Possible property ‘value capture’ tax to fund infrastructure

Finance Minister Grant Robertson is thinking about a tax targeting people who will get an advantage from improved infrastructure to help fund projects like rail links.

Rather than ‘user pays’ this is ‘benefactor pays’ – but it could become contentious deciding who benefits and by how much and how much extra tax they should pay.

Would property owners who are adversely affected by new rail lines and roads get tax reductions? Property values may go up close to new railway stations, but values may go down if a property suddenly has trains whistling past them.

The very fact that property values are changed by infrastructure projects will already affect the level of rates they pay, which is already a local body tax on property.

Stuff: Finance Minister Grant Robertson considering property ‘value capture’ tax to fund rail

Speaking at the Auckland Chamber of Commerce/Massey University annual finance lunch at the Pullman Hotel in Auckland, Robertson said the Government was investigating “innovative” ways to bridge the funding gap to pay for the rail and roading infrastructure the country needs, especially in Auckland.

“Between the balance sheets of the Auckland Council and the Government, we still don’t have enough,” Robertson said.

“Minister Phil Twyford and I are actively looking at opportunities for how to do that.”

“If we are going to make big investments in things like [Auckland’s City] Rail Link, and a series of different rail links, people will benefit from that. How do we capture the value of that, and use that to fund the development?” Robertson said.

In March last year, the Productivity Commission gave an example of how that might work.

If the land value of a property benefiting from a new rail link increased in value from $100,000 to $250,000 over five years – a 150 per cent increase compared with a rise of 120 per cent in land values in the wider area – a tax could be levied on the $30,000 gain attributable to the infrastructure improvements.

The tax could be levied alongside of rates, the commission suggested.

This would amount to double taxing – increased property values mean higher rates, but this proposes slapping another tax on top of that.

Sounds very complicated, and it would be very contentious.

People who don’t use rail and don’t sell their properties will end up paying more for nothing. This is likely to particularly affect retired property owners who don’t commute and who are unlikely to move except to the cemetery – perhaps old people living close to cemeteries should be taxed higher.