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80% tax on rezoned land compelling incentive to invest abroad


patslatt

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Joined
Apr 11, 2007
Messages
13,693
Under pressure to appease the envious,the antidevelopment Greens and those angered by NAMA,the government is in the final stages of applying a confiscatory 80% "windfall" tax to rezoned land as an amendment to NAMA legislation. As usual with socially envious taxation,we will cut off our nose to spite our face,deliberately it seems. If developers expect such a tax to last for several years or more,there surely will be very negative consequences for property development,which,whether we like it or not,is still one of the biggest industries and a major source of employment. In a recovering economy,shortages of developed land will become a major bottleneck to economic growth.

How will those shortages come about? Under Ireland's very strong constitutional property rights,there is an economic incentive to accumulate land slowly in landbanks to prevent a handful of stubborn holdouts from extracting exorbitant prices for the last few pieces of the jigsaw necessary to complete land acquisition programmes. Even if landbanks make big windfall gains,given their important function they should not be subjected to 80% confiscatory tax.Those envious of their profits ignore landbank windfall losses in recessions,which losses have been catastrophic to the biggest developers in the present recession/depression. As well,landbanks earn no income until land is sold,which can cause severe liquidity strains. Most landbanks and most farmers will refuse to sell,waiting patiently for a more rational approach to taxation.And who will want to invest in landbanks in the future?

The 80% tax gives a compelling incentive for landbank investors to invest abroad. This will have a similar effect to the incentive for commercial property developers to invest abroad when Finance Minister McCreevey raised the stamp duty on commercial property developments to an internationally high 8% to curb speculation. Billions in Irish financed property deals moved abroad.
 


Chrisco

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Joined
Jan 14, 2008
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3,830
Under pressure to appease the envious,the antidevelopment Greens and those angered by NAMA,the government is in the final stages of applying a confiscatory 80% "windfall" tax to rezoned land as an amendment to NAMA legislation. As usual with socially envious taxation,we will cut off our nose to spite our face,deliberately it seems. If developers expect such a tax to last for several years or more,there surely will be very negative consequences for property development,which,whether we like it or not,is still one of the biggest industries and a major source of employment. In a recovering economy,shortages of developed land will become a major bottleneck to economic growth.

How will those shortages come about? Under Ireland's very strong constitutional property rights,there is an economic incentive to accumulate land slowly in landbanks to prevent a handful of stubborn holdouts from extracting exorbitant prices for the last few pieces of the jigsaw necessary to complete land acquisition programmes. Even if landbanks make big windfall gains,given their important function they should not be subjected to 80% confiscatory tax.Those envious of their profits ignore landbank windfall losses in recessions,which losses have been catastrophic to the biggest developers in the present recession/depression. As well,landbanks earn no income until land is sold,which can cause severe liquidity strains. Most landbanks and most farmers will refuse to sell,waiting patiently for a more rational approach to taxation.And who will want to invest in landbanks in the future?

The 80% tax gives a compelling incentive for landbank investors to invest abroad. This will have a similar effect to the incentive for commercial property developers to invest abroad when Finance Minister McCreevey raised the stamp duty on commercial property developments to an internationally high 8% to curb speculation. Billions in Irish financed property deals moved abroad.
You are overlooking one tiny, teeny important piece of the puzzle: we have enough rezoned land to do us for the next 75 years. Buying landbanks is not economically productive, and is not 'investing'.
 

athlonedub

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Joined
Jan 16, 2006
Messages
431
Is it not an 80% tax on the increase in the value of the land arising from the rezoning of it ie it does not deal with the profits from whatever productive development activity is then carried on?

So developer buys land for 30, gets it rezoned so its worth 100, builds an office block costing say 50 and sells it for 200.

Right now (if via a company) Profit of 200 - 30 - 50 = 120 Tax at 12.5pc and company nets 105

Now Profit of 120 as before but 70 of the profit gets taxed at 80pc (56) and 50 @12.5% (6.25). Net is now 57.25.

Another way of looking at it (accepting as numbers change, so will effective rate) is that effective rate has gone from 12.5% to 52pc.

