PhD Thesis on Taxation
The main functions of local government in Australia are to provide and maintain roads, street lighting, rubbish collection and disposal, maternal and child health care centers, libraries, and recreational facilities. It may also subsidize certain educational and counseling services, although education is not regarded as primarily a local responsibility. Nor is public security. Some local functions are supported, not through property taxation, but through user charges.
Some Australian municipalities were rating on unimproved land values as early as the 1850s. But as a result of the impact of Henry George's writings, single-tax leagues, as they were often called, began proliferating about 1890. The concept was spread by such able and energetic advocates as Max Hirsch, who abandoned a successful career in commerce in order to do so. George's three-month speaking tour in Australia in 1895 accelerated this trend. Its growth was halted by the outbreak of World War I, and from then on, exacerbated no doubt by the welfare state, a decline in the number and membership of the leagues set in.Almost from the beginning, some land value capture for public benefit in Australia has been obtained through the leasing out of Crown lands.
A graduated federal land tax was introduced in 1910, with the stated intention of breaking up the large estates. The first [pound]5,000 of unimproved value was exempt, and the rates were low except for very large estates, the owners of which frequently escaped the tax by nominally subdividing them among family members.. As mentioned above, it was abolished in 1952.
State land taxes were introduced into the six states in the following order: South Australia, 1884; New South Wales, 1895; Tasmania, 1907; Western Australia, 1907; Victoria, 1910; and Queensland, 1915. They vary considerably, apply only to certain properties, and suffer from serious administrative defects.
By far the most important are the local land taxes or "site value rates." All six states permit their adoption by local option; Tasmania is the only one in which no jurisdiction has availed itself of this choice, although strong efforts have been made there to promote it. Its use began in New South Wales and Queensland in 1890, and is universal in both states; in Western Australia it began in 1902, and is predominant there. In South Australia and Victoria net annual value rating is predominant, but site value rating has existed in the former since 1893 and in the latter since 1919.
Historically, New Zealand was long known for its advanced social legislation. It pioneered female suffrage, and was among the first countries to adopt social security, old age pensions, and universal health care. A measure of land-value taxation was introduced even before the publication of Henry George's Progress and Poverty in 1879.
New Zealand's export production provides jobs for only about 10 percent of its workforce, yet full employment has long been an overriding political goal. In seeking to achieve this goal, successive governments up until the mid-1980s subsidized inefficient industries, restricted imports, and maintained a vast corps of public servants. They also progressively increased expenditure on welfare. These policies, together with compulsory union membership and mandatory arbitration of labor-management disputes, helped to insulate the economy from market discipline, and kept wages artificially high. All this was accompanied by a degree of state regulation "unparalleled in most other Western economies." (Massey 7) The mix of inefficient subsidized enterprises, non-market-oriented capital investment, union monopoly, cumbersome over-regulation, and a "safety net" so high as to discourage initiative for work and training, helped to produce an ill-prepared, poorly motivated labor force and a low rate of per capita economic output. (Massey 45)
For some three decades after World War II, this program, initiated by Labour but continued and expanded by the National (Conservative) Muldoon government, seemed to work: New Zealand enjoyed one of the highest living standards on earth. As long as tax revenue from exports fueled government spending, the illusion of prosperity could be sustained. But eventually, with the development of synthetic fibers to compete with wool, the rise of West Germany and Japan as economic superpowers, the erection of European Common Market barriers against New Zealand exports followed by Britain's decision to join the Common Market, the oil shocks of 1973 and 1979, etc., the terms of trade turned against New Zealand. For a while, the government was able to stave off the inevitable by overseas borrowing, but only for a while. "From having been one of the three or four richest countries in the world in the early 1950s, New Zealand moved to about 20th in international rankings by the end of the 1970s." (Douglas 23) Moreover, by 1981, inflation had reached 17 percent.
Land-value taxation, in the form of rating at the local government level, counteracted these tendencies to a minor extent, providing a degree of stimulation especially in the building industry. But although successful as far as it went, it did not collect enough of the economic rent or account for a large enough share of the total budget to constitute anything like a decisive factor in the economy. Furthermore, it is doubtful that even full rating of land values, coupled with the complete lifting of rating on improvements, could have in themselves prevailed against such massive forces for stagnation.
For over 150 years, land values in New Zealand have been collected for public purposes in three main ways: (1) by the sale and lease of Crown land, (2) from a national land tax, and (3) from land-value rates for local government. This record shows that the tax technique, however commendable in many ways, has significant practical limitations as well as being susceptible locally to administrative problems that, if not successfully addressed, are eagerly used against it; and that the principle and technique of institutionalized leases may be extended to include infrastructural monopolies, and thence more widely to land itself.
