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TREASURER INTRODUCES LAND TAX REFORMS - APRIL 2004 MINI BUDGET
Comment on the Land Tax Proposal
In its April 2004 Mini Budget, the NSW Treasurer proposed major
reforms to the land tax and stamp duty system in NSW. Those changes
will have far reaching effects on the NSW economy.
In short, the Government proposals are as follows:
- Abolition of the Premium Property Tax from the 2005 land tax
year onwards (with changes however to the stamp duty on property
sales in excess of $3m).
- Abolition of the current land tax threshold effective from the
2005 land tax year. Replacing the current single marginal rate
of 1.7% with the following marginal rate scale:
- A land value of less than $400,000 will pay a land tax rate
of 0.4%.
- A land value of between $400,001 and $500,000 will pay a land
tax rate of $1,600 plus 0.6% on the value of land above $400,000.
- A land value above $500,000 will pay a land tax rate of $2,200
plus 1.4% on the value of land above $500,000.
- The provision of relief from land tax where the amount of
tax owed is less than $100.
- Introduction of a deferral mechanism for low income earners
with taxable properties below $300,000 in value that do not
generate income.
We believe the changes are a step in the right direction. At long
last, the NSW Government has responded to the call for land tax
reform and introduced a broad based land tax applying to every investment
property.
In principle, this is fair and equitable government policy and
eliminates a major cross subsidy. However instead of dividing the
current liability of $1.4 billion among the increased taxpayer base
the Government has chosen to collect the $1.4 billion PLUS a further
amount from the 230,000 new land tax payers caught in the net. This
is yet another example of the Government’s complete contempt
for land owners.
However there are severe reservations about what Treasurer Egan
is proposing:
- The Treasurer is still assessing land tax on land values.
In our view, land values are being manipulated by the NSW Government
to achieve a land tax revenue outcome. The current system lacks
integrity and transparency.
The Treasurer can trumpet that 75% of existing taxpayers will
pay less tax. But what happens when his valuers suddenly increase
land values next year? Up will go the land tax collected and the
Treasurer will end up collecting the same or even more than he
is collecting now.
We believe there are only two ways the Treasurer can stop that
happening:
- cap annual land tax increases to CPI increases; or
- assess land tax on council rates paid at a rate to collect
the current amount received this year + CPI increase.
The Treasurer must be challenged on this pea and thimble trick
he is trying to inflict on investment property owners. Manipulated
values = higher revenue. It is too easy to do as we have amply
proved.
- Whilst the Government has acknowledged that the tax base must
be broadened, it has failed to bite the bullet and levy a land
tax on all land, not only investment property.
The Treasurer has thumbed its nose at the recent report of the
Federal Productivity Commission and this
could come back to further damage its financial relationship with
the Commonwealth Government.
The Treasurer has acted as he has because of
fear of losing votes. A new tax on too many people is seen as
inimical to the NSW Government’s political interests, whereas
benefits to first home buyers affect its traditional voters. It
is a pity the NSW Government has taken this approach – it
should be looking at the public benefits of such a policy and
its implications for all the people of NSW - not just those voters
who may determine its own political survival.
- The new stamp duty on the sale of investment property will have
a serious effect on economic activity in the State. It will impact
severely on GST collected by the Commonwealth and therefore the
amount of GST revenue returned to the State. A land tax levied
in accordance with the Productivity Commission recommendation
would have eliminated the need for this crazy idea ever seeing
the light of day.
- The impact of these changes could affect the values of investment
properties held by superannuation funds severely affecting the
entitlements of superannuitants. To this extent virtually everyone
in NSW is affected by these proposed changes.
- These changes will impact on rents as landlords seek to charge
increased rents to cover the new stamp duty and land tax increases.
There will be an increasing number of evictions, throwing further
pressure on the State’s already sorely stretched emergency
accommodation waiting list.
The NSW Premier and Treasurer still fail to understand that all
landowners, not just some of them, should pay for public services
and infrastructure that everyone in NSW enjoy. Whilst these measures
may be a step in the right direction, they certainly do not go far
enough and are flawed in many respects.
We gave the Government a proposal six years ago that would have
avoided all the current problems if it had been accepted. Eventually
we believe the Government will accept that proposal which you can
view here.
To view the text of Treasurer Egan’s speech:
www.treasury.nsw.gov.au/bp03-04/minibudget/minibudget-04.pdf
To view the Stamp Duty Media Release of 6 April 2004:
www.osr.nsw.gov.au/pls/portal/docs/page/downloads/other/stamp_duty_apr04.pdf
To view the Land Tax Media Release of 6 April 2004:
www.osr.nsw.gov.au/pls/portal/docs/page/downloads/other/land_tax_apr04.pdf
To view the OSR commentary on the mini budget:
http://www.osr.nsw.gov.au/portal/page?_pageid=33,171539&_dad=portal&_schema=OSRPTLT
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