RATING ON UNIMPROVED VALUES IN NEW ZEALAND

Otago Witness, Issue 2812, 5 February 1908, Page 13

RATING ON U NIMPROVED VALUES IN NEW ZEALAND

Br J. E. Le Rossignol and W. Dovvxie Stewart. No. 11. The indifference of many ratepapers to the rating on unimproved value"" is probably due chiefly to the fact that the rates in most districts are not a heavy burden upon ' the property-holders. The General Government supports the public schools and many charitable institutions, spends large sums of money on roads and other public works, and even grants subsidies to local bodies. The chief items of local •expenditure are for roads, bridges, drainage, charitable aid, and hospitals. Besides, over one-half of the local revenues are derived from licenses, rente, Govermental subsidies, and other sources. In the year 1904-5 total revenue from rates_in all the local bodies in New Zealand was £1,019,431. In the same year the total i unimproved value was £122,937,126, so that the total rates were .83 of 1 per cent, of ! the total unimproved value ; and, if we sup- ' pose the valuation to be 80 per cent, of the true value, the rates were only twothirds of 1 per cent, of the true unimproved value. In counties and small boroughs the rates are very low, but in the larger towns they are much higher than the average. In Wellington they are 1.1 per cent, of the unimproved valuation, in Christchurch 1.2 per cent., in Invercargill 1.8 per cent., in Devonpoit 1.7 per cent., and in Stratford 2 per cent. Early in the year 19C6 the Government made an investigation of the working of the act in all the districts where it had been adopted, and the report has recently been published as a Blue Book by he British Government ; but since the complete report was not accessible, the present writers made a similar investigation by means of a series of questions sent to the clerks of all the local bodies, 69 in number, that had adopted the act. Forty replies were received, of which 35 gave satisfactory answers. The questions and a summary of the replies are here given. 1. Has the system any marked effect in discouraging the holding of land for speeuJatives purposes? — Yes, 12; no, 19; indefinite, 4.

2. Has the system unduly forced people to part with land used for private gardens ?— Yes, 4; no. 22; indefinite, 9. 3. Do you attribute to the system any alteration in the prosperity of your county, district, or borough? — Yes. 7 ; no, 22; inrefinitp, 9.

4. Has the system caused any appreciable __increase of buildings or other improvements ?— Yes, 12; no, 14; indefinite, 9.

5. Has the system caused buildings to be elected in advance of requirements? — Yes, 3; no, 32.

6 (a) Do you consider the system to work equitably?— Yes 19; no, 9. (b) Do you know of any cases of hardship? If possible give details. — Yes, 14 ; no, 10. 7. Has it had any effect in (aj cheapening land or (bj making it easier to get? — (a) Yes, 5; no, 28. (b) Yes, 12; no, 22. 8. Do the ratepayers and public seem satisfied with the system?— Yes, 22; no 3; indefinite, 10.

In further explanation of these questions and answers it should be noted : — —

1. The tax is too slight to have any marked effect in discouraging speculation,' especially in view of the general rise in land values, but in a number of cases weak holders have been compelled to sell to strong holders or to buyers of small lots for building. •■'*,

2. In a few places, as in Wellington, where there is a great scarcity of building sites, the tendency, already existing, toward overcrowding has been increased. A higher tax would have a still greater effect in this direction.

3. The prosperity of New Zealand '<3 chiefly due to the natural resources of the country, as yet only partially developed, and to the high prices for mutton, wool, and dairy "produce that have prevailed during the past 10 years. TJie. effects of the land legislation have therefore been obscured. The policy of the Government in encouraging closer settlement has doubtless contributed to the development of the country, but the rating on unimproved value has probably had little, if any, effect in promoting or retarding general or local prosperity.

4-. The increase of buildings and other improvements has been due chiefly, if not altogether, to the general prospeuty of he country, and the consequent increase of population. Districts where the old svslem of rating has been retained ha\e prospered as much as the others.

5. The tax is net sufficient to stimulate building to any marked extent, but if it were, and a large number of people impioved their land for the sake of securing some revenue and not in response" to increased demand, rents in general would fall, and the owners of improved property would lose as much as they had gained by exemption from taxation, or more. At the same time, the propertylet-s c!a--s would gain by the reduction of rents.