Papua New Guinea
Papua New Guinea's adoption of site-value property taxation (or rating as it is called there) had its origin in Australia's pre-independence administration, and the proximity of Australia to PNG. The influence of Australian law and practices was especially pronounced on visiting PNG scholars and researchers.
Property taxation is levied on land owned in freehold title, and is based on the unimproved value of each parcel of taxable land. Values are determined by a government-appointed valuer general. His values can be appealed against.
Ground improvements relate to those improvements made to land for its better use and/or development such as the felling and clearing away of trees or native shrubs; the removal or leveling of stone which exists naturally on land; and the leveling or filling of land. The definition of the Ground Improvement Allowance puts a 15 year time limit within which the allowance can be enjoyed after the works have been completed, or earlier if the land is sold or passes out of the ownership of the owner or owners who originally carried out the improvement works. It can be inferred that this time limit has been applied by the PNG legislators in the belief that this is a sufficiently long period during which those who carried out the works might obtain adequate recompense for their expenditure.
However, the definition further adds that "the sum so to be deducted shall not exceed the estimated increase which the expenditure has made to the value of the land as at the date of valuation." For example, if the expenditure is considered to have been either totally or partially of an unwise or improvident nature and therefore not responsible for a like increase in the value of the land then the allowance is to be adjusted accordingly.
The unimproved value as defined follows closely those applicable in most of the Australian states and in New Zealand. In consequence, there is a considerable volume of Australian and New Zealand case law further refining the definition of unimproved value.
One of the basic aims of the property taxation system as applicable in PNG is to raise revenue as based solely on the value of land, and not intermingled with the value of any improvements on the land. Nevertheless, where many small houses tend to spring up within or adjacent to serviced urban land ("squatter" colonies as they are often called, usually built on customary tribal or government land in respect of which there is little prospect of gaining permanent ownership) then legislation provides that property taxation may be levied on the value of such buildings. However, four conditions restrict this power.
The first of these requires that the building has been registered, and has thus some official standing. The second is that it must be occupied by a person other than of the state, or an authority or instrumentality thereof.
A third, quite important, provision is that the tax as based on the value of the building cannot be more than if based on the unimproved value of the land on which the building stands. A final provision is that the tax can only be applied if the building is within an urban area, and thus has some access to urban-type services such as water and electricity. Hence, this excludes from any application of the tax the thousands of village houses, (many erected at or near mountain tops) all over PNG, because they are not within an urban area.
The revenue derived from property taxation is regarded as an important contribution to local government revenues.
A tax regime similar in concept to that for mining, but using different rates of tax and threshold rates of return, has been developed for petroleum. While the remaining paragraphs describe major features of the regimes for mining and petroleum taxation at the end of 1999, the present author has no reason to believe that they have ceased to be current as of this writing (March, 2000).
For both mining and petroleum, a royalty of 2 percent of the value of net smelter value or well head value applies. Royalties are distributed to provincial governments, local level governments, and project landowners. The apportionment of royalties is determined by a development agreement between these parties, or, in the absence of an agreement, on a basis decided by the national minister for mines or the minister for petroleum.
In addition, the national government provides "special support grants" to provincial governments to assist with provision of infrastructure in areas where major mining projects occur. These grants are based, not on a fixed percentage of mineral revenue, but on annual budget allocations, which are negotiated between the national government and relevant provincial governments. There are no special support grants for petroleum or gas projects. Instead, project developers pay a development levy of 2 percent of the well head value of all petroleum produced from a license area directly to the affected provincial government or governments.
An unusual aspect of PNG's tax system as in comparison with that of Australia and New Zealand is the concept of Prescribed Infrastructure Development. Mining and petroleum companies can devote a portion of the money they would have paid in company tax (currently 2 percent of their assessable income for tax purposes) to infrastructure projects (such as schools, hospitals or roads) designed to benefit residents of the areas in which the companies benefit. (Pollard 81) The selection of infrastructure projects involves representatives from village groups, local level governments, provincial governments, the national government, and the mining or petroleum companies. From the companies' point of view, the advantage of this provision is that it allows local people to derive additional benefits from their operations. From the PNG government's point of view, a significant benefit is that mining or petroleum companies can use the expertise they have available to assist in carrying out the infrastructure projects. This reduces the overall cost of projects to the government, and increases the likelihood that tax revenues devoted to infrastructure provision will be utilized efficiently.
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