Government and land, not the happiest combination

For example, in a debate on the housing market, also last week, there seemed to be a parliamentary majority in favor of a planned benefit tax on (agricultural) land. In addition, there are programs such as the National Livestock Farming Termination Scheme (Lbv), the National Rural Area Program (NPLG) and a land bank that may be formed. The government seems to want to take more control. Land policy is gradually moving higher up the political agenda.

The discussion about the agricultural exemption has been going on for several years. The predecessor of the current law was introduced in 1893 to treat the farmer-owner the same for tax purposes as the owner-lessor. In short, the agricultural exemption means that no income tax has to be paid on the book profit when selling agricultural land. In 1964, the agricultural exemption was removed from the draft Income Tax Act. With an amendment, the exemption has ended up in the Income Tax Act. Since then, every few years, discussions have arisen about the usefulness and necessity of the agricultural exemption. The last major adjustment was the 1986 amendment in which the agricultural exemption was simplified. Since then, profits on land due to a change in destination are no longer eligible for the agricultural exemption. One of the arguments for that adjustment was to combat speculation with agricultural land.

LTO states that the agricultural exemption is an important tax facility on which agricultural entrepreneurs base important decisions and major future investments, such as business termination, transfer or the purchase of land. There is certainly some truth in that. You could also argue that the agricultural exemption is mainly a stop subsidy. For companies with a successor, the business succession scheme (BOR) and inheritance and gift tax are probably much more relevant. These arrangements are also under discussion. Uncertainty is never conducive to the business climate.

Regulated land market
According to Adema's evaluation, the agricultural exemption has a limited effect on the land market. A lot of experience has been gained in the past with active land (price) policy, although we have to dig deep into the archives for this. Between 1940 and 1953 there was a price freeze on the land market and land prices were frozen at the 1939 level. Between 1953 and 1962, prices were determined by the government through the Alienation of Agricultural Lands Act. In practice, this was not very effective, because although the maximum price of land was determined by the government, it could easily be worked around, for example by means of a drawing fee or another construction. To give an overview of the times: during that period, economies of scale, mechanization, rationalization and standardization were still the magic words in The Hague's agricultural policy.

In the 70s under the Den Uyl cabinet, land policy was high on the political agenda. The Expropriation Act partly led to the fall of the cabinet. During that period, the Municipal Preferential Rights Act (Wvg) and the Agricultural Land Traffic Act (WAG) were introduced. The latter was aimed at keeping agricultural land in agricultural hands and keeping external parties out. The underlying idea at the time was not to extensify (as is the current goal), but to keep land affordable for economies of scale. Because land prices were under pressure in the early 80s, the General Administrative Orders (AMvBs) were never introduced at the WAG. To some extent, there has been no active agricultural land policy at national level since then.

Environmental Act as of January 1, 2024
This has changed with the introduction of the Environmental Act on 1 January 2024. This new law includes pre-emptive rights, expropriation and plot exchange. The introduction of the Environmental Act has been postponed a few times - partly due to loose ends in the law - but was ultimately passed through parliament with some trickery. It goes too far to go into details, but one aspect that stands out in the context of active land policy is an enforceable financial contribution laid down in this law. In a sense, that is the planned benefit tax that was discussed in last week's parliamentary debate. In short: when, for example, homes or businesses are built, a municipality can demand a contribution for improvements to the physical environment. This is an extension of the cost recovery whereby only the costs directly attributable to the new residential area or industrial estate can be recovered from the developer. The idea is that municipalities can use the planning benefit tax to pursue a more active land policy without running major risks. Because municipalities run less risk, it becomes more attractive to designate more housing construction locations, the proponents argue. The risk is that project developers have to take losses on existing land positions and therefore do not want to build much extra (in the short term).

Not so long ago, municipalities paid a lot of tuition fees with active land policy. Several municipalities had significant land holdings where, for example, houses or industrial estates had to be built. After the banking crisis in 2007, buyers and financiers dropped out. Various plans were first shelved and then completely or partially scrapped. However, municipalities had that land on their books far above its agricultural value. The result was that the book value had to be depreciated. A number of municipalities have run into financial problems as a result. Unlike a project developer, a municipality does not go bankrupt, but the bill ultimately falls to the citizen.

It may sound sympathetic, skimming profits from project developers with a planning benefit tax. But as several municipalities experienced about fifteen years ago, developing construction projects is not without risks. All that glitters is not gold. A land bank that is also being discussed is another measure with many snags. Is the government actively taking action, and if so, what does that mean for the already tight land market, to name but a few? The Lbv scheme makes it clear that switching quickly and providing clarity for the entrepreneurs involved are not the central government's strongest points. Mutual trust and clear agreements are important if you want to make it a success.

Free market
This may be the core of the problems with active land policy by the government, whether at the level of the national government, province or municipality. Based on neoliberal ideas (on which our economy is largely based), the government's most important task is to create the preconditions for the free market to do its work. From this perspective, creating frameworks and simultaneously entering the market as an active player is not the happiest combination. In addition, property rights are a great asset. Angering this (as happens with active land policy) creates resistance. In addition to the financial consequences for the farmers involved, emotions also come into play. In most cases, the farmer lives on the farm, which has often been in the family for several generations.

Which way do we want to go?
Which direction do we want to take the country? Who has what rights, duties, tasks and responsibilities? How do we safeguard social and individual interests and weigh them against each other? I think these are questions that get snowed under. Governing means looking ahead, but it doesn't hurt to look over your shoulder and learn from the past. Attempts to regulate land prices have not always been successful. Land is a scarce resource, especially in our country. Ultimately, those with the deepest pockets determine the price and in the past the government has only been able to make limited adjustments.