Submission by David Landa Stewart Lawyers to The Premium Property Tax Review
undertaken by the Policy and Legislation Branch
New South Wales Office of State Revenue, December 2003

We hereby submit for your consideration our views concerning the action that should be taken in relation to the review currently being undertaken into the Premium Property Tax Act 1998.

1. At the time of introduction of the Premium Property Tax the Treasurer Mr Egan, told the Parliament:
   
   “The rationale for the tax is that properties of that value [$1 million] are very much enhanced by the huge public expenditure provided by the taxpayers of New South Wales to ensure that we live in one of the best, most civilised societies in the world” (NSWPD, 29/5/97, p.9501).
2. Implicit in this argument was the fact that no other properties below $1 million in New South Wales had had their values enhanced by the huge public expenditure provided by the taxpayers of New South Wales. This of course is incorrect when we see the spectacular jumps in recorded property values by the Valuer-General in the past 6 years.
3. The following increases in property land values outside the Sydney metropolitan area have occurred from 2000-2003:
   
   

   Queanbeyan		157%
   Kiama		135%
   Bega		133%
   Byron		130%
   Shellharbour		127%
   Kempsey		113%
   Wingecarribee		105%
   Newcastle		90%
   Lithgow		75%
   Gosford		64%

   (Source: Daily Telegraph, December 1, 2003)

4. It would appear that values are set to soar even higher within the Sydney Metropolitan Area. We have been given evidence of a commercial property in Marrickville that has seen its land value rise between 2000-2003 as follows:
   
   

   2000		$1,200,000
   2001		$1,320,000
   2002		$1,580,000
   2003		$2,210,000

5. We have no doubt that spectacular rises in property values throughout NSW will again be recorded at 1.7.2003.
6. We believe the Government's choice of a threshold of $1 million to impose Premium Property tax was both arbitrary, unfair and unjustified having regard to the rationale for the introduction of the tax.
7. In our opinion, all land in NSW should be subject to land tax, since all land has benefited in enhanced value as a result of huge public expenditure in NSW.
8. When confronted by those property owners who had been discriminated against by the introduction of the Premium Property Tax, the Treasurer angrily exclaimed: “It's a tax, by definition, a tax on millionaires” (Sunday Telegraph March 8, 1998 p.14)
9. This political comment certainly did not match the Treasurer's rationale given to the Parliament. If indeed the Treasurer was serious in this comment, then he could only have been misleading Parliament. We think this comment and its frequent repetition does nothing to help the public debate and should be disregarded as any rationale for the tax.
10. Any policy review should, therefore, be aimed at levying land tax on all land in New South Wales with a view to eliminating the cross subsidy presently being granted to those who do not pay land tax, yet have seen their property values enhanced by huge public expenditure by the taxpayers of New South Wales.
11. This cross subsidy has increased dramatically since 1997, with land tax receipts escalating from $580 million in 1996 to $1.251 billion in 2003. This tax should be borne by all properties in NSW if the Treasurer’s rationale for imposing the tax is to have any validity.
12. In looking at this suggestion to tax all land in NSW with land tax, one needs to consider alternative methods of assessment to replace the current mass system of valuation. That system has been the source of much controversy and public disquiet over the past 6 years and needs to be replaced.
13. Allegations of systemic overvaluation leading to overcharging of land tax were first made by the former Auditor General of NSW, Mr Tony Harris in July 1999 to the Ombudsman.
14. The Ombudsman never investigated the Auditor General’s allegations, believing they would be dealt with by Ms. Julie Walton who had been appointed by the Premier, Mr. Carr, to inquire into the operation of the Valuation of Land Act because of public concern about valuations for land tax purposes.
15. Ms Walton never interviewed the Auditor General, though she had in her possession a copy of his letter to the Ombudsman. Nor was she shown material documents that could have affected her making different findings to those she did.
16. These material documents only surfaced after the Ombudsman ordered their release in June 2001 following an 18 month Freedom of Information application by this office to obtain their production.
17. Those documents related to the valuation district of Woollahra and revealed that two sets of land values had been prepared in August 1997 and September 1997 by licensed valuers working in the State Valuation Office.
18. Dramatic changes in values to benchmark properties had been made by those licensed valuers within that period of one month yet Ms Walton was never told this had occurred. These changes were to materially affect the factors to be applied by the Valuer-General to derive land values at 1 July 1997.
19. The changes that had been made within that period of one month were as follows:
    
    

