Why property tax rises aren't the answer
Matthew Sinclair 12:56pm
When Tim Montgomerie first started calling for new wealth taxes I was horrified. Sweden
has only just abolished its wealth tax after seeing hundreds of billions of kroner leave the country in capital flight over a number of years. Other countries have found wealth taxes are associated
with narrow bases, high costs of collection and often very unfair treatment for different classes of assets. We should not replicate that here.
As his proposals have been refined though, it isn’t that bad. More bands would be a relatively reasonable way of making the Council Tax system more progressive. It might require a revaluation which would be politically toxic, and it would be a shame to take Council Tax further from being a simple charge towards local services — but it certainly wouldn’t create the horrible economic consequences of higher marginal rates on income or an outright wealth tax.
His article for The Times (£) this morning though goes further and sees greater taxes on ‘wealth’ (but this appears to actually mean property) financing substantial tax cuts elsewhere. That is a great objective, but looking at the figures it seems unrealistic.
The Government are currently working very hard to reduce people’s real terms council tax bills with support for a freeze. They have been working with the best local authorities — and brilliant Town Hall leaders like Eddie Lister, Stephen Greenhalgh and David Burbage — to reverse the near doubling of the tax that has taken place over the last decade. The public rightly loathe the tax and it hits elderly people on low incomes particularly hard. To the extent that you increase rates for high value properties, I think there would be a strong demand from councils and the public for that revenue to be left with local authorities to reduce council tax for other households, not extracted by central government in lower grants in order to reduce income taxes.
The early Thatcher-era rebalancing of the tax system towards taxing consumption instead of income — whether it was right or wrong — has left Britain roughly in line with the European norm in terms of consumption tax rates. I don’t think that would be the case with much higher property taxes. According to the OECD Revenue Statistics, Britain already raises more from property taxes than any other developed country:
Tax reform is absolutely critical to creating the conditions in which we can expect long term economic growth. At the TaxPayers’ Alliance we are currently working with the Institute of
Directors on a major investigation of how it could best be achieved: the 2020 Tax Commission, chaired by Allister Heath. I don’t think a substantial
increase in council tax revenues, even if the burden is focused on high value property, is the answer though.
Matthew Sinclair is director of the Taxpayers' Alliance.
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Bob Dixon
February 23rd, 2012 2:10pm Report this commentWe need less taxes paid for by less government spending.
Charles
February 23rd, 2012 3:04pm Report this commentProvided that the funds raised are used to reduce other taxes, then I do see some advantages in a flat rate property tax.
I think (from memory) that a 1% tax on property (all retail properties, not just one over a certain amount) would raise about £39 billion p.a. and could not be avoided through clever tax structuring as it would be a tax on the physical asset.
This could then be used to reduce:
- stamp duty £5.8 billion
- council tax £10.0 billion (reduction from £26bn)
- national insurance employer contributions £10.0 billion
- Fuel taxes £5.0 billion (c. 20%)
- Additional reduction in deficit £5.0 billion
- Other tax reductions c £4.0 billion
Moving towards fair and clear taxation of a immobile and non-productive asset and reducing taxes on other areas would be a good thing
Mike Brighton
February 23rd, 2012 3:14pm Report this commentHow about meaningful cuts in public sending and the staggeringly huge government bureaucracy just doing less. This can fund huge tax cuts.....
TrevorsDen
February 23rd, 2012 3:25pm Report this commentSo who pays for this free money? the consumer has to pay eventually
Runnymede
February 23rd, 2012 3:53pm Report this commentThis is a considered posting, but it is frustrating to think that the Government is only being met with comments such as "property tax rises are not the answer". This is not the stuff of Magna Carta. It is like celebrating Dick Turpin arriving at the conclusion that highway robbery is not the answer. That is all well and good, Dick - now how about handing back all the loot you stole?
A frequent response to this is, "But how can the Government pay for it?". The answer is, the same way as everyone else (now and always): earn the money.
starfish
February 23rd, 2012 3:57pm Report this commentNo no no no no no no
The problem is not insufficient taxes it is too high govt expenditure - in particular doing things that they should not be doing - and doing them badly
Any property-based tax is ridiculous - when labou get back in they will simply start another property price boom to increase tax income
And who are the main consumers of taxpayers' largesse anyway? Home owners....?
