Value capture charges by end of the year

You heard it here first. (Actually, the?NBR came up with it before me.) Quote:

 

The government is pushing ahead with plans to impose land value capture charges on people who benefit from large infrastructure projects in Auckland.

Transport Minister Phil Twyford expects to have the plan in place by the end of the year.

Papers obtained by NBR under the Official Information Act say value capture ‘is the public recovery of a portion of the increased property and other value created as a result of transport infrastructure investment.’ End quote.

The last Labour government introduced the fair dividend rate ? FDR, which is an unrealised capital gains tax on foreign investment. This new proposal is an unrealised gains tax on property in certain areas that are perceived to have an increased value because of the proximity of certain infrastructure to a property, even if you have lived there for fifty years. Quote:

Mr Twyford says the work on land value capture is still at an early stage in terms of determining the benefit and what level of value capture should be imposed. It is also not clear yet whether legislation will be needed, or whether councils can just impose some sort of charge or rate under existing rules. End quote.

I hate taxes on unrealised gains because they are desperately unfair. I think applying a capital gains tax to the sale of properties in the vicinity of new infrastructure projects is fair enough, although we can realistically expect that this government, on the advice of the Tax Working Group, will introduce a blanket capital gains tax anyway. Therefore, it can be assumed that value capture charges will be in addition to a capital gains tax, which makes sense because it is a form of unrealised capital gains tax. Such a form of tax is punitive in the extreme.

Introducing the FDR rules in itself was bad enough, although, for the most part, it has affected only sophisticated investors who understand how these things work. Also, it has to be said, that gains have not always been huge in the time since the FDR rules were introduced in 2008. But value capture charges represents a whole new ball game. This will be a tax, or a levy, on certain properties that are deemed, by the government, to have a higher value because they are close to transport infrastructure.

But is that true? Yes, it can be very convenient living close to a railway station, but there are definite downsides. The obvious one is noise. How many of us have lived in student flats close to a railway line, and been shaken awake at all times of day and night by the local trains? Are you telling me people pay a premium for that? This is news to me. Quote:

Mr Twyford dismisses concerns about imposing more costs on people who own property near large infrastructure projects.

“What about the basic fairness of people who happen to own land next to infrastructure that’s been paid for by the taxpayer getting? massive windfall gain for nothing that they have done? Isn’t it fair that they should pay even a small percentage back to the public good so that more infrastructure can be built?” End quote.

.And who will make the decision about the property values? And how do we know they are correct? You never know what a property is worth until you sell it, which means that owners could be fleeced for years by inflated property values in areas where no one wants to live.

Taxes on unrealised gains go against all the principles of taxation. First, taxation is supposed to be applied fairly. Secondly, it is supposed to be imposed on people who can afford to pay it. This is where a tax on unrealised gains falls down. Property owners pay tax on a perceived value where they have received no cash benefit, as yet at least. So the tax is paid out of income that has already been taxed, and simply reduces personal expenditure. There is no benefit, except to the government.

This is a new tax. The government promised there would be no new taxes. They will get around this one by describing it as a levy, but it will be much harder to justify because, unlike the fuel taxes, there is no existing tax like it. It is completely new. And it is straight out of the communist playbook.

So, now we have a five-year bright-line test, ringfencing of losses on rental property (only proposed at this stage, but definitely on its way), higher fuel taxes and a value capture tax. All in six months. All after a promise of no new taxes.

Welcome to the Venezuela of the South Pacific.

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