    PROPERTY ADDRESS		COMPONENT CODE		VALUE AUG 1997 ($m)		VALUE SEPT 1997 ($m)
    19 Wunulla Rd Point Piper		AH		1.215		2.00
    46 Wunulla Rd Point Piper		AH		5.48		6.50
    33 Coolong Rd Vaucluse		AH		5.48		6.50
    19 Coolong Rd Vaucluse		AH		8.10		12.00
    24 Carrara St Vaucluse		AJ		2.190		3.825
    530-538 Oxford St Paddington		BA		6.25		7.75
    568 Oxford St Paddington		BB		0.247		0.275
    55 Grafton St Woollahra		BC		4.29		4.3
    212 New South Head Rd Edgecliff		BE		0.315		0.350
    2-22 Knox St Double Bay		BG		8.66		9.00
    11 Bay St Double Bay		BH		0.427		0.450
    232 Old South Head Rd Vaucluse		FB		0.800		1.00
    156 Hopetoun Av Vaucluse		FD		0.730		0.900
    827 New South Head Rd Rose Bay		FF		2.25		2.50
    175 Bellevue Rd Bellevue Hill		FG		1.545		2.00
    126 Edgecliff Rd Woollahra		FH		0.950		1.20
    330 Edgecliff Rd Woollahra		FJ		1.075		1.40
    38 Manning Rd Double Bay		FK		0.860		1.10
    51-53 Wolseley Rd Point Piper		FL		2.415		2.80
    113 Darling Point Rd Darling Point		FN		1.2		1.7
    188 Glenmore Rd Paddington		FP		0.828		0.950
    10 Cambridge Ave		RB		0.760		0.975
    9 Chapel Av E Vaucluse		RD		0.745		0.900
    9 Black St Rose Bay		RE		0.920		1.100
    62 Wilberforce Rd Rose Bay		RF		0.585		0.700
    49 Boronia Rd Bellevue Hill		RG		0.725		0.900
    104 Fletcher St Woollahra		RH		0.285		0.325
    31a Nelson St Woollahra		RJ		0.480		0.525
    13 Court Rd Double Bay		RK		0.535		0.775
    9 Wentworth St Point Piper		RL		1.580		2.50
    7 South Av Double Bay		RM		0.362		0.480
    17 Eastbourne Rd Darling Point		RN		1.285		1.800
    28 Caledonia St Paddington		RP		0.237		0.275
    12 Suffolk St Paddington		RP		0.475		0.450

20. Following continuing public agitation after these documents were released, the Premier finally asked Ms Walton in March 2003 to review this additional material, which by that time included documents obtained by us under Freedom of Information applications in relation to the valuation districts of Waverley and the City of Sydney.
21. The identical conduct to that in Woollahra had occurred in Waverley with two sets of vastly different land values having been prepared for the same benchmark properties within the same period of one month by the same valuers involved in that conduct in Woollahra.
22. The changes that had been made to benchmark property valuations within the period of one month in Waverley were as follows:
    
    

    PROPERTY ADDRESS		COMPONENT CODE		VALUE - AUG 1997		VALUE - SEPT 1997
    1 Newland St		BA		$3,375,000		$3,500,000
    82 Bronte Rd		BB		$157,000		$180,000
    110-122 Ebley St		BC		$2,205,000		$2,250,000
    300 Bronte Rd		BD		$150,000		$200,000
    208 Bondi Rd		BE		$217,000		$300,000
    96 Campbell Pde		BF		$900,000		$900,000
    11 Hall St		BG		$570,000		$600,000
    16 George St		CA		$500,000		$600,000
    17 Lord Howe St		CB		$580,000		$650,000
    9 Blake St		CC		$470,000		$525,000
    3 Craig St		DA		$510,000		$575,000
    94 Chaleyer St		DC		$485,000		$550,000
    44 Brighton St		DD		$405,000		$450,000
    130 Hastings St		DE		$390,000		$600,000
    47 Beach St		DF		$265,000		$350,000
    25 Kenilworth St		DG		$270,000		$350,000
    30 Avoca St		DH		$280,000		$375,000
    356 Bronte Rd		DJ		$320,000		$425,000
    17 Cross St		DK		$400,000		$525,000
    35 Chesterfield		DL		$565,000		$700,000
    20 Belgrave St		DM		$340,000		$430,000
    21 Alt St		DN		$300,000		$350,000
    39 Hollywood Ave		DP		$260,000		$350,000
    701 Old South Head		EA		$365,000		$450,000
    152 Blair St		ED		$240,000		$285,000
    159 Hastings St		EE		$500,000		$675,000
    160 Hall St		EF		$320,000		$450,000
    43 Flood St		EG		$255,000		$325,000
    29 Dudley Rd		EH		$240,000		$350,000
    9 Carlisle St		EJ		$500,000		$650,000
    130 Hewlett St		EK		$258,000		$320,000
    307 Bronte Rd		EL		$245,000		$300,000
    24 Carrington St		EM		$140,000		$200,000
    31 Henry St		EN		$280,000		$350,000
    176 Birrell St		EP		$168,000		$220,000
    21 Diamond		FA		$630,000		$685,000
    41a Liverpool St		FB		$275,000		$375,000
    25 Onslow St		FC		$385,000		$450,000
    40 Edward St		FG		$245,000		$320,000
    5 Glen St		FH		$235,000		$340,000
    331 Bondi Rd		FJ		$420,000		$450,000
    51 Mcpherson St		FL		$225,000		$310,000
    7 Porter St		FP		$280,000		$370,000
    12 Notts Ave		GF		$285,000		$600,000
    50 Blair St		HF		$210,000		$300,000
    26 Watkins St		HG		$160,000		$200,000
    24-26 Diamond		TA		$1,125,000		$1,800,000
    49 Liverpool St		TB		$455,000		$560,000
    13 Onslow St		TC		$720,000		$975,000
    77-79 Brighton St		TD		$850,000		$1,150,000
    106 Brighton St		TE		$760,000		$1,100,000
    296 Birrell St		TH		$615,000		$800,000
    24 Gardyne St		TK		$485,000		$625,000
    113 Ebley St		TP		$595,000		$800,000
    13 Cross St		TR		$560,000		$800,000

