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John Alexander OAM MP has chaired numerous parliamentary inquiries regarding housing affordability and market stability, decentralising away from the major cities, high speed rail, funding infrastructure, and using new technology to make our cities better. 

John Alexander currently chairs the Standing Committee on Infrastructure, Transport and Cities.

March 2021

OP-ED: Taxpayers should not gift-wrap windfall real estate gains

Land located close to new or planned publicly funded infrastructure will always skyrocket in value. This axiomatic statement has been confirmed via numerous examples, case studies and evidence tabled at several parliamentary inquiries I have chaired in recent years.

Families have even become billionaires off the back of this situation. Meanwhile, convicted murderer Ron Medich’s family business has just sold their Badgery’s Creek site for $500 million, an excellent earner on the $3.5 million they paid 25 years ago.

Would the Mediches have made these gazillions of dollars if the Badgerys Creek area had not seen the start of construction of taxpayer funded road, rail and air infrastructure projects and their associated residential and commercial land re-zonings? No.

So how is it acceptable that we have a situation in Australia where landowners can reap 100% of the uplift in land values gifted to them by the taxpayer spending billions of dollars in their area? I cannot see any situation where this status quo is acceptable, yet here we are.

How can we make it fairer, without penalising people? How can we have a win for everyone?

We should have a modest charge applied to the sale of any land that is identified as having benefitted significantly from local taxpayer funded infrastructure.

A simple test should be done: Was the sale price influenced by any plan or action to spend public money on local infrastructure? If yes, then a charge should be applied to some of the proceeds.

This will allow, over time, for some or all of the taxpayer’s outgoings to be returned to the taxpayer. The charge would also be modest, allowing the landowner to still enjoy a healthy return on the sale of their land.

If the owner does not sell, then no charge is applied, so they aren’t disadvantaged in the meantime. Land tax and capital gains tax would continue as normal.

Deciding what rate the charge should be is a delicate question. I propose making it progressive, like the personal tax brackets.

Potential brackets could be: A sale price of up to five times the baseline valuation should attract no charge; for sales between five to ten times a charge of 50% could be made; and anything above ten times would be considered a super windfall gain and attract a 90% charge.

In this example, the Medich family would be liable to a charge of $315 million (after CGT payable of $150 million), still leaving them with a handy $45 million profit, compared to their actual profit of $350 million enjoyed today (nominally).

But people say they don’t want to be taxed! This is understandable. If the charge only comes in above five times, then most people won’t experience the charge as it is targeted at super windfall gains.

This charge could be the difference between getting the infrastructure now or later, or if at all.

It could fund high speed rail.

It would free up the budget, allowing spending in other areas like health and education, or even more personal income tax cuts.

With such huge fortunes being made on the back of the taxpayer, the opportunity for political influence, and even corruption, cannot be discounted.

Our rich list should be full of hard-working innovators, not landowners adept at the dark arts of influence and crystal ball gazing. There is no enterprise in selling land at a taxpayer gifted 1000% gain.   

Not acting on this would be a grotesque oversight caused by indifference, incompetence, or worse – or the fear of a scare campaign.

This approach has the potential to decouple infrastructure spending from the budget, it could allow infrastructure to ‘self-fund’. It needs to be developed into a fair working model and applied as soon as possible.

As we stare down a once-in-a-century COVID infrastructure spendathon, we need to assess new funding approaches like this, otherwise we shall unnecessarily indebt our future generations while at the same time enriching the future members of our rich list.

Here are links to recent inquiries John Alexander has chaired:

2020: Inquiry into Options for Financing Faster Rail

2019: Innovating Transport across Australia

2018: Building Up & Moving Out: Inquiry into the Australian Government’s role in the Development of Cities

2018: Report of the Parliamentary Delegation to China 2-6 July 2018

2016: Harnessing Value, Delivering Infrastructure

2016: Inquiry into the role of smart ICT in the design and planning of infrastructure