They Don’t Tax Progress
H. BRONSON COWAN
In Australia and New Zealand many civic, home and health problems have been solved through direct land taxation
HAVE YOU ever felt the hand of your municipal authorities resting heavily upon you simply because you had been led, by your family affection and pride, to improve your home and premises? You may have been guilty of building a sun porch, erecting a garage or painting a fence. It does not matter much what you did—except in the amount of the resultant official fine—so long as it had the effect of enhancing the appearance, and increasing the value, of your home.
If you have made such improvements you know what it is to have your assessment jumped up one or two thousand dollars, and to discover that you would have to pay increased taxes for years to come because of your industry. The fact that your action provided business for your local merchants, gave employment to men who needed it and had the added effect of improving the neighborhood, did not mitigate the heinousness of your offense. If it happened that you borrowed most of the money involved, your feelings would not be soothed by the realization that you would have to pay interest on that money as well as pay the increase in your taxes.
Possibly you have heard the one of how two neighbors spent their vacations. One who, with considerable pride, improved his home by painting his house, had his taxes increased ten dollars a year. The second launched out on a two-weeks attempt to ascertain how much he could imbibe, regardless of the consequences to himself or to others, ending with his appearance before the magistrate. Comparing their experiences, the. unabashed carouser afforded poor consolation to his neighbor when he bragged: “Why, you poor simp, they fined you more
than they did me, and I painted the whole town red!” In contrast to the above, there is another, better, system. Nearly forty years ago the people of Australia and New Zealand discovered that better system. Under it, all buildings and improvements are exempt from taxation. The municipal revenue required is obtained from an increased rate on land values. Introduced at first by but a few municipalities, this method soon demonstrated that it had many advantages. Its growth in public favor was rapid. Today, 59 per cent of the people in New Zealand (67 per cent of those living in cities) and possibly two thirds of the people of Australia, live in municipalities operating under this system.
In most of the municipalities where this method is in force, it has been in use continuously for at least twenty years and in others for upwards of forty years. The system has been tested during both boom and depression periods, by large and small municipalities, and has justified itself. Australian and New Zealand authorities assert that this method of raising municipal revenue has proved its simplicity, efficiency and worth.
Palmerston North, then a small municipality but now the largest inland town in New Zealand, decided in March, 1901, by 402 votes to 12, to exempt all buildings from taxation and to increase the rates on land values. Wellington, the capital of New Zealand, a city which has a population of 149,382, followed in November of the same year, also by a large majority.
Brisbane, the capital city of the State of Queensland. Australia, has a population of 350,000. In the matter of area, it is one of the largest cities in the British Empire, comprising 385 square miles. It raises all its rates from a tax on land values. So do all the other eleven cities, eleven towns and 121 shires (country districts) in the state.
Sydney, the capital city of New South Wales, with a population of 1,350,000, is the second largest city in the British Empire, only the City of London having a greater population. Greater Sydney comprises forty-nine urban municipalities and three shires. All these municipalities, except the one known as Sydney, adopted the new method of taxation in 1908. Sydney, which is the business centre of he metropolis and gives the city its na me, adopted it in
1916. Under this system the metropolis of Sydney has grown much more rapidly than the City of Melbourne, its principal rival, a majority of whose member municipalities still use the old method of taxation. In the State of New South Wales there are 173 municipalities and 139 shires, comprising 39 per cent of the total population of Australia. As in Queensland, there is not a municipality or shire that levies any rate on improvements. The municipalities, but not the shires, are free to do so should they so desire.
In Canberra, the capital of Australia, the government has retained the ownership of all the land in the city, comprising 26.880 acres. The city is small, its population being only 10.000, but it is growing. Its development dates from about 1911.
Already the increase in land values in Canberra has been such that the government expects that in time it will cover the entire cost of creating and developing the federal capital. The municipality derives its principal revenue from rentals of sites, the leases for which are auctioned off as the demand justifies. Canberra, from its inception, has been developed according to carefully prepared plans. It is one of the loveliest cities in the world. Its buildings, of all kinds, are of the most modern character. Not a dollar of taxation is imposed upon any of them.
In view of the blight which has fallen upon the building industry of Canada, our large percentage of continuously unemployed, the new and heavy burden of relief, the shortage of houses, the growth of slums and the inability of our cities to obtain sufficient revenue, all of which conditions have developed under our system of taxation, it is passing
TIIK Australian and New Zealand system of municipal taxation is founded u|x>n three basic principles. These principles are at distinct variance with those which are followed in Canada. Let their authorities state them for themselves.