23. Despite this information being given to Ms Walton, she failed to interview the two Valuers concerned and again failed to interview the former Auditor General Mr Tony Harris.
24. Ms Walton’s findings cannot possibly be sustained in the absence of her interviewing these three material witnesses, who were crucially essential to establishing or refuting the claims of systemic overvaluation.
25. The Government has now been asked to order a full judicial inquiry into what in fact occurred. The Government has so far resisted that call which is currently the subject of ongoing representations. Until this occurs, the allegations of systemic overvaluation will not go away. The credibility and integrity of the system has been seriously undermined.
26. The mass valuation system has been thrown into further confusion as a result of the High Court decision in Maurici v Commissioner for State Revenue in February 2003 (Maurici's case)
27. That decision threw into doubt all valuations carried out for the Valuer-General since 1997 because such valuations failed to:
    
    
    1. take into account a premium for the value of scarce vacant sites in highly desirable areas; and
    2. to consider an adequate number of sales of developed properties
    when determining the component factors to apply in the component areas under consideration.
28. Indeed Ms Walton had specifically warned the Government and the Valuer-General in her first Report in October 1999 that the failure to take into account any premium for scarce vacant sites could lead to overvaluation. This recommendation (Recommendation 4 ) was ignored by the Valuer-General between 2000 and 2003.
29. Following the High Court decision in Maurici’s case, the Government was urged by this firm to conduct a review of past land values in the light of the High Court decision, but has failed to do so. This again is the subject of on-going representations.
30. It is believed that the 2003 land values have also been determined without regard to Maurici’s case, which once again will lead to overvaluation and overcharging of land tax.
31. The system of mass valuation has proved totally unfair and there are strong suggestions it could have been manipulated to improperly increase land values and overcharge land tax.
32. Obviously if our submission that all land in NSW should be subject to land tax, then retention of the current methodology of assessment by use of the mass valuation system cannot possibly be supported for the cogent reasons outlined above.
33. That system has been shrouded in secrecy and little information is given by the Valuer-General to justify the values that are set by him.
34. Additionally, the setting of values is very subjective and for every licensed valuer’s opinion, there is an equally competing different opinion from another licensed valuer.
35. To illustrate the subjective nature of the valuing process, we have extracted in the following Table some decisions of the Land and Environment Court that have overruled valuations adopted by the Valuer-General, which the Valuer-General refused to change on objection, necessitating an appeal to the Land and Environment Court.
    