6. The question of equity in the majority of cases has resolved itself into a question of the interests of the several classes concerned. There are two classes of owner« — those whose unimproved value is greater than the value of their improvements, and those who own a greater value in improvements than in land. Owners of the latter class are well satisfied with the rating on unimproved value, since it has reduced their taxe«. Owners of the former clas-s complain when their taxes are materially increased, but since land values have risen almost everywhere most of these people have lost nothing, and feel no great burden unless they are holding largo quantities of unimproved land. There are many individual cases of hardship, as where a poor person in a borough has i large vegetable garden or a paddock for a cow. Some industries, too, =uch as lumberyard' 1 , foundries, and dairies, situated within a borough have had their ta\ei greatly increased, and have b^en compelled to move to the country, where land is cheap. Not infrequently people owning large houses built upon small lots have had their taxes reduced, while some of their poorer neighbours have paid more, but, as a rule, a large house is built upon a large piece of land, and a small house upon a small allotment. Besides, rich people, as a rule, own more unimproved land than poor people. Therefore the adoption of the new system involves a shifting of the burden of local taxation from the many to the relatively few, and those few, in a projrresslve community, are usually those beet aiM to bear it. in

a stationary or declining community the ease might be quite different.

Where the system ciod been adopted in counties containing towns, the taxes on rural property are relatively increased, and those of town property relatively decreased, co that the country people complain and demand a system of differential rating, or a separation of the towns from the rural districts for purposes of r^ing. Again, in rural districts the rates more heavily upon the holdings of new settlers than upon the improved holdings of their more prosperous neighbours.

7. Land values have risen greatly, notvvit^hstanding the tax. This, together with the slight amount of the tax, is probably the cause of the general indifference of the- ratepayer to the question. There is still a great deal of speculation in land, and land values are probably too high, in view of *fe. possible, and even probable, fall in pTiees of mutton and wool because of increasing competition on the part of Auctralia and Argentina. 8. A majority of the 'ratepayers have had their rates reduced, and are well satisfied with this result. A large proportion of the minority are indifferent. The labouring class, who are interested in the question of lovv<!r rents, are '.argely in favour of rating on unimproved value. The minority who suffer hardship from the new rating have not sufficient influence to cause it to be abolished.

The writers are aware of the fact that many people in New Zealand, particularly the followers of Henry George, give a glowing account of the success of rating on unimproved value wherever tried. The Hon. George Fowlds, Minister of Education, holds that to the land taxes are largely attributable the prosperity of the country for the past 10 3*ears. An official report to the Government from the Land and Income Tax Department, summarising the results of the investigation above mentioned, reads as follows :—: —

" The effect has been to greatly stimulate the building trade. It has been the direct cause of much valuable suburban land being cut up and placed upon the market, and of the subdivision of large estates in the country, resulting- in closer settlement. THe effect on urban and suburban land has been very marked. It has compelled owners of these to build or sell to those who would. The rebuilding of this city (Wellington), which for some years past has been rapidly going on, is largely attributable to the taxation and rating on land value, so that the supply of building materials could not at times keep pace with the demand.

"The tendency of this system is not to increase rent, but as the tax becomes heavier it tends to bring into beneficial occupation land not put to its best use, and so reduces rent. In 6ome cases where land suitable for building sites is limited, lugh rents have been maintained, notwithstanding the tendency of this system.

" The taxation on building property, where the improvements must exceed the improved value, is decreased ; where the unimprov ed value exceeds the improvements, the taxation is increased. The tendency is to discourage speculation, as the tax partially or wholly discounts the rise in value, but land speculation has not ceased in some districts where the system has been adopted.

"In my opinion the exemption of all improvements (in conjunction with the lands for settlement and advances to settlers policy of the Government) has to a large extent contributed to the solid prosperity of the colony."'

But the facts do not seem to warrant optimistic conclusions such as these. The benefits of rating on unimproved value are not so obvious as to command unanimous approval of the system or to lead all the rating districts of New Zealand to adopt ,it without delay. The small land-owners are greatly pleased when they can shift the burden of taxation from their own shoulders to those of their wealthy neighboure, but they are strong supporters of the freehold and will not readily consent to have their property confiscated by any radical extension of the principle of taxation of unimproved values. The growing political power of the labouring class, for whose benefit much of the recent legislation of New Zealand has been enacted, may ultimately bring about the nationalisation of land, but surely not, until New; Zealand has become an industrial community rather than a pastoral and agricultural community as it is to-day. Up to the present time the economic effects of rating on unimproved value* have been insignificant. The most notable feature of the system is the shifting of the burden of local taxation from one class of taxpayers to r.no + ! or It i« an interesting pha-e of the tendency which prevails throughout Australasia toward an equalisation of wealth by means of a legal tran=fer of the property of the wealthier classes to the pockets of their poorer neighbour. How far this process will go it is impossible to foretell, but that its ultimate results will be beneficial to the community is by no means certain.