Jebediah
February 23rd, 2012 4:27pm Report this commentJust spend less. How hard can it be? Spend less. Much more of this tax the wealthy crap and we'll be back in the seventies.
Onus Probandy
February 23rd, 2012 4:39pm Report this commentProvided other taxes are reduced to compensate, then property (or rather unimproved land value taxes) are first class. Widely acknowledged to have considerably lower dead weight costs; near impossible to avoid and relatively simple to collect (compared to stamp/PAYE/VAT/CT/whatever) given that they are simply a bill issued and paid; what exactly is the problem? Also, land value taxes move privately collected taxes from landlords and banks to the government so we should expect to see revenues boosted.
"Blah blah blah, paying the government for use of my house, blah, blah, blah" is the usual moan. First: it's not your house that's taxed it's the location. Secondly: why is taxing property unfair but stealing half the product of my labour fair?
LVT have not historically been popular with governments. Mainly because the data gathering was so hard. We live in a different -- computerised -- world now though. It is the work of a moment to say "tell me computer, what was the average price paid for a three bedroom semi in postcode NW5?". Ask the same question for all postcodes and that's your relative differences between areas defined. Then just pick a percentage.
Regardless, the likelihood of increased property taxes is nil. The electorate are mainly home owners or budding home owners and can't tell the difference between PAYE and a poor widow bogeyman.
Andy Leeds
February 23rd, 2012 4:48pm Report this commentWhat we need is far less Government expenditure and a flat tax. But to do this we need a change in attitude and I don't see that coming anytime soon. The public have got use to having their vote 'bought', but that leads to Greece. We are already well on the way to that fate.
Cynic
February 23rd, 2012 5:01pm Report this commentI'm now retired, but when I was working I bought a nice house for a small sum. That house has since rocketed in value. My council tax is already horrendous and takes a large chunk of my pension. If this should go ahead, I can foresee a time when I shall no longer be able to afford to eat if I wish to continue living in my home.
acacia avenue
February 23rd, 2012 5:43pm Report this commentOnce the door is opened to a property tax the £2m will revert to Vince Cable's originally desired £1m and then Labour can start working that down once the pendulum swings to £250,000
(The average English house price is £228,385 so there will be plenty of votes to be harvested for a proposal to tax houses over £250,000)
Proudhon gets a leg up from the Tories, amazing!
daniel maris
February 23rd, 2012 7:24pm Report this commentThe government doesn't need to raise taxes when it can simply freeze the pay of half the country's workers (in both private and public sector) and let inflation rage on at 5%. This while senior managers across the land continue to stuff their pockets with bonuses, share options and pay increases.
How typical of the TPA to bang on about income tax and then whinge when people bring forward positive suggestions for tax reform which will prevent tax evasion and avoidance. I think we know who their real masters are.
Dimoto
February 23rd, 2012 10:51pm Report this commentacacia avenue -
exactly, and no way to get rid of this pernicious stuff once it is in place - Cable's last gift to the socialist nation.
If Nelson and his bloggers would actually follow the data, rather than listening to self-aggrandising PR men from dodgy investment companies, "forecasting" doom and gloom, they might have noticed that the economy is showing signs of life now that the Euro-panic has abated.
There is no case for a plan "B".
Tax adjustments should only be to directly enhance/encourage growth.
We can't afford more tax "redistribution" dressed up as "stimulating consumption".
Mostly, we need steady nerves and perseverence.
There was a time when we were famous for that.
Robert Christopher
February 24th, 2012 9:49am Report this commentI can remember when the young had little wealth, but accumulated it though hard work until they retired, at which point it was used to finance their retirement. Retirement included paying for tasks and services of their choice, which were performed by those still in work, to earn money.
...
Robert Christopher
February 24th, 2012 9:50am Report this comment... It happened all over the place; and with little, if any, government intervention!
Why cannot this economic model not be reintroduced? (Or why isn't this economic model being reintroduced?)
There are valid reasons, and identifying them is the first step towards them rectifying the situation.
Rootar
February 25th, 2012 7:27am Report this commentNo, No, No. Get Government spending down. If we are daft enough to let them introduce a property tax, Goverment will grab it with both hands and just waste the money like tthey always do. Next they will want to tax your savings. Their appetite for your money is insatiable. Who will stop them ?
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