The Minister for Treasury and Resources comment to “Land development tax or equivalent mechanisms” (P147/2011)
The Minister for Treasury and Resources, as with P90/2011, opposes this proposition.
The comment presented in response to P90/2011 still stands and is reproduced in the attached appendix. The key differences between P90/2011 and this proposition are, firstly, that of timing, and secondly the proposal to ring-fence any revenues raised for the provision of affordable housing. This does not however affect the main arguments previously set out by the Minister for Treasury and Resources.
In summary:
- The Minister has committed to a review of land development tax as part of a wider review of property taxation which is to be undertaken by the Tax Policy Unit. This will be included in the Tax Policy Unit’s work programme in the next 2 to 3 years. The review is considered an important one and will commence in early 2012. Until that work has been done it is not possible to say that a land development tax in the form proposed by the Deputy is appropriate for Jersey.
- As Oxera acknowledges in the reports helpfully reproduced by the Deputy, Jersey’s special circumstances would make it difficult to reproduce an existing tax used elsewhere. Any new tax would therefore be likely to have to be designed from scratch, with due consideration for Jersey’s unique position and subject to a full consultation exercise.
- The Minister cannot therefore commit to bringing forward legislation in Budget 2013 or at any time unless and until it can be shown it is the right tax for Jersey.
- There is no urgency to enact measures because the 2011 Island Plan contains no new rezoning of greenfield land for residential development that would deliver the significant uplift in land values to which the proposition refers.
- Nevertheless, the planning system approved in the 2011 Island Plan and in particular the increased use of Planning Obligation Agreements is capable of delivering additional value to Island residents, in particular through the provision of affordable housing. Oxera has recognised that from an economic perspective this has an effect very similar to a land development tax, in that benefits pass from the developer to the community. In addition, States Members will be aware that profits derived from property development are already subject to income tax at 20%.
Part (a) – commitment to a taxing mechanism
Although significant work has been undertaken by Oxera, it is clear from their reports that further substantial work would be needed to ensure that such a system was credible, effective and did not result in unintended consequences.
The main issues identified by Oxera as part of their review include (but are not limited to):
- the particular circumstances of the Jersey housing market need investigating to ensure that any land development tax would actually fall upon landowners rather than be passed on to private households through increased rents and sale prices;
- how the tax would be introduced without creating distortions in the market;
- what would constitute a taxable event, for example would sales of land which reflect a “hope value” of future re-zoning/planning permission be subject to the tax?
- how would the “taxable amount” be calculated such that the tax is only due on the increase in the value of the land that has been caused by the re-zoning/planning permission decision; and
- when would the tax actually be payable, particularly if the sale of the land is delayed until some point in the future. This is particularly relevant in situations where a landowner develops their own land and then lives in the property.
Part (b) - timing
Oxera has acknowledged that this is a complex matter. Detailed work must be carried out before a decision can be made about whether a land development tax or equivalent measure is the right answer for Jersey. It would be extremely difficult to undertake that work and then design, consult on, and legislate for a land development tax, one without equivalent anywhere else in the world, in the 11 months remaining between the debate on P147 in November 2011 and the lodging of the 2013 Budget in October 2012.
The Minister for Treasury and Resources has committed to reviewing a land development tax as part of a wider review of property taxation which is being undertaken by the Tax Policy Unit. Work will commence in early 2012. This review is considered an important and overdue one, and will be given priority. However, in light of the complexities involved, the Minister cannot commit to bringing forward a land development tax or equivalent charge either in Budget 2013 or at any time unless it is in the best interest of Jersey. Without fully undertaking a review of the wider issue of property taxation, which will take time, it is not yet clear that a land development tax or equivalent measure is the right way of dealing with the perceived problem.
Part (c): retrospective nature of the tax or charge
In paragraph (c) of the proposition, the Deputy is effectively asking the Minister to introduce retrospective tax legislation – i.e. law which has effect for a period prior to the law coming into force. That is not a feature of Jersey tax legislation and may have human rights implications which do not appear to have been addressed by the Deputy.
In addition, the 2011 Island Plan contains no new rezoning of greenfield land for residential development that would deliver the significant uplift in land values to which the proposition refers.
Part (d) - provision of affordable housing
The Deputy suggests that the funds raised through the introduction of a land development tax mechanism should be ring-fenced and applied to fund the provision of affordable homes for individuals on low incomes. The States have, however, recently approved the new Island Plan policies which seek to deliver a sufficient supply of affordable housing, relative to estimated need, over the next 10 years, involving the use of States-owned land and requiring a proportion of all residential development, above specified thresholds, to be affordable.
Planning obligations will continue to be increasingly employed to deliver affordable housing under the new 2011 Island Plan, which requires a proportion of all new housing, above specified thresholds from 2012, to be affordable. The thresholds set out in the Plan relate to the first five years of its operation (rising from 12.5% to 20%), when it must become established as a mechanism and yield results: the proportion of affordable housing yield for the remainder of the Plan period remains to be reviewed.
Supplementary planning guidance on the use of planning obligations is presently under review. Work is also being undertaken to enable contributions to deliver affordable housing to be made in 2012 as set out in the Island Plan. The guidance that will do this will be brought before the States for endorsement in early 2012.
These agreements, as Oxera note in their reports, should have the same underlying economic affect as a land development tax (i.e. a transfer of value from landowners to the community) without the introduction of some of the administrative complexities associated with the taxation approach.
The Minister for Treasury and Resources urges States Members to reject all parts of this proposition.
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