Will the effecient market now not make the uplift in value less over time.
 

patslatt

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Joined
Apr 11, 2007
Messages
13,693
Landbanks key to development

You are overlooking one tiny, teeny important piece of the puzzle: we have enough rezoned land to do us for the next 75 years. Buying landbanks is not economically productive, and is not 'investing'.
Landbanks are critical to big commercial development projects. If landbank developers had to buy land in a hurry,as illustrated by the land purchase for the new prison to replace Mountjoy,the price of land would rocket by maybe 50 times or more. Maybe a constitutional amendment is needed to force owners of the last 30% of land necessary for a development to sell out.Of course,this could lead to developers creating developments for the sole purpose of grabbing land,as happens in the Costa Del Sol.

Also,rezoned land needs to have water and sewerage installed,often paid for by the landbank owner whose cash flow will be drained by the 80% tax.

Existing landowners will have a massive incentive to become property developers for legal tax avoidance through avoiding land sales,which will create unnecessary complications in tax laws and bring people into development who lack the skills for it.
 
Last edited:

Chrisco

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bringing people into development who lack the skills for it.
:roll:

I sincerely hope for your sake the irony of this comment has not passed you by...
 

patslatt

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Apr 11, 2007
Messages
13,693
90% tax?

Is it not an 80% tax on the increase in the value of the land arising from the rezoning of it ie it does not deal with the profits from whatever productive development activity is then carried on?

So developer buys land for 30, gets it rezoned so its worth 100, builds an office block costing say 50 and sells it for 200.

Right now (if via a company) Profit of 200 - 30 - 50 = 120 Tax at 12.5pc and company nets 105

Now Profit of 120 as before but 70 of the profit gets taxed at 80pc (56) and 50 @12.5% (6.25). Net is now 57.25.

Another way of looking at it (accepting as numbers change, so will effective rate) is that effective rate has gone from 12.5% to 52pc.

Will the effecient market now not make the uplift in value less over time.
You forget that the payout of dividends to shareholders paid from net profit is taxed at marginal tax rates of close to 50%,so if the land profit is taxed at 80% within a company,the tax including the dividend tax is now 80% + 50% of the remaining 20 paid out in dividends for a total tax of 80 + 10 = 90%. Business ceases to function with that kind of confiscatory tax.
 
D

Deleted member 17573

Under pressure to appease the envious,the antidevelopment Greens and those angered by NAMA,the government is in the final stages of applying a confiscatory 80% "windfall" tax to rezoned land as an amendment to NAMA legislation. As usual with socially envious taxation,we will cut off our nose to spite our face,deliberately it seems. If developers expect such a tax to last for several years or more,there surely will be very negative consequences for property development,which,whether we like it or not,is still one of the biggest industries and a major source of employment. In a recovering economy,shortages of developed land will become a major bottleneck to economic growth.

How will those shortages come about? Under Ireland's very strong constitutional property rights,there is an economic incentive to accumulate land slowly in landbanks to prevent a handful of stubborn holdouts from extracting exorbitant prices for the last few pieces of the jigsaw necessary to complete land acquisition programmes. Even if landbanks make big windfall gains,given their important function they should not be subjected to 80% confiscatory tax.Those envious of their profits ignore landbank windfall losses in recessions,which losses have been catastrophic to the biggest developers in the present recession/depression. As well,landbanks earn no income until land is sold,which can cause severe liquidity strains. Most landbanks and most farmers will refuse to sell,waiting patiently for a more rational approach to taxation.And who will want to invest in landbanks in the future?

The 80% tax gives a compelling incentive for landbank investors to invest abroad. This will have a similar effect to the incentive for commercial property developers to invest abroad when Finance Minister McCreevey raised the stamp duty on commercial property developments to an internationally high 8% to curb speculation. Billions in Irish financed property deals moved abroad.
Could you make that 90% - just to be sure that their next round of investment/speculation/gambling is done somewhere else:rolleyes:
 

patslatt

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Could you make that 90% - just to be sure that their next round of investment/speculation/gambling is done somewhere else:rolleyes:
It may be 90% if there is an 80% tax within a company followed by marginal tax of around 50% on the dividend paid out to shareholders in their personal tax returns. (80 + 50% dividend tax on the remaining 20 = tax on 90 on 100 profit.)

