?I pro­pose the fol­low­ing as an al­ter­na­tive fair­er method for cal­cu­lat­ing prop­er­ty tax, based loose­ly on the way coun­cil tax is cal­cu­lat­ed in the UK. The cen­tral gov­ern­ment es­tab­lish­es the pol­i­cy that prop­er­ty tax rev­enue should be used to cov­er on­ly re­cur­rent lo­cal gov­ern­ment ex­pen­di­ture.�If any lo­cal gov­ern­ment coun­cil needs cap­i­tal ex­pen­di­ture, it should come out of the na­tion­al tax pool, sub­ject to the ex­ist­ing ap­proval process (eg Min­istry of Fi­nance, Cab­i­net).

All lo­cal gov­ern­ment coun­cils must sub­mit re­cur­rent ex­pen­di­ture bud­gets and a sum­ma­ry of sav­ings they've gen­er­at­ed in the past year to the Min­istry of Fi­nance, three months be­fore the end of the fi­nan­cial year. The sav­ings are based on ex­am­ples where they achieved the same lev­el of ser­vices at low­er than bud­get­ed cost (eg due to con­tract rene­go­ti­a­tion, out­sourc­ing). These sav­ings can be used to gain ex­tra grants from the na­tion­al tax pool and thus en­cour­age lo­cal gov­ern­ment coun­cils to prac­tise sound fi­nan­cial man­age­ment.

The cen­tral gov­ern­ment es­tab­lish­es a na­tion­al or­gan­i­sa­tion re­spon­si­ble for valu­ing prop­er­ties and main­tain­ing this data­base–let's call it the prop­er­ty val­u­a­tions agency (PVA). The PVA will es­tab­lish a sys­tem of prop­er­ty val­ue band­ings based on the mar­ket val­ue of the prop­er­ty if sold (not rent­ed) in a cer­tain year–let's call this the base val­u­a­tion year (BVY). All prop­er­ties will be placed in an ap­pro­pri­ate band­ing based on the sell­ing price of the prop­er­ty in the BVY. The BVY does not change, ie, a record of prop­er­ty val­ues for each year sub­se­quent to the BVY does not have to be main­tained.

When a prop­er­ty is as­sessed in any giv­en year, an eval­u­a­tion is made on what that prop­er­ty would have been sold for in the BVY. In this way, a prop­er­ty ex­pe­ri­ences a rel­a­tive­ly sta­ble band­ing over a pe­ri­od of time and would on­ly change band­ing if enough mod­i­fi­ca­tions are made to it that would have re­sult­ed in it chang­ing in val­ue at BVY prices (not cur­rent year prices). This al­so re­duces the im­pact of year-to-year changes in in­fla­tion.

This cen­tral data­base can thus be used for prop­er­ty tax­es and WASA billing (thus sav­ing on costs due to du­pli­ca­tion of data­bas­es). n A prop­er­ty can on­ly change band­ing if it is ac­tu­al­ly sold or (if rent­ed) the ten­ants are changed, and enough mod­i­fi­ca­tions are done to cause its val­ue (at BVY prices) to change bound­aries. This pro­tects against the sce­nario raised by Prof John Spence where a per­son who pe­ri­od­i­cal­ly makes changes to a house due to his ex­pand­ing fam­i­ly is un­fair­ly pe­nalised in a par­tic­u­lar year (eg has to add a bath­room or two bed­rooms).�

In this way, that per­son will con­tin­ue to pay the val­ue ap­pro­pri­ate to the low­er band­ing that ap­plied when he first oc­cu­pied the prop­er­ty, and will on­ly have to con­sid­er changes to his tax out­lay if he moves home.�It al­so pro­tects chil­dren who in­her­it the fam­i­ly home from hav­ing to move due to the death of a par­ent, ie, chil­dren won't sud­den­ly find their home has changed band­ing, when a par­ent dies, due to all the im­prove­ments their de­part­ed par­ent made in the past.

