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This study explores barriers and drivers in implementing a value-based property tax, examining reform programs, funding sources, tax sustainability, ad valorem and non-market value bases, key drivers, and notable examples. It emphasizes the importance of decentralization, local income tax, property tax, and user charges for achieving local autonomy and sustainability. Factors such as stability, transparency, affordability, and taxpayer comprehension are crucial for the success of a new property tax system. Drivers include the development of necessary systems and data, while barriers encompass issues like market value limitations and the need for comprehensive legislation and education. Examples from California and Israel illustrate different non-market based property tax systems, highlighting challenges and opportunities. The study concludes by advocating for open discussions to determine acceptable outcomes based on practical, political, and social considerations.
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Introduction of a value-based property tax – barriers & drivers Frances Plimmer and William McCluskey United Kingdom
Contents • Reform programmes; • Sources of funding; • Sustainability of a new tax; • Ad valorem basis; • Non-market value basis; • Drivers and Barriers; • Examples; • Conclusions.
Reform programmes • Decentralisation; • Independence from central control; • Better quality of services; • Subsidiarity; • Establishment of local authorities; and; • Methods of funding.
Sources of funding • Local Income Tax; • Property Tax; • User charges; • Fees; • Grants from centre Only property tax achieves local autonomy.
Sustainability of a new tax: • Stable; • Transparent; • Affordable; • Sufficient revenue; • Growth; • Wide tax base; • Socially acceptable.
Ad valorem Basis • Reflects changes in economy; • Objective constraint; • Public comprehension; • Buoyancy; • Vertical and horizontal equity; • Reflects link between property values and services; • Assumes annual revaluations; • Relies on comparable transactional data; • Resource intensive – human and technological.
Non-market value Basis • Reflects reality of resource limitations; • Appropriate where there is no market; • May distort market values; • Variety of systems possible; • Accurate and exact measurement; • Objective not subjective; • Can reflect market-based economic criteria; • Lower administrative costs; • Less resource intensive; • Taxpayer comprehension.
Drivers • Systems and data necessary to support market value are being developed; • Problems with non-market based systems; • International perceptions;
Barriers • Market Value does not reflect ability to pay – social issue; • Need for: • comprehensive legislation; • healthy and active property market; • range of human and technological resources; • taxpayer education; • political will.
Examples of non-market based property tax systems • California – Acquisition Value; • Since 1978, taxable value is purchase price + 2%; • Actual figure, fixed by taxpayer; • Promotes neighbourhood stability; • Socially acceptable; • Reduced revenue affects services; • Disadvantages mobility and new owners; • Horizontal and vertical inequity.
Examples of non-market based property tax systems • Israel – Arnona; • formula based on: • Property use; • Location; • Type of property; • Size of property; and • Age. • “reflects factors normally expected to influence property taxation in market economy.”
Conclusions • Establish a set of acceptable outcomes; • Consider: • Taxpayer acceptability; • Resource implications; • Practical and political considerations; • National, cultural and social environment. • Ensure an open and full discussion to identify rationale for what is acceptable – unusual!