One of the earliest and strongest advocates of the taxation of land values for municipal purposes in New Zealand was Hon. George Fowlds, M.F., C.B.E., etc.
“The basic principle,” Mr. Fowlds said on one occasion, “is this: lí the population of a given area of the earth’s surface is greatly increased, land values in that area will increase in proportion . . . The same increase of population which enhanced the land values will causean increase1 in thecommunity services required, i.e., roads, railways, drainage, lighting, etc. Does it not appeal to you as good horse-sense that these increased land values, caused by an increase in population, should pay for those community services rendered necessary by the growth in the population?”
The Australian viewpoint is similar, as stated in 1934 by E. J. Craigie, M.P., of Adelaide, South Australia. Adelaide and Melbourne (except for a few municipalities in the metropolitan area of Melbourne) are two cities in Australia which have not adopted the new method of taxation. Vigorous efforts are being made to induce them to accept it. The South Australian Parliament passed a bill providing for its introduction in Adelaide, but it was killed in the Legislative Council or Senate. Mr. Craigie, in a public address, made this statement:
"It is interesting to note the increment in land values, since the inception of the state. In 1837 the whole site of the City of Adelaide. 1,042 acres, realized ¿3.594 ($17,251.20). Today the unimproved value for state land purposes is approximately ¿11,000,000 ($52,800.000). Land sales were held in Melbourne (State of Victoria) in 1837, when 93 x/i acres realized ¿6,770 ($32,496). Today the unimproved value of that land is ¿22.314,850 ($107.111,280). Justice declares that the unimproved land values created by the community shall be collected for the benefit of the community, and thus the burden of taxation that is now oppressing industry could be abolished.”
(It was such figures as the foregoing which led the Australian Government to retain the ownership of all the land in the city and Federal District of Canberra, the Commonwealth capital, as previously mentioned.)
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Australia and New Zealand Method
strange that the significance of these developments in Australia and New Zealand should have escaped our attention.
Continued from page 15
Various methods of retaining the increasing revenue from land values for the benefit of the public have been adopted: Of these the most important is the unimproved land values tax for municipal purposes. The following is another method of appropriating a portion of these values which was adopted in Australia.
Some twenty years ago it was decided to construct the now world-famous bridge across Sydney Harbor, in New South Wales. The bridge, with approaches, was to be nearly three miles long and was to cost about $45,000,000. The mere broaching of the proposal started land values soaring, both in the business sections of Sydney and in the suburban areas which the bridge would benefit.
The government decided that the enormous enhancement in land values that would result from the erection of the bridge should not be allowed to pass entirely into private hands. The situation was surveyed. It was found that nine municipalities would benefit principally by the erection of the bridge. A special levy of one cent on each approximately five dollars of unimproved land values in these municipalities was made in 1923. This tax was in addition to the regular municipal rates on the same land. It was continued, but gradually reduced, until 1937. In all, upwards of $10.000.000 was raised toward the cost of this bridge by means of this levy. It had been intended to raise one third of the cost of the bridge by this method, but other funds became available and this was not necessary.
It is claimed that the extra tax for bridge purposes helped to prevent a land boom that otherwise would have developed with unfavorable results, and avoided the necessity of raising $10,000,000 by some other, probably more restrictive, method of taxation. The people are proud of what they consider was their foresight in this matter. As land values increased, in spite of the tax, they do not consider that any injustice was inflicted upon the private landowners concerned.
Four years ago the New Zealand Government announced that it intended to guarantee the prices dairy farmers would receive for their cheese and butter. These
prices were to be set at a level that would be profitable to the producers. The effect of this announcement was to stimulate land values throughout the extensive dairy districts. The government was quick to notice this development.
Hon. Walter Nash. Finance Minister of New Zealand, in a statement to the writer, asserted that the government’s policy was intended to assist producers, not landowners. He added that the government proposed, should it find that the beneficial results of its policy were being capitalized in land values, to take whatever action might be necessary to ensure the increased value being retained and used for public purposes.