No lo­cal gov­ern­ment coun­cil would be able to ob­tain an in­crease in re­cur­rent ex­pen­di­ture above the cen­tral gov­ern­ment's in­fla­tion tar­get for that fi­nan­cial year. For ex­am­ple, if cen­tral gov­ern­ment de­sires that in­fla­tion be kept at five per cent for 2010, then the dif­fer­ence be­tween the bud­get­ed re­cur­rent ex­pen­di­ture for 2010 and that for 2009 can­not ex­ceed five per cent of the lat­ter. Each coun­cil will spread the bud­get­ed re­cur­rent ex­pen­di­ture over the prop­er­ties in its con­stituen­cy in such a man­ner that the high­er band­ed prop­er­ties would pay more tax than those in low­er bands.

The coun­cils would be able to de­ter­mine what the ac­tu­al tax amounts would be. The math in­volved is too de­tailed to ex­plain in this let­ter, but the coun­cils will need to en­sure that no in­crease in prop­er­ty tax year on year, for any of the bands, should ex­ceed the tar­get in­fla­tion rate.�If there is a short­fall due to the rel­a­tive amount of prop­er­ties in the con­stituen­cy, the re­cur­rent ex­pen­di­ture bud­get must be re­duced or that deficit has to be fund­ed by cen­tral gov­ern­ment.

A sys­tem of ex­emp­tions and fi­nan­cial sup­port is set up for those in most need or where aligned with cen­tral gov­ern­ment pol­i­cy. For ex­am­ple, if the prop­er­ty is oc­cu­pied on­ly by full-time uni­ver­si­ty stu­dents, then that prop­er­ty is ex­empt from prop­er­ty tax for the du­ra­tion of their oc­cu­pa­tion, or if all res­i­dent adults are un­em­ployed they are ex­empt from prop­er­ty tax for one year in a five-year pe­ri­od (to al­low them tem­po­rary respite while they look for a job, and dis­cour­age squat­ting).

Last­ly, this is im­ple­ment­ed from Jan­u­ary 1, 2011, to give tax­pay­ers time to plan for any in­creas­es in tax that may ap­ply, as well as al­low the PVA to com­plete base as­sess­ments. In this way the fol­low­ing ben­e­fits arise:

The prop­er­ty tax would be tied di­rect­ly to lo­cal gov­ern­ment plans in its con­stituen­cy. Lo­cal gov­ern­ment coun­cils would be en­cour­aged to pur­sue sav­ings in or­der to get ex­tra fund­ing from cen­tral gov­ern­ment, and those who gain enough sav­ings may ac­tu­al­ly be able to freeze prop­er­ty tax rates in the next year.

The pop­u­la­tion would not be dis­cour­aged from main­tain­ing/im­prov­ing prop­er­ties (as the tax band changes would be rel­a­tive­ly sta­ble).

The bur­den of any tax band­ing changes would fall on new own­ers/ten­ants (so they can bud­get ac­cord­ing­ly). Home­own­ers and oth­er ten­ants who oc­cu­py a prop­er­ty for more than one year would not face changes in tax band­ings from year to year. Any in­crease in tax would not ex­ceed rea­son­able in­fla­tion tar­gets.

Those who ex­pe­ri­ence dif­fi­cul­ty can ob­tain help, or wouldn't face sud­den rental in­creas­es (eg uni­ver­si­ty stu­dents). Tax­pay­ers would have 15 months, rather than six, to pre­pare for an in­crease in tax­a­tion due to the change in method. The cen­tral val­u­a­tions or­gan­i­sa­tion would have a prop­er data­base of prop­er­ty val­ues (based on sell­ing price, not an­nu­al rental val­ues). There would be re­duced ad­min­is­tra­tion costs, as there would be no need for WASA to main­tain a sep­a­rate data­base (which would be re­quired in the Gov­ern­ment's pro­posed scheme since it wish­es to delink WASA's wa­ter rate cal­cu­la­tion from its pro­posed prop­er­ty tax regime).