Land Value Tax in Australia An Overview

Land value tax in Australia is a relatively new concept, but it's gaining traction. The idea is to tax land value rather than the value of the buildings on it, which can lead to more equitable distribution of wealth.

In Australia, land value tax has been implemented in some form in various states and cities, including Victoria and New South Wales. For instance, Melbourne's land value tax has been in place since 2012.

Land value tax can be a more efficient system than traditional property taxes, as it doesn't require frequent revaluations of properties. This can save time and resources for both taxpayers and governments.

The benefits of land value tax are numerous, including reduced property speculation and increased investment in land improvements.

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The Australian Capital Territory (ACT) has a unique system of rezoning value capture, where it prices rezoning via its Lease Variation Charge (LVC), capturing 75 per cent of the windfall gains landowners would otherwise receive.

This system could be a model for other states to follow, as it has raised an estimated $12 billion per year in revenue.

If all states were to achieve best-in-class taxation of land, they could raise a collective $27 billion each year.

Land taxes are efficient because they are paid out of economic rents, reducing land values without reducing the quantity of land available.

State governments have access to the land base for taxation, but they underuse it and rely heavily on Commonwealth grants funded by less efficient taxes on work and investment.

The ACT's system of rezoning value capture has been successful in raising revenue without reducing investment or growth.

If states were to use efficient land taxes to meet the ACT benchmark for regular taxes on land, they could raise a further $15 billion per year.

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Land valuations involve fewer variables and have smoother gradients than valuations that include improvements, making the process easier to manage.

The Australian Capital Territory (ACT) stands out for its unique system of rezoning value capture, pricing rezoning via its Lease Variation Charge (LVC), which captures 75% of the windfall gains landowners would otherwise receive from permission to redevelop at higher density.

Revenue NSW uses unimproved land values provided annually by the NSW Valuer General to calculate land tax liability, comparing the 3-year average of your land value against the applicable threshold.

To determine land tax liability, Revenue NSW considers the combined land value of all your taxable property in New South Wales, applying the general and premium rate thresholds for land tax years after 2024, which were announced in the 2024-2025 State Budget.

The general threshold for land tax in NSW is more than $1,075,000 but less than $6,571,000, with a rate of $100 + 1.6% of the land value above $1,075,000, and the premium threshold is more than $6,571,000, with a rate of $88,036 + 2% of the land value above $6,571,000.

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Land value tax (LVT) is a more efficient way to tax land, as it doesn't deter production or distort markets. This is because LVT is based on the value of the land itself, rather than how it's used.

Most taxes, on the other hand, discourage beneficial economic activity. For example, property taxes discourage construction, maintenance, and repair because taxes increase with improvements. LVT, however, doesn't have this problem.

Economist William Vickrey believed that replacing business taxes with LVT would substantially improve the economic efficiency of a jurisdiction. He argued that LVT would remove unnecessary taxes and encourage more productive land use.

In practice, LVT has been shown to discourage speculative land holding and encourage landowners to develop or sell vacant plots. For instance, Harrisburg, Pennsylvania's LVT has operated since 1975 and was credited with reducing the number of vacant downtown structures from 4,200 to fewer than 500.

LVT can also reduce the incentive to build on remote sites, thereby reducing urban sprawl. This is because landowners are encouraged to develop or sell high-demand areas, rather than building on low-demand sites.

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The assessment process for land value taxation (LVT) is a crucial step that requires careful consideration.

Leaving the valuation process up to assessors can lead to bureaucratic complexities and non-uniform procedures, as Justice William Paterson warned in a 1796 United States Supreme Court opinion.

Land valuations involve fewer variables and have smoother gradients than valuations that include improvements, due to variation in building design and quality.

Modern statistical techniques have improved the assessment process, with multivariate analysis introduced in the 1960s and 1970s as an assessment tool.

The valuation process typically begins with a measurement of the most and least valuable land within the taxation area.

A few sites of intermediate value are then identified and used as "landmark" values, with other values interpolated between them.

The data is collated in a database, smoothed, and mapped using a geographic information system (GIS), making successive valuations easier once the system is in use.

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Tax thresholds are a crucial part of land tax calculations in New South Wales. From 1 January 2025, the land tax thresholds will be fixed at $1,075,000 for the general threshold and $6,571,000 for the premium threshold.

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The thresholds are not applied to the land value of each property individually, but rather to the combined land value of all property you own. This means that if you own multiple properties, you'll need to consider the total value of all your land when determining whether you owe land tax.

Historically, the land tax threshold changed every year, but from 2024 onwards, the general and premium rate thresholds will be frozen. Here's a snapshot of how the thresholds have changed over the years:

It's worth noting that Revenue NSW uses unimproved land values provided annually by the NSW Valuer General to calculate your land tax liability.

Land value tax in Australia can have a significant impact on how land is used and valued. LVT is a progressive tax that considers the effect on land value of location, and of improvements made to neighbouring land.

The owner of a vacant lot in a thriving city must still pay a tax and would rationally perceive the property as a financial liability, encouraging them to put the land to use. This removes financial incentives to hold unused land solely for price appreciation.

LVT generally reduces economic inequality by making land ownership correlate to income, and landlords cannot shift the tax burden onto tenants.

