Property tax form unknown yet
Property tax is on the way. The form it will take is as of yet unknown.
At present, there seem to be three alternative proposals:
(1) A tax based on the square footage.
(2) A tax based on the value of the property.
(3) A tax based on the value of the site.
One would have to question why is there a need to change from the current flat charge system, which has the advantage of being administratively simple.
Some argue that the current system isn’t progressive. A progressive tax system is one which taxes those who can afford to pay more than those who can’t afford to pay.
But a tax system based on square footage, site value, or property value, is disconnected from a person’s ability to pay.
Take for example an elderly couple who had a large family, and as a consequence, had extended their home while rearing their family.
A property tax based on square footage would be a disaster for such a couple.
Equally, a young couple who built their dream house in the boom times may now be in financial trouble, being in negative equity and perhaps experiencing unemployment.
A tax system based on square footage is also disastrous in their situation.
So let’s consider a site tax. Apart from being virtually impossible to implement, this can result in serious discrepancies.
Take a house which was built at the edge of a village in the 1950s.
With urban sprawl, this house now commands a decent site within a town. Should this property owner be taxed to the hilt compared to the neighbours?
For rural one-off housing, the current planning and environmental regulations demand large sites.
For example, a percolation area cannot be less than three metres from a boundary and seven metres from a house.
A well should not normally be closer than 40 metres to a percolation area.
All in all, it is generally nigh on impossible to squeeze a house into less than half an acre, to satisfy all of these planning requirements.
So let’s build in exemptions for various categories of people — those in negative equity, those who paid stamp duty in the boom, those whose income is below certain income thresholds, and a separate system for urban versus rural housing.
By introducing a raft of exemptions and exceptions, you are effectively trying to morph a property tax into a wealth tax — that is, those who can pay should pay.
So why start off with property tax in the first place?
Politically, it’s difficult to justify a wealth tax, it’s much easier to convince people that they are paying for local services.
It’s like the person who asked for directions and was told, "If I was you, I wouldn’t start from here".
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