| Topic: | CEBR figures and effects of a Mansion Tax | |
| Posted by: | Tom Pike | |
| Date/Time: | 01/05/15 07:32:00 |
| Lorne, I don't know where you got your numbers from but they are certainly not from the CEBR. Of course you're right that a mansion tax will reduce the value of houses above the threshold, but your figures greatly exaggerate the resulting loss in revenue. Your calculations lump together wide-ranging home values into two sets and then incorrectly apply a derived £1m loss for a £3.5m valuation in the upper set to every home in both sets. £2m homes are not going to lose £1m in value as your figures imply! You either have to do separate calculations for each set or take an average of them all, and that halves the loss in revenue. That's still just what the tax is supposed to raise, so it still seems to be pointless. However, to get your implied drop in property value you've used a standard discount rate of 2.5%, and this also reflects that tax revenue now is worth more than revenue in the future, either from a house sale in ten years or a capital gains in forty years, based on your figures. That reduces the future revenue lost from stamp duty by around 25% to £450m a year and from capital gains by 75% to £130m a year, The CEBR calculations in fact estimate an annual loss in stamp duty from the introduction of a mansion tax of around £350m a year taking into account both loss in property value from the present value of future mansion tax payments and shifts in transaction volumes. That's quite a bit less than your £1.2 bn figure and much closer to my recalculated £450m from a crude average. CEBR don't estimate a loss in capital gains tax. So on either mine or the CEBR's figures, a mansion tax will overall be between 50 to 70% efficient in terms of tax raised, taking into account the loss in other revenue streams. That's not too bad a figure compared to other tax alternatives that can have a much lower marginal effectiveness, especially when applied to the more affluent. As The Economist says, a mansion tax is a pretty blunt instrument though one that the Institute for Fiscal Studies considers has a "sensible logic" behind it. Both would prefer a comprehensive council tax revaluation with extended bands, but the effects would be very similar to a mansion tax. The first would be increased revenue from what has been undertaxed property wealth at the top end. People in cheaper homes below the mansion tax threshold are currently paying a much higher proportionate council tax than those above and levelling that up is basic social equity rather than the politics of envy. The second effect would be a corresponding downwards pressure on house prices coming from the top end. It's been a while since I felt a warm glow whenever the latest Land Registry prices came out. Now I am much more concerned where that leaves the next generation, including my children. Taking these two effects together hardly suggests this to be the worst of all possible economic policies. |