Time to bring back the tax on windfall gains from re-zoned land

Posted on Wednesday, 7 August 2019
Rezoned Land

The vast profits made by property speculators on the rezoning of land by local authorities was a particularly undesirable feature of the economic boom during the 2000s. Enormous amounts of money were made from bad planning decisions, driven by the highly politicised rezoning process.

For some time, Social Justice Ireland has called for a substantial tax to be imposed on the profits earned from such decisions. Re-zonings are made by elected representatives supposedly in the interest of society generally. It is therefore appropriate that a sizeable proportion of the windfall gains they generate should be made available to local authorities and used to address the ongoing housing problems they face. In this regard, Social Justice Ireland welcomed the decision to put such a tax in place in 2010 and strongly condemned its removal as part of Budget 2015. Its removal has been one of the most retrograde policy initiatives in recent years.

At the time, an entirely disingenuous reasons were cited by the Government as justification for the abolition of this tax: It was that because the tax had raised no revenue since 2010, it was pointless and should therefore be abolished. The purpose of the tax was not necessarily to raise any money - though all additional revenue to Government would be welcome, particularly so at the time the tax was implemented - but to end the speculative purchasing of agricultural land by developers who might then apply pressure to local authorities to zone it for commercial or residential land, thereby increasing the value of said land significantly.

The purpose of the tax was to remove the situation whereby councillors’ votes could make millionaires of landowners overnight. It was an important long-term measure designed to help prevent another property bubble. As the property market continues to recover and as the population continues to grow in years to come, there will be many beneficiaries of vast unearned speculative windfalls.

A windfall tax level of 80 per cent is appropriate and, as the table below illustrates, this still leaves speculators and land owners with substantial profits from these rezoning decisions. The profit from this process should be used to fund local authorities.

Social Justice Ireland believes that this tax should be re-introduced. Taxes are not just about revenue, they are also about fairness and incentivising good behaviour. Budget 2020 should bring back the tax on such gains that was removed in Budget 2015.