4  The boundaries of takings

This section reviews issues around when a government action becomes a taking. This is particularly difficult for regulatory takings where the nature of the property right can be crucial to the judgement.

4.1  When is a regulation not a taking?

Some cases of government appropriation of private property are ordinarily not treated as requiring compensation. The single strongest example is general taxation. This is in theory a taking, as private property is compulsorily acquired. The empowerment of parliamentary representatives to levy such impositions for public benefit, and the fact that both the burden and the benefits are spread across all members of the public effectively providing in-kind compensation, mean however that it is generally accepted. In addition, to compensate other than in kind for losses which arose through taxation would create an absurd circular effect and render government impossible.[22]

Deregulation is not normally considered a taking, although regulation can be. The government has not, by passing a law, created an enforceable contract with the beneficiaries of that law (Wilkinson, 2001). There are nevertheless situations where compensation or transitional arrangements are used to reduce opposition to deregulatory moves. Action by private individuals that creates competitive harm is also not a common law taking. No force has been used to deter customers; rather the competitor has simply “expanded the set of legitimate alternatives open to them” (Epstein, 1985, emphasis in original).

There is, however, a wide range of government actions where a boundary line is much harder to draw (whether in theory here, or in legal terms by the courts). These focus around the nature of private property rights, particularly where the state is either mediating between conflicting existing property rights or acting to eliminate a nuisance – the “police power” (see the next section). On the question of mediation, it can be argued that where it is a question of accommodating conflicting claims on resources, the primary focus should be on cost allocation between the holders of those claims with no necessity for any taxpayer contribution (Sax, 1971). In such cases, the government’s role could be to achieve an outcome that was “fair” between the parties or “in the public interest”, which could differ.

However, this depends on whether the conflict arises from existing rights as previously understood, a reinterpretation of such rights, or the extension of existing rights. One example is where the government is protecting the rights of individuals (eg, disabled people, Miceli and Segerson, 1998) by imposing costs on property owners. Is this an existing right or a new right? What rights are vested and in whom? This may not be universally seen as a situation of mediation.

Epstein (1985) sets as a guiding principle “would the government action be treated as a taking of private property if it had been performed by some private party?” Another approach is to limit property in a takings sense to “every species of interest in land and things of a kind that an owner might transfer to another private person” (Stoebuck, 1972). Neither of these approaches appear to reflect the impermanent nature of property rights; ie, the logical ultimate outcome of a “vested rights” concept is to block any legal change without compensation (discussed below) nor is it clear how rights become vested.[23]

It is, however, a powerful argument that unless the concept of takings is applied to regulation, it is ultimately of no effect, as the government would then choose regulatory takings in preference to physical takings or taxation. The following discussions will attempt to throw some light on this perspective.

4.2  Limits on private property rights

The above discussion illustrates two key questions about the fundamental nature of property rights;[24] ie, (1) are these positive rights (the right to take an action, eg, to use land) or negative rights (the right to prevent an action being taken, eg, to prevent someone else using land); and (2) what is the scope and permanence of the property right – to what degree can the terms of the right be altered without the consent of the right holder (courts can address disputes within existing law, but that leaves the issue of changes to the law – court interpretations can also change over time)?

Property rights are not absolute and unchanging (Bromley, 1993). Any property right can be seen as held subject to a general understanding of the constraints imposed by the community (expressed through judicial interpretation, statutory definition or direct community/peer pressure) with the knowledge that those constraints evolve over time, but that the right will not be unduly altered without consent or compensation.[25] This definition of course leaves much open to interpretation.[26]

The evolution of property rights itself can be driven by efficiency pressures or by interest groups seeking to modify the regime to their own advantage. This paper does not attempt to determine which effect dominates. Any particular change also may or may not have net benefits, nationally or to specific rights holders.

Alternatively, we can “describe property as the value … left after the inconsistencies between … competing owners” of interrelating property rights are resolved, while recognising that “new conflicts are always arising as a result of a change in … technology, or in public values” (Sax, 1964). These changes can include altered perceptions of what constitutes an externality or spillover effect.