The Key Ideas

#4 Give local authorities the power to set the rates of a local income tax, a property tax and a land value tax

Over the course of a set period (perhaps five years), we should aim to substantially decentralise tax. Regional councils should aim to raise about 50 per cent of the money they spend at the end of this period. This decentralisation would offer opportunities for further changes, for example with Council Tax. There is a very strong economic case for keeping a tax on property to help to dampen the unsustainable rises in housing costs we've seen over recent decades. But this would be easier understood and fairer by basing the tax on the existing value of the house rather than the Council Tax method which involves bands of house prices based on values which are 25 years out of date. There is also a very strong case for an additional land value tax, as discussed above. However, it is unlikely that this scale of tax decentralisation could be achieved without contributing income taxes too. After all, income meets the three criteria of taxation set out above: it is a very good way of assessing what contribution an individual can afford to make, is very efficient, and is easy to understand.

In the past, central government has been excessively directive towards local government, but the whole point of decentralising tax is that central government should not dictate the exact tax strategies that a regional council should use. Central government should thus legislate for the powers to enable regional councils to raise these taxes and put in place the mechanisms for collecting them (where those mechanisms do not already exist). Once this is done it should be for a regional council to set the rates. There are many debates that can then be had about whether to move the balance of taxation away from income and towards taxing assets (which some argue would benefit the economy by discouraging non-productive 'rent-seeking' behaviour), whether asset taxes should be additional, or whether a different approach altogether should be taken. There is also circumstances in which a sales tax or hotel room tax could be appropriate. Crucially, this debate can take into account specific local conditions (for example where house prices are particularly high or where land ownership is particularly concentrated). Whatever decisions are made, it is for regional councils to answer to their electorate for their actions—and for central government to stop interfering.