Parks Replace Slums
THE TWO other basic principles of the Australian and New Zealand method ¡ are: first, that idle, or only partly used, land should be taxed sufficiently to ensure its being utilized for some purpose in the interest of the public and, second, that the erection of buildings should be encouraged by abolishing all taxes upon them. This time, let Alderman J. R. Firth, of Sydney. Australia, show how the system works. Alderman Firth was mayor of Strathfield in 1915-16 and again in 1928-29. Speaking at a banquet held in Sydney, on September 4, 1939, attended by 400 guests, he said: “The immediate result of the change-1 over in 1908, i.e., from rating improvements to rating land values only, was to make it unprofitable to ‘hold land for a rise.’ Owners of vacant land became j anxious to sell—they had to use their lard themselves or let someone else use it— there were more sellers than buyers; prices of land were reduced and would-be homeowners wore given opportunity to secure home-sites at reasonable prices and on reasonable terms. Thousands of houses were built, particularly in the suburbs. ' where previously land speculators had held land out of use hoping to sell at enhanced prices. The building of these houses employed labor, not only in the building trades but also in allied industries, viz., bricks, cement, timber and many others.
“Another result was to spread our growing population over a large area—
instead of living in terraces in congested suburbs people built cottages with sunshine all around them, and Sydney spread out rapidly in all directions. Today Sydney, with only one and a half millions of population, occupies more area than London, with six times our population.
“We denounce Sydney's slums, and so we should; but by comparison with other large cities Sydney virtually has no slum areas—the great masses of our people are housed in decent surroundings with plenty of sunlight round their houses. This is the result of making land available at reasonable prices.
“Another advantage of our system of
Municipality Population 1QAQ 1QQR Ashfield .......... 18,430 39,800 Balmain .......... 29,910 28,120 Canterbury ....... 8,170 80,430 Concord .......... 3,330 23,530 Kogarah .......... 6,280 31,450 Randwick ......... 13,420 80,360 Rockdale ......... 11,680 40,030 Ryde ............. 4,230 28,620 Waverley ......... 16,530 57,900 Willoughby ....... 10,650 43,570
rating is that it makes it much easier for a municipality to secure land for parks and playgrounds. Under the old system of rating, it paid to hold land out of use waiting for an increased value which was sure to follow the growth of population. Under the present system of rating land values, the landowner pays rates on the value of the land and pays every year whether or not the land yields a return. If values rise, his rates also rise. Therefore, unless he can make a quick sale at much enhanced prices, it does not pay him to speculate.
“Notwithstanding the very prosperous times of 1908 to 1914, and of 1924 to 1929, no land boom reared its ugly head—no land booms with their following crashes and their following misery, disappointment and poverty.
“Our rating basis, having been in existence in Sydney for thirty years, has resulted in the bulk of our population enjoying pure air, plenty of sunshine and, generally speaking, healthy surroundings, and as a natural result we have one of the lowest death rates in the world, also one of the lowest infantile mortality rates.”
Speaking some years ago on the same subject, Alderman Firth showed how the new method of taxation benefitted the owners of small houses and, incidentally, provided work and promoted the building industries. On this occasion he said:
“There was a case of a man in my own borough of Strathfield who was paying under the old system £80 ($384) a year in rates on a section of land lying vacant. The first year land value rating came into operation he had to pay £800 ($3,840). The second year he had sold the bulk of his land, and it was taken up by many who were eager to use it. At the same time, others whose land had been developed, who had their houses and homes on it, found that their rates of £8 ($38.40) or £10 ($48) a year under the old system had been reduced to £2 ($9.60) or £3 ($14.40) under the new. In short, the new system is of immense benefit to the man who uses his land well, by taking from his shoulders the burdens he had to bear when improvements were taxed and land values were largely exempt.”
The principal reason for this low rate of taxation, it might be mentioned, is that in Sydney the cost of education and of police protection is borne by the state, as it is throughout New South Wales. The increased rate on vacant land was another important contributing factor.
VWTI ILE the first effect of the adoption * V 0f the Australian and New Zealand method of taxation is to reduce the price of land—by squeezing out the speculative values—as mentioned by Alderman Firth, the ultimate effect is to increase land values. As soon as people find that they
can buy land more cheaply, and that they will not have to pay heavy annual taxes upon any buildings they may erect, they are encouraged to build. This condition creates a demand for land for building purposes and ultimately increases the value of land. The new values are based on the actual earning power of the land and are largely free from speculative influences.
