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The Productivity Commission has a nice framework for thinking about principles and about equity in particular (section 6.1).


Equity has several dimensions that matter for policy.

Vertical equity (i.e. ability to pay) is only one of them.

There is also the beneficiary pays principle: you should contribute tax according to how you benefit from the spending.

And there is the impactor pays principle, which is similar: you should contribute tax according to how much you caused the need for the spending.

Tax should also be horizontally equitable: people in the same situation should pay the same tax. To interpret "same situation" you need to have reference to the equity rationale for the tax. (People of the same income should pay the same income tax, but the rationale for excise tax, for example, is to price externalities, so people of the same income shouldn't pay the same excise tax).

Vertical equity is best targeted via the income tax and transfer system. So land-value rating is better justified on the beneficiary principle of equity in taxation.

That is, since land takes value thanks to the public services, regulation and infrastucture provided by councils, and higher-value land reflects a higher benefit from those activities, higher-value land should contribute more towards funding them.

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