    

    PROPERTY ADDRESS		VG’S VALUATION		VALUE FIXED BY L AND E COURT
    Bay St Double Bay		$3,020,000		$2,600,000
    Beresford Cr Rose Bay		$1,240,000		$935,000
    Boundary St Paddington		$368,000		$217,000
    Coolong Rd Vaucluse		$6,800,000		$5,200,000
    Drumalbyn Rd Bellevue Hill		$1,050,000		$745,000
    Garden St Warriewood		$713,000		$500,000
    Earnshaw St Gladesville		$340,000		$306,000
    Mobbs Rd Terrigal		$2,010,000		$1,800,000
    Hopetoun Ave Vaucluse		$1,040,000		$900,000

36. The majority of property owners cannot afford the costs of legal challenges to Valuer-General’s valuations and the uncertainty occasioned by such litigation, so the current system of assessment heavily favours the Government. Taxpayers are intimidated and prefer to shut up and pay up rather than test the system.
37. Taxpayers could have hoped for some relief when the Valuer-General gave a sworn assurance to the Nile Inquiry in 1998, that he would go back and revise the values of properties whose owners had not objected, if another property owner in the same area successfully objected.
38. Despite results such as those outlined in paragraph 34 above, the Valuer-General has never gone back to revise the values of properties adjoining or in the same component code as the values successfully appealed against.
39. This has only served to exacerbate the systemic overvaluation alleged to have occurred.
40. We believe that with the current review now being conducted, there is an opportunity to establish land tax collections on a fair and equitable basis by:
    
    
    1. spreading the burden of collection of the tax across all properties in NSW; and
    2. adopting a fairer system of assessment that is transparent, easy to administer and readily understood by all taxpayers.
41. We believe that the time has now come for someone like Professor Parry of IPART to look at alternative means of assessing land tax, bearing in mind the above objectives for which that system of assessment should aim.
42. The method of assessment should be removed from political influence or persuasion and be determined by someone in a completely apolitical manner such as Professor Parry.
43. Both sides of the political equation need land tax revenue to provide schools, hospitals, police, efficient public transport and infrastructure within existing public utilities. All property owners should contribute because they all benefit from those services as well as having their property values enhanced because of that expenditure.
44. Every property owner ought to be able to budget with reasonable certainty as to his annual land tax obligation. At the present time this is not possible, because of the huge leaps in land values being claimed by the Valuer-General, leading to greatly increased land tax liabilities.
45. For example in the case referred to in paragraph 4 above the liability of that owner has jumped from $26,860 in 2003 to $37570 in 2004 – an increase of $10,710. This is not a properly and fairly applied tax. It is highway robbery, based on some subjective value of what a piece of land is worth. This is public administration in its worst possible form.
46. Professor Parry should be invited to conduct an Inquiry into better ways and means of assessing land tax in NSW, so that the hardship and injustice caused by the mass valuation system can be eradicated once and forever.
47. The writer and Mr S Spitzer, a property investor, presented a submission to the Government and the Nile Inquiry in 1998 setting out how land tax could be very easily assessed and collected based on the council rates paid by each property owner.
48. This was long before the extraordinary valuing practices adopted by the State Valuation Office were uncovered and well before the High Court in Maurici’s case delivered its death knell judgment on the mass valuation system used by the Valuer-General.
49. Basing land tax on council rates paid by a property owner, as detailed in our submission, is but one of many ideas that would be put before Professor Parry. Let him recommend something far better than we have now, that everyone will understand and that will be fair and equitable to all property owners, whose values have all been enhanced by the huge public expenditure provided by the taxpayers of New South Wales.
50. We believe the time has now come to:



1. make all land in NSW liable to land tax;
2. spread the existing land tax raised among all properties in NSW; and
3. replace the mass valuation system for assessing land tax, with a system, that is fairer, transparent and easier to administer and which will guarantee the Government the revenue it is presently collecting.
51. The advantages of adopting this course of action will result in:
    
    
    1. all property owners fairly bearing liability for the cost of providing Government services and for the enhanced values of their properties as a result of huge public expenditure by the taxpayers of NSW;
    2. large savings in administrative costs in dealing with objections against land values and in freeing up Court time dealing with appeals;
    3. the Land Tax Management Act being reduced to a one page statement of the tax to be applied, and the rest of the Act dealing with the circumstances in which land tax liability arises no longer being relevant or necessary;
    4. the annual public outcry at the huge jumps in land values and increases in land tax becoming a thing of the past; and
    5. the Government continuing to receive the level of tax currently being collected (spread over all property owners and not just some property owners) with an in-built guarantee of future annual CPI increases.
52. The Treasurer has shown commendable initiative in adopting the approach outlined by us above in urging the Public Accounts Committee to ditch the present fire services tax – paid only by insurance policy holders – saying a levy spread among all property owners would be cheaper, except for the under insured or uninsured. (Sydney Morning Herald December 11, 2003).
53. As all property owners benefit from Fire Services provided by the State, then it makes sense that all properties contribute to the cost of those services, not only those properties that are insured.
54. Surely this kind of approach should now be applied in relation to land tax.

Copyright © 2008 David Landa Stewart

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