The following table shows the population and land values in a number of the suburban municipalities of Sydney in 1908, the first year of land value rating, and in 1935, the latest year for which figures are available:
Land Values 1QHÄ IQQR $4,795,580.80 $15,263,520.00 4,693,970.40 7,537,470.40 2,103,355.20 21,165,796.80 1,394,534.40 8,672,011.20 1,518.849.60 8,409.830.40 5,214.393.60 30,173,529.60 2.808,292.80 12.368,736.00 1,718,529.60 9,135,244.80 2,829,742.40 21,314,112.00 3,137,760.00 17,139,340.80
Canada ’s Experience
VWTIAT does all this mean to Canada ** and Canadians? It can be made to mean much, if given a fair trial. Thirty years ago a large number of municipalities in Western Canada—when the great western land boom was at its height— decided to exempt buildings from taxation and to increase the rate on land values. , Their experience indicates the time was ill; chosen. Actually, the new system should have been introduced earlier, before the boom started, as it was in Australia and New Zealand.
The rush of population into Western Canada, during the first decade of the j century, was so great that land values, at | times, doubled overnight. These increases in values amounted in a few years to j scores of millions of dollars. It was hoped that the new method of taxation would i serve to place a check upon the orgy of j land speculation that was in progress. But by that time the boom had got out of hand. With land values doubling, trebling and quadrupling in value, it was soon found that the incidence of a tax for municipal purposes only, did not provide an adequate check, and would not, as long as the boom lasted. Scores of thousands of people in Eastern Canada, the United States and even in Europe, bought western land, without seeing it and with no inten| tion of ever using it. Their one thought was to make a profit through its sale.
Municipalities lost their collective heads. Anticipating that the great growth in population then taking place would continue indefinitely, they extended their borders, constructed water systems, built schools and laid pavements on a basis which anticipated future populations several times their then size: populations that never materialized. Describing ! conditions at this time. Mayor W. Marchant, of Victoria, B.C., in 1922, said:
“During the boom years there had been an orgy of expenditure. Wanton extravagance, combined with the speculative tendencies of the great majority of citizens, caused the most unnecessary public works to be undertaken. Speaking for myself. I am an unhesitating opponent of the taxation of improvements and in favor of taxes upon land values only.”
City Commissioner C. J. Yorath, of Edmonton. Alberta, about the same time, said that the deplorable conditions which had developed were due in a considerable measure to:
“The development of the community in ! a haphazard, spasmodic manner to suit j the wishes of real estate speculators.” and ¡ “to real estate speculative development j which enlarged the city’s area beyond all j reason, and to the consequent top-heavy, j local improvement program.” The number ¡
of ratepayers, he said, shrank “from 31.000 in 1920 to 22,500 in 1923.”
The boom commenced to collapse shortly before the opening of the Great War in 1914. The war finished it. Then the incidence of the tax made itself felt. Speculators, in increasing numbers, surrendered their holdings. Municipalities found themselves with large areas of vacant land on their hands, from which they could not obtain revenue. Municipalities on all sides found themselves facing bankruptcy.
Compare the foregoing experience with that of Sydney, Australia. Note again what Councillor Firth had to say on this point.
“Notwithstanding the very prosperous times of 1908 to 1914, and of 1924 to 1929, no land boom reared its ugly head—no land booms with their following crashes and their following misery, disappointment and poverty.”
WESTERN CANADA even today, twenty-five years later, has not fully recovered from that boom period. Over large areas land values are still falling. The total value of taxable land of thirty-two cities in British Columbia, not including Vancouver, in 1923, previous to which there had been an enormous shrinkage in values, was $85,360,840. In 1938 the total assessed value of this land was $71,294,743. These cities, however, had so much abandoned and other nontaxable land on their hands that the value of the taxable land was only $47,339,143.
Until 1924 a provincial law in British Columbia prohibited municipalities, other than Vancouver and village municipalities, from taxing land values more than 15 mills. In 1924 the limit was raised to 20 mills and in 1936 to 35 mills. This limitation forced many municipalities, which otherwise might not have done so, to revert to taxing improvements.
Cities and districts in British Columbia are free to tax improvements up to 75 per cent of the assessed value, and villages up to 50 per cent. Of the cities, in 1938, two exempted improvements 100 per cent, two 90 per cent, one 80 per cent, three 75 per cent, two 70 per cent, two 66% per cent, two 65 per cent, seventeen 50 per cent, one 55 per cent, and one 35 per cent. Out of eighty municipalities, including thirtythree cities, twenty-eight districts and nineteen villages, not one exempted improvements less than 35 per cent and seventy-seven exempted them 50 to 100 per cent. Vancouver exempts improvements 50 per cent.
