Large scale infrastructure projects like Crossrail should be funded by a Land Tax according to Fred Harrison, the author of a new IEA study.*
It is often assumed that the large initial capital outlays necessary to complete large infrastructure projects such as the building of new transport systems must be provided out of general taxation. Harrison shows that such projects can be made self-funding if a mechanism is established to capture the increases in land values that almost always follow from such projects.
Harrison shows that the extension of the Jubilee Line of the London Underground through Southwark and Canary Wharf increased adjoining land values by close to £3 billion. Because the extension was funded from general taxation, this represented a huge transfer of wealth from a large number of taxpayers to a small number of property owners. Harrison argues that a fairer and more efficient means to fund such infrastructure projects is to capture and use the increases in land values that they bring.
Such a mechanism for funding infrastructure projects has been successfully developed in Hong Kong, Singapore and Japan, and the initial proposal to fund the Jubilee Line extension in this way could have been brought to fruition had government not intervened.
Harrison argues that such a land tax would not necessarily be a tax in the way that is popularly understood, but would be more akin to levy on those who receive the benefits of infrastructure projects in the same way that people pay to receive other goods and services.