RATING SYSTEMS

Evening Post, Volume CIV, Issue 4, 5 July 1927, Page 10

RATING SYSTEMS

ECONOMIST'S VIEWS

UNIMPROVED OR ANNUAL?

INVESTIGATION NEEDED

The Eastern Suburbs League -was rather late in calling a meeting for the discussion of the rating question, for the poll is long ago taken, but as the president of the league, Mr. A. C. Biake, remarked at the quarterly meeting last evening, the academic discussion was certainly interesting to members.

■ One of the speakers was Mr. D. 0. Williams, M.A., lecturer in economics at Victoria College, who had at Mr. Blake's invitation prepared an address upon the subject from an economist's standpoint.

"It must always be a principal aim of sound taxation to raise the money needed with the least impediment to the production of wealth," said Mr. Williams. "As between two systems of. taxation alike in other respects, the one which imposes the smallest impost on the productive process is to be preferred. The practical advantages of such a system are supplemented by those considerations of equity which suggest that unearned forms of wealth are more valid objects of taxation than earned forms. In accordance with this principle, I hold that rating or unimproved values is preferable to rating on any system which imposes a tax on productive processes.

"The general rate of a tax on improvements, to the extent that it can•not, be shifted, is against improvements since such a tax is pro tanto a penalty. But this is a general tendency only, and may be over-ridden by counteracting forces. The tax, or its absence, is not necessarily the most powerful force. If the tax has any repiessive force then its removal will encourage building. This encouragement, however, is not likely to lead to over-building, except as a temporary phenomenon for excessive building would lower rentals and so check further building. Moreover, the removal of the tax is the removal of an obstacle, not the giving of a bonus, and, therefore, its effect would be to facilitate pioduction up to the economic optimum rather than stimulate it beyond the optimum. In any event the importance attached to this issue has been grossly exaggerated. Since much of a tax on premises could be shifted, its imposition on or removal from buildings has less effect on building progress than the underlying economic condition of tho city.

ALTERNATIVES IN CONGESTION.

"The broad effect of rating on unimproved values is to press more land into use. In "Wellington its effect in ■tills direction is becoming less important. Nevertheless this tendency to provide more land works in the opposite direction of the tendency to closer urban settlement, its force depending partly on the mdvement of land values and partly on the quantity of land available. The scarcity of available laud in Wellington and its geographical configuration are the major forces making for congestion. No system of rating can prevent congestion here. If a system exempts buildings then the congestion that will occur here is a congestion of buildings; if a system penalises buildings tho congestion will be one of people within buildings." ' Mr. Williams drew attention to those transitional zones in the city where properties were ripening for a higher economic use, but were not yet ready for transference to that use. To tax them on their present selling value was to lax (hem above the capitalised equivalent of their present possible earning value. The tax was inequitable since the properties could not yet be converted into the higher use for which they were destined. He suggested that special inquiry should be made into these eases. "ANNUAL UNIMPROVED VALUE." "To this disadvantage of rating on unimproved value must be added the administrative difficulties that arise through lack of an automatically increasing .annual revenue and through ihe difficulty of making accurate valu-' ations. But tho genoral advantages of the system appear to be such that attention ought now to bo directed to the removal of anomalies where they exist, rather than to a reversal of the system." If my suggestion is practicable in other respects, I would urge that instead of rating on the capital unimproved value, we rate on the annual unimproved value in the use which would yield the largest immediate return.

"If a property now used for apart-, nient houses could here and now earn more if converted to offices, the tav being assessed on tho unimproved :umual value of tho higher use, would tend to press the property into this higher use. If, however, tho property were not immediately ripe for this conversion, its present highest earning use would be as apartment houses, and it would be rated accordingly on this basis. This would, I suggest," meet the present difficulty of transitional zones and also provide the council with its annual increase in revenue " Mr. Williams was of the opinion that the whole problem should be investigated by a competent committee or Commission.

Councillor M. F. Luckie also address ed th<; league, his remarks being reported elsewhere.

Whatever the theortical: advantages of the unimproved rating system, Councilor Luckie maintained, the practical results were that taxation was unfair-H----and unevenly distributed, and that residential properties would bear a bie slu.ro of the city's load. In many cases suburban residents would be called upon to pay doubled rate accounts after tne revaluation next year.