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Thursday, March 28, 2013:

Beneficiary-pays for infrastructure

Maybe it's catching on, writes Gavin R. Putland.

Tim Colebatch, in discussing how to pay for transport infrastructure (“Need roads and rail? Then borrow and build”, 26/3), needs to widen the net from “user pays” to “beneficiary pays”.

As all property investors know, a new transport route raises land values in locations served by the new route, or by other routes on which congestion is relieved. So the beneficiaries include not only the users but also the land owners: the benefit, net of what people pay for actual use, is measured by the uplift in land values.

So if the State Government, through the tax system, claws back a certain fraction of every uplift in land value, projects whose cost/benefit ratios are less than that fraction will be profitable for the government — and will therefore proceed promptly!

For example, the Government can get rid of payroll tax, conveyancing stamp duty and insurance taxes, and replace the revenue by a charge on uplifts in land values (e.g. a vendor stamp duty on capital gains). The initial tax changes can be revenue-neutral. But thereafter, well-chosen infrastructure projects will pay for themselves by expanding the tax base without further changes in tax rates or thresholds.

Property owners should support this idea because they would get uplifts in land values that they would not otherwise get, due to infrastructure projects that would not otherwise proceed.

So I wrote to the Age on March 26, having treated the same issue in a letter in the AFR on February 22. But the Age apparently passed me over in favour of Allan Rodger, who likewise made the distinction between users and beneficiaries.

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