Obviously,your job doesn't depend on development and construction,so you can indulge your envy of developers.
 

Dreaded_Estate

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Messages
3,719
I don't see why any land owner should benefit from a government or council decision to rezone their land.
They have done nothing to increase the value of the land except own it. Why should they gain?
 

Raketemensch

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Apr 11, 2009
Messages
3,128
Obviously,your job doesn't depend on development and construction,so you can indulge your envy of developers.
Ah, here we go again, envy, original stuff as might be expected. According to robots like yourself, all criticism is actually envy. The reality that rezoning and building tiny boxes across the entire underpopulated island had to end when we couldn't borrow any more money from abroad still hasn't hit home yet has it? Maybe next year the penny will drop.
 

Baron von Biffo

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May 16, 2007
Messages
11,404
Maybe a constitutional amendment is needed to force owners of the last 30% of land necessary for a development to sell out.
Ah yes, we could have land clearances again. Our tribal nostalgia would warm to bailiffs turfing peasants from their hovels at the whim of Lord Dunne or Earl Carroll.
 
Last edited:

alonso

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I think it's high time that patslatt admitted his real identity - Tom Parlon
 

Clanrickard

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Apr 25, 2008
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It may be 90% if there is an 80% tax within a company followed by marginal tax of around 50% on the dividend paid out to shareholders in their personal tax returns. (80 + 50% dividend tax on the remaining 20 = tax on 90 on 100 profit.)

Obviously,your job doesn't depend on development and construction,so you can indulge your envy of developers.
Dunner is that you?
 

alonso

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Obviously,your job doesn't depend on development and construction,so you can indulge your envy of developers.

Mine does and many of my peers have been laid off in the recession and my profession is probably about 80% of what it was a year ago, and about 50% in the private sector.

And I, and those peers who are on 4 day weeks if they're lucky, on the dole or abroad, would fundamentally disagree with every single post you blurt out on this site related to construction, development and planning issues
 

patslatt

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Apr 11, 2007
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The Planning Man

Mine does and many of my peers have been laid off in the recession and my profession is probably about 80% of what it was a year ago, and about 50% in the private sector.

And I, and those peers who are on 4 day weeks if they're lucky, on the dole or abroad, would fundamentally disagree with every single post you blurt out on this site related to construction, development and planning issues
Flann O'Brien,author of At Swim Two Birds and one of our finest writers,wrote one of his daily columns in the 1950s on the mentality of the Planning Man and his silly desire to control everything.

Of course you disagree,because your profession largely ignores the fact that development must give priority to managing development costs. You want much bigger apartments (compulsory 85 square metres average in Dublin) than single or moderate income people can afford,with dual aspect windows and silly 12 storey height limitations that add enormously to unit construction costs. You are snobbish about high rises in US and Canadian cities that make big apartments affordable,with attractive amenities such as gyms,swimming pools and mini parks.
 
Joined
Nov 10, 2009
Messages
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I don't see why any land owner should benefit from a government or council decision to rezone their land.
They have done nothing to increase the value of the land except own it. Why should they gain?
I entirely agree. Around towns they should get agricultural value only. State should have big cut if there is a change in use in urban areas.
 

patslatt

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Apr 11, 2007
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Economic life's windfall gains and losses

I don't see why any land owner should benefit from a government or council decision to rezone their land.
They have done nothing to increase the value of the land except own it. Why should they gain?
Most home owners have done nothing to increase the value of their homes,especially the expensive houses in Dublin 4, which rise in value with economic growth and inflation. Should we confiscate them for a good cause eg conversion to social housing?

Some developers plan their land banks as part of the development process and since development couldn't proceed on major projects without that,they deserve a return on investment.

Some fortunate individuals make windfalls on land.This is part of economic life's windfall gains and losses,such as: legacies,marrying rich,a great choice of business location,a collapse in bank shares,marrying poor,a poor choice of business location. The point is,these gains or losses shouldn't be singled out fpr confiscatory tax or generous compensation.
 

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