Why not a new property tax?

Cash-strapped governments have long wanted to grab a bigger share of the wealth we hold in housing, now the Organisation for Economic Co-operation and Development (OECD) says Britain should adopt a Continental European-style property tax.

Pier Carlo Padoan, chief economist of the OECD, says George’s Osborne’s cuts are “appropriate,” but the Chancellor must do much more to stimulate Britain’s economy. Mr Padoan argues he should scrap many VAT exemptions – including food, passenger transport and domestic fuel – and abolish council tax and stamp duty in favour of “a property tax based on market values.”

No, this isn\’t a land value tax, not even an approximation to it. It\’s a tax upon the value of the property, not the land underlying it.

But why not adopt such a \”Continental European\” style tax? It would mean lower tax bills for all, after all.

Yes, I know, hunh?

Have a look here.

The UK taxes property much more heavily than any other OECD country.

11.9% of the tax take comes from property as opposed to a 5.8% average over the OECD. If we move to a system like theirs then presumably the tax take will fall to be like theirs.

And yes, I\’m aware that systems and rates do not need to move in lockstep. But the stucture of a tax system does impose constraints on what the rates can be. You can\’t have a 25% sales tax for example, you\’ve got to convert it to a VAT if you want that sort of rate. I wouldn\’t want to assert it but I\’d most certainly not be surprised if moving to this sort of a property tax limited what could be charged, limited what could be charged to less than we already charge upon property.

4 thoughts on “Why not a new property tax?”

  1. Council Tax may legally be a property tax, but economically it is a hybrid of a property tax and a means-tested poll tax. Replacing it with a property tax would be revenue-reducing because it would remove the poll tax element.

    Of course, this assumes that the UK really tax property more heavily than other countries. We have higher property values than other countries because we artificially restrict the supply of developable land through the planning system – this would mean that a similar level of taxation would raise more revenue.

  2. “If we move to a system like theirs then presumably the tax take will fall to be like theirs.”

    You’re assuming that if (when?) our government introduces this new additional tax, they will reduce the other taxes in proportion.

    I am calling that a naive assumption.

  3. 1. The OECD never said it was LVT, so why point that out?

    2. A tax on land and buildings always falls on the land element, so even if it is proportional to the value of land and buildings (not just the land), it is the land value which is affected, not the building value. So any tax on land and buildings is by default a tax on land values.

    3. Council Tax in Germany, for example, is less than half as much as ours, but they keep house prices and rents down by capping rents directly by legislation and indirectly by just building loads and loads of new houses.

    They have this mad economic vision that new houses and low rents and low house prices are A Good Thing and that actually working for a living and innovating and exporting are the best route to wealth, unlike the Home-Owner-Ists in the UK who say that the route to wealth is ever rising house prices. So who’s crazy here? Them or us?

  4. Wot Mark sez and more besides.
    Notice their figures showing that all “financial
    liberalisation” has done for certain is put property prices up by average 30% ,must be more in UK .
    If you think that these proposals are not as dynamic as LVT why don’t you say so? You keep ramping up Adam Smith but sans his LVT which prevents the house price inflation that wrecks one- sided market liberalisation .BTW there is a only a Brigadoon market in housing in the UK: everybody disappears (and won’t trade) when faced by supply and demand reality.

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