This month the Institute made a pre budget submission (pdf, 0.2MB, log-in required) to the Minister for Finance Michael Noonan TD.
The budgetary process has changed over recent years (the introduction of the Spring Economic Statement and the National Economic Dialogue are two examples) and is likely to develop further. Under the Dáil reform proposals this year an Oireachtas Committee on Budget and Finance is to be set up along with a Parliamentary Budget Office within the Oireachtas which will provide economic and fiscal support to all Members and allow for greater scrutiny of revenue-raising proposals; expenditure proposals and review of the fiscal position.
Our pre budget submission highlighted recommendations for future fiscal policy which advocates proper planning and sustainable development in Ireland and concentrated on the implications of any such taxation measures for proper planning and the sustainable economic development of Ireland.
Any fiscal policy related to planning and development should fit into an overarching vision for the development of our towns, cities and rural areas over the medium term. The preparation of the National Planning Framework, which will provide a clear spatial strategy for the development of the country, can facilitate the integration of fiscal policy with planning considerations. Any Government capital investment identified in Budget 2017, must accord with the National Planning Framework in order to ensure integrated and orderly development and Budget 2017 should consider innovative fiscal measures which will assist in implementing Government planning policy.
Site or Land Value Tax
The Irish Planning Institute recommends a site or land value tax (to replace the current local property tax), with the valuations and rates assessed nationally, and collected centrally, but with all of the revenue collected going to the county to which the tax was ascribed. The reasons for this are as follows:
- Sustainable use of land: A site or land value tax can encourage the more sustainable use of land by encouraging development of under-utilised, serviced, zoned and accessible lands in urban area, thereby promoting consolidation in line with national policy. Evidence, alluded to by the National Economic Social Council in their paper Housing in Ireland: Performance and Policy and background analysis, from jurisdictions such as Denmark and parts of the US in which a site value tax was favoured (as opposed to a building value tax or building and land value tax), indicates that the penalty of higher taxes on zoned and serviced sites, together with a strong planning system, prompts appropriate infill development.
- Prevention of dereliction: A site value tax, unlike a building value tax, will act as a penalty to landowners who allow sites to fall into dereliction and will, instead, encourage landowners to use lands to their full potential in accordance with the principles of proper planning and sustainable development.
- Fairness: Unlike other forms of property tax, a site value tax shares the burden of funding essential services in a way, which takes account of the greater level of services available to some landowners. In addition, it could provide a method by which public expenditure on relevant major infrastructural projects during the boom years could be partly recovered from those receiving the most benefit.
With regard to how a site value tax might be calculated, sites should be valued on the market value of the highest permitted use under the relevant Development Plan for the area in which the land is located. This methodology will take account of circumstances in which large landholdings in urban areas might be unsuitable for large-scale development (e.g. demesnes associated with heritage buildings; lands in proximity to Natura 2000 sites, etc.). Some exemptions must also be made in limited circumstances for landowners who are unable to pay.
Targeted Corrective Tax Measures
In order to avoid a patchwork of piecemeal fiscal initiatives a site or land value tax should be the primary corrective tax measure intended to achieve sustainable patterns of development. However, it must be acknowledged that, in some circumstances, successful targeted tax measures can deliver investment quickly, address ‘doughnut’ cities and encourage residential and vibrant commercial activities in appropriate locations. Examples of such corrective tax measures could include:
- A betterment or windfall tax on newly rezoned lands in order to reduce pressure for the development of peripheral or unzoned agricultural lands and reduce price volatility. The cost of land has been identified as a significant factor in housing delivery (SCSI (2016) The Real Cost of New House Delivery). Volatility in development costs and prices in the recent past was caused in large part by sizeable and speedy changes in the price ascribed for land (facilitated by a culture of hope value, rising prices and unduly easy credit). This caused turmoil in terms of delivering cost effective development. Any taxation measure that achieves a more tempered balancing of land price change would be welcomed by the Institute.
- Exemption from section 48 development contributions for certain sites (e.g. brownfield sites, sites identified as being of strategic importance) in specified locations for a limited period.
- Restriction of roll-over relief to monies spent on development of zoned lands and/or to developers (e.g. relief would not be available to those who purchase sites and sell them on without developing those sites).
Moreover, any targeted corrective taxation measures must be managed closely on a time basis to ensure that as and when evidence of their success becomes clear that a clear timing for their withdrawal is set out. For example, while targeted incentives may be successful initially in achieving physical development objectives, if those incentives are not terminated once the property market has matured, there may not be sufficient capacity within the planning system to ensure quality control in all resulting development. Targeted corrective tax measures have the potential to encourage the efficient use and development of land in general, in line with the principles of proper planning and sustainable development.
Other Financial Measures to Promote Effective Planning
The efficient use and development of land cannot be achieved through corrective tax measures alone. There is a requirement for to assist with the funding of pieces of local infrastructure up front to speed up the delivery of essential development and the Institute welcomes the announcement of a Local Infrastructure Fund by Ministers Donohoe and Coveney. The Institute however believes that it must only be used to advance strategic sites identified as a priority. We hope the announced fund is a step in local authorities taking a greater role in active land management allowing local authorities the powers and financing to assemble and invest in vacant or underutilised sites.
Recent legislative change allowed for the payment of reduced contributions for approved developments in situations where a revised contributions scheme with lower charges has been adopted following the granting of permission for the development and prior to commencement of that development. Notwithstanding this, the Institute notes that there have been calls for further reductions in contributions. Development contributions schemes are a means for planning authorities to fund essential infrastructure required to support communities, housing and economic development. Any further reduction in charges, without alternative funding being made available to planning authorities, could result in an inability to deliver required infrastructure. It is considered that there is a need for more fundamental consideration of infrastructure funding between the Department of Finance and Department of Housing, Planning and Local Government to ensure that a sustainable approach to infrastructure funding is identified and deficits in infrastructure do not lead to delays to evidence based necessary and strategic development.
Also, Ireland’s historic environment and heritage is an economic asset and in 2011 was estimated as accounting for €1.5 billion or 1 per cent of the State’s Gross Value Added (GVA) and approximately 65,000 jobs. A comprehensive package of financial incentives would offset concerns about the cost of refurbishing buildings and encourage living in city and town centres to improve quality of life and the vibrancy and attractiveness of city and town centres.
It is critical that fiscal policy is not ad hoc. There is a need to focus on the long-term management of our built environment, both new developments and heritage buildings, if we are to provide the conditions for investment and also achieve sustainable communities. Given this, it is important that the interrelated and interdependent work of the Departments of Housing, Planning and Local Government, Public Expenditure and Reform and Finance in respect of fiscal policy for planning is carried out in a cohesive way.
For more information on this our other Institute policy work contact email@example.com.