New Westminster, population 20,000, is one of the cities which does not impose
any tax on buildings. Speaking about this system, in 1935, Mayor Hume said:
“Since this system has been in vogue, the City of New Westminster has reaped considerable benefit by way of increased population and additional number of property owners residing in the municipality . . . This city is believed to have the largest percentage of individually owned, unmortgaged homes of any city on the continent. It now has the largest invested capital per person of any city in the Dominion of Canada, and this capital investment is not in inflated speculative land value, but rather in factories, machinery, stores and goods.
“Population and industry have boomed, but land speculation has been buried. It is now unprofitable for real estate dealers to withhold sites from prospective buyers. The average citizen is now loud in his praise of the existing system, which reduces the cost of land and does not penalize improvements. Land can be purchased from the municipality at reasonable rates. There is therefore but a small percentage of nonproductive property in the city and a small proportion of property reverting to the city for nonpayment of taxes. The protection of the interests of the ratepayers has meant more business for the lumbermen, paint dealers, furniture factories and all building trades . . .
“The real estate dealers in New Westminster have played the role of home builders rather than gamblers. Abolition of taxes on labor products has assisted in inducing a normal community development and a thoroughly diffused prosperity, as well as a widely felt sense of economic security and freedom.”
In December, 1939, City Clerk A. G. Brine stated: “This method of taxation has proved satisfactory as far as we are concerned. A number of industries have been induced to locate in New Westminster on account of the system. Home-owners are encouraged to improve their properties, because no additional tax is levied. The city’s financial status compares favorably with that of other cities in the province.”
In Alberta the cities of Red Deer and Calgary exempt buildings from taxation 50 per cent. Edmonton taxes buildings used for business purposes 60 per cent and buildings used as residences 50 per cent.
Milk River, a village, secured power from the legislature in 1929 to exempt improvements 100 per cent. By 1933 practically all the “speculation” land, which had reverted to the municipality following the boom, for nonpayment of taxes, had been sold to people desiring to use it. Much of it was sold at prices representing only about one quarter of the values formerly asked by the speculators.
The village is free from debt. The
required revenue is raised easily. Each 1 year Milk River starts off with a surplus of 50 to 100 per cent of the year’s levy on ' hand. Sam Hulme, the town secretarytreasurer, said recently, "Our problem is not, how are we going to raise enough money, but how are we going to spend it?’’ Last year Councillor Fred Pease, mayor for over twelve years, proposed that the municipality should assume the entire cost of electric energy supplied by the Calgary Power Company and that ratepayers should not be billed individually for this service. In 1936 the ratepayers voted three to one against a proposal to go back to the former system of taxation.
After the War—What?
FROM WHAT has been said it would seem that the results of Western Canada’s experience with this system of taxation indicate:
First: That had it been introduced
before the land boom, when land values were normal, it would have had an important effect in restraining the speculation in land which later developed with such disastrous effects.
Second: That, under such circumstances, the results would have been more favorable than they proved, and might have equalled those realized in Australia and New Zealand.
Third: That it has demonstrated the benefits derived by taxing land values more heavily than improvements, and Fourth: That the fact that some municipalities still exempt all improvements from taxation, and are doing so with success, suggests that this system of taxation has more in its favor than some of its opponents in Canada in the past have sought to lead us to believe.
After the war, what? How are Canadian municipalities to meet the increased burden of taxation that would seem to be inevitable? What can we do to ensure our returned men being provided with gainful employment?
Here is something to think over. Because of its inter-relationship with other industries, the construction industry is of vital importance to Canadian business prosperity. Of all employees, according to the Dominion Statistician, one ninth are nominally engaged in producing construction materials. A similar proportion are engaged in or dependent upon construction proper. One tenth of all freight cars are normally used in the transportation of construction materials. The distribution of these supplies engages one twelfth of all wholesalers. Three quarters of every construction dollar spent goes to labor, either on the job or on production and ! transportation of construction materials. I Consider again the following significant statement by Alderman J. R. Firth, of Sydney:
"The immediate result of the changeover in 1908’’ was that "thousands of houses were built. The builders of these houses employed labor, not only in the building trades, but also in allied industries, i.e., bricks, cement, timber and many others.”
What bearing has the foregoing statement upon some of our most serious national, municipal and after-the-war problems? To what extent would a solution for these problems be found were Canadian municipalities to adopt the Australian and New Zealand method of municipal taxation? Their thirty to forty years of successful experience with it challenges our attention and demands our consideration of these matters.