John Alexander: Tax property developers for infrastructure

Liberal MP John Alexander believes there is a better way to fund the government’s “unprecedented” infrastructure projects which doesn’t include indebting future generations of Australians:

Mr Alexander told Sky News there is now mounting evidence to show how the value of property around major infrastructure projects experiences extraordinary uplifts sometimes to the tune of 5000 per cent.

He pointed to the Badgerys Creek Airport development where agriculture land is valued at around $2000 an acre, but post development – if that land is close to a key piece of infrastructure – it will be valued at in excess of $10 million.

Mr Alexander suggested the government should “capture” a percentage of the sold land value where the land experienced an upsurge in value due to a government development.

“If those laws applied at Western Sydney, the airport, the railroad, the schools, and hospitals would have all been paid for out of the uplift of the value of the land,” he said.

“There is critical now, we’re talking about spending unprecedented amounts of money in infrastructure to recover from the COVID-recession.

“We’ve been told its going to be paid out of debt and generations of taxpayers in the future are going to have to pay it back.

“There is a better way. We should be seeking to get a fair contribution from those who make so much money. It’s wrong for the taxpayer to fund the infrastructure that makes some people into multi-billionaires.”

John Alexander is right. The only reason why these types of land deals escalate in value is because the government rezones them for development.

Therefore, it makes perfect policy sense for the government (taxpayers) to capture most of the value uplift.

Dr Cameron Murray explains how this could be done in his book, Game of Mates.

Essentially, the government would capture 75% of the value gain, payable upon approval of the development application (i.e. approval is conditional upon payment).

So for example, if a property was worth, say, $3 million as vacant farm block and $30 million as a development, then to get approval the developer would have to pay 0.75 x ($30m – $3m) = $20.25 million. The developer would still make more than 200% gross profit on his land purchase (i.e. $6.75m), but $20.25 million dollars that is pure windfall would now go to the public.

The existing planning setup is clearly not working effectively, resulting in graft and corruption, and rapid land cost escalation. These costs are ultimately borne by home buyers, taxpayers and the younger generation, all for the benefit of a few lucky landholders and speculators who are effectively handed monopoly-style rents courtesy of the government.

It’s time to stop the rort.

Unconventional Economist
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Comments

  1. I recall meeting one of your politicians ; a Western Sydney electorate, back in the twilight zone of the early 80s, and when I asked him “What made you want to go into politics” as a matter of polite dinner conversation, he didn’t miss a beat with his reply – “Because I’m a property developer”.
    In those days I didn’t even fully understand what a Property Developer did! But his answewr is obvious now.

  2. The government can also rezone the other vast scathe of land close to Badgery Creek as well, then watch the price drop like a rock. There is not a lack of land out there!! It is the artificial zoning limitation that makes the price sky high.

  3. Have a tender every month for land re zoning. The government can set the number of hectares for each type of zone. Tenders published for all to see.

  4. Doesn’t the proposed system just move the “graft and corruption, and rapid land cost escalation.” into the valuation that the “tax” is paid upon and then the miraculous cost escalation likely to occur after the fact?

  5. John might just be the last honest Politician
    What is it that he is wanting to do other then Tax developers for the value that they derive from Public Infrastructure and changes in land zoning.
    Look at the alternative, to allow Developers to do what ever they like IF they contribute to the Political Party coffers and maybe throw a little spare change in the path of the Politicians themselves. Graft for sure but deniable.
    If the Value associated with these decisions is taxed (for the good of the Public purse) it goes without saying that the Developers will be less inclined to line the pockets of Politicians and even less again inclined to seek favor through political donations.
    As I said, either John is just plain dumb or maybe, just maybe he is the last honest Politician.

    • kierans777MEMBER

      I remember when JA voiced support for grandfathering negative gearing on property. The freshly minted Assistant Minister for Housing Michael “shady” Sukkar tried to make out that the media had misreported Alexander and refused to entertain the idea.

      While JA has some good ideas they will always fall on deaf ears in the Liberal party.

  6. MB could maybe help with defining.

    1) A developer does not make the money when land is re-zoned. A developer buys the rezoned land and builds, all the windfall is taken out and passed onto the land owner.

    2) Land Speculator – this is the land owner who wins 100% of the windfall from any rezoning. They can also be developers but most of the time they are well funded high net worth individuals who store their money in land to be rezoned. They make their money via other avenues and just use Land Speculation as a better return on investment than it sitting in the bank

    A value capture tax will hit Land Speculators, not developers. A value capture tax will not change the economics of a site as the land cost + tax is the same as the land cost before value capture tax.

    People hate developers, most people despise land speculators. Change the terminology if you want to increase traction with the electorate.

    Exclude residential land that is less than 1,000sqm. This way Granny can be moved on for infill development with bucket loads of cash. Without that cash incentive to pay for the inconvenience of moving from their home that they have been for 50 years, it could turn people against such a value capture tax.

    • good points. But I suspect there also needs to be exemptions for farmers that have owned the land for generations, this may not be just but will prove necessary if suitable legislation is ever expected to be passed.

  7. Colin R SamundsettMEMBER

    The 1973 Commission of Inquiry into Land Tenures (Chairman Justice Rae Else-Mitchell, russell Lloyd Mathews Professor of Accounting gandd Public Finance at the Australian Natilnal University, Geerardus Jozef Dusseldorp Chairman of directors of Lend Lease Corporation Ltd) is worth re-visiting. Dusseldorp had the, unusual for developer, to give his opinion that unearned speculative profits were unsavory.

  8. Display NameMEMBER

    John is going to struggle with developer donations now. Would be nice to think of something of this sort might get up.