedies of American life. The dispersive developments of recent years have left blighted vacuums in the interiors of our cities and have themselves been, vitiated by land prices at a level too high to permit a desirable standard of urban development.

“A real property inventory of 64 cities, made in 1934 by the Department of Commerce, showed that more than one-sixth of 1,500,060 residential buildings were sub-standard, about four-fifths of the dwelling units were made of wood, about one-third were more than 30 years old, a large proportion were in a state of serious disrepair, Even at their most reasonable figures, rentals are so high that they exclude vast blocks of urban families from housing facilities of minimum standard.

“In order that a. 'large proportion of our urban families should not continue to live in unfit dwellings and. in order to supply the urgent need for housing facilities conforming to an acceptable minimum standard for the low income groups, the committee recommends that State and local authorities should consider the reduction of the rate of taxation on buildings and the corresponding increase of such rates on land in order to lower the taxation burden on home owners and occupants of low-rent houses and to stimulate rehabilitation of blighted areas and slums." Petition to British Parliament.

Canada and the United Kingdom were in a similar condition, said Mr. Cowan. Five years ago the London County Council, after a thorough investigation, decided by « large majority to petition Parliament for power to exempt buildings from taxation and tax land values only; 240 cities in the United Kingdom had joined In petitioning for this legislation.

“Till recent years, any suggestion of changing the system of taxation has been strongly opposed and it will probably still meet with opposition,” said Mr. Cowan. “However, the situation has become so serious that it is fairly widely recognized now that something must be done to improve it.” “I have been instructed to find how the system of taxing on unimproved land values affects different classes of properties, its incidence on land values and speculation, to what extent it has affected the building industries and also whether or not it produces sufficient revenue for municipal purposes.” The committee had been much impressed by the fact that Sydney, the second largest city in the British Empire, had been .under this system for 26 years, with, municipal authorities reported, very beneficial results. The system was in wide use in Australia and South Africa as well as in New Zealand, Mr. Cowan said, and he expected to visit those two Dominions after leaving New Zealand.