LVT is a progressive tax, meaning those with greater means pay more, as land ownership correlates to income and landlords can't shift the tax burden onto tenants.

It generally reduces economic inequality, making it a more fair system for everyone.

LVT removes incentives to misuse real estate, which can lead to more responsible land use and development.

This is because landlords can't simply pass the tax burden onto tenants, making them more accountable for their actions.

LVT also reduces the vulnerability of economies to property booms and crashes, creating a more stable market.

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Speculation is a major issue with land ownership, and it's not just a problem for the owner of the property. The owner of a vacant lot in a thriving city must still pay a tax.

This tax creates a financial burden, making the property a liability rather than an asset. The owner would rationally perceive the property as a financial liability, encouraging them to put the land to use.

The goal is to make more land available for productive uses. Land value tax creates an incentive to convert these sites to more intensive private uses or into public purposes.

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Adam Smith was a classical economist who first rigorously analyzed the effects of a land value tax in his 1776 book The Wealth of Nations. He pointed out that it would not hurt economic activity.

A tax on ground-rents would not raise the rents of houses, as it would fall entirely on the owner of the ground-rent. This is because the owner acts as a monopolist, exacting the greatest rent possible for the use of their ground.

Adam Smith believed that the owner of the ground-rent would not be disposed to pay more for the use of the ground, even if the tax was to be advanced by the inhabitant. The final payment of the tax would ultimately fall on the owner of the ground-rent.

The Labour Party in the UK adopted a policy of collecting "development value" after 1945, which is the increase in land price arising from planning consent. This was one of the provisions of the Town and Country Planning Act 1947.

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Australia has a complex land tax system, with different rules and thresholds applying in each state.

In New South Wales, farmland and principal residences are exempt from land tax, and there's a tax threshold to consider. The Valuer-General determines land value for tax purposes.

Victoria has a land tax threshold of $50,000 on the total value of all Victorian property owned by a person on December 31st each year, and taxed at a progressive rate.

The principal residence, primary production land, and land used by a charity are exempt from land tax in Victoria.

Tasmania's land tax threshold is $25,000, and the tax rate is 0.55% between $25,000 and $350,000, and 1.5% over $350,000.

Queensland's land tax threshold for individuals is $600,000, and for other entities, it's $350,000.

In South Australia, the land tax threshold is $332,000, and taxed at a progressive rate.

Property taxes represent 4.5% of total taxation in Australia.

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A government report in 1986 for Brisbane, Queensland advocated for an LVT, or Land Value Tax.

The Henry Tax Review of 2010 recommended that state governments replace stamp duty with LVT, with multiple marginal rates and most agricultural land in the lowest band with a rate of zero.

The Australian Capital Territory moved to adopt this system, planning to reduce stamp duty by 5% and raise land tax by 5% for each of twenty years.

China's Real Rights Law contains provisions founded on LVT analysis.

Ireland initially planned to introduce an LVT in 2013, but a change in government led to the introduction of a property tax instead.

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Land value tax in Australia is based on the value of the land itself, excluding buildings or other improvements. This is known as unimproved value.

In New South Wales, land tax thresholds will be fixed from 1 January 2025 at $1,075,000 for the general threshold and $6,571,000 for the premium threshold.

The general threshold applies to land values above $1,075,000 but less than $6,571,000, with a rate of $100 + 1.6% of the land value above $1,075,000. The premium threshold applies to land values above $6,571,000, with a rate of $88,036 + 2% of the land value above $6,571,000.

The combined land value of all your taxable property in New South Wales is used to determine whether you owe land tax and how much you pay. If the combined land value is below the general threshold, you do not pay land tax. If it's above the general threshold, you pay land tax on the land value above the threshold.

Here are the key land tax thresholds and rates in New South Wales, as of 2025:

Raising an extra $27 billion in revenue each year is a significant goal. This can be achieved by implementing a more efficient land taxation system, where states capture value uplift by pricing rezoning as the Australian Capital Territory (ACT) does.

The ACT's unique system of rezoning value capture, which prices rezoning via its Lease Variation Charge (LVC), captures 75% of the windfall gains landowners would otherwise receive from permission to redevelop at higher density.

By applying this system, other states could raise a collective $12 billion each year. This is estimated by adjusting for property values and transaction volumes.

If states were to use efficient land taxes to meet the ACT benchmark for regular taxes on land, they could raise a further $15 billion. This would bring the total revenue to $27 billion, without reducing investment or growth.

Land taxes are considered efficient because they are paid out of economic rents, reducing land values without reducing the quantity of land available. They can also increase the amount of land put to productive use.

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The land tax thresholds and rates can be a bit tricky to understand, but let's break it down. In New South Wales, the general threshold for land tax is $1,075,000, and the premium threshold is $6,571,000.

The rate for land tax is calculated based on the land value above the threshold. For the general threshold, you pay $100 plus 1.6% of the land value above $1,075,000. For the premium threshold, you pay $88,036 plus 2% of the land value above $6,571,000.

Here's a breakdown of the land tax rates:

It's worth noting that the land tax thresholds and rates are not applied to the land value of each property individually, but to the combined land value of all property you own.