"Land tax turnaround"

The Daily Telegraph, 24 February 2005

THE New South Wales Government is considering scrapping its controversial land tax changes, brought in last year, which have trapped 60,000 more people into paying the tax for the first time.

But, as a compromise, it is now unlikely to revoke its other unpopular tax change - the 2.25 per cent vendor tax - believing it is not doing as much damage as the land tax.

Premier Bob Carr yesterday publicly committed to a land tax review, admitting the backlash was hurting the Government.

The tax had become a liability because it had become a tax on mum-and-dad investors and not just the wealthy - the same argument lobby groups put to the Government last year when it made the changes.

The State Government introduced land tax changes last year in response to complaints that the threshold of $317,000 had moved middle-class families with investment properties into the bracket of the rich.

The Government lowered the rate at the high end of the tax and applied it to all second homes - in the process netting upwards of 60,000 second homeowners. It may revert to a revised threshold-based tax.

The Government is sticking by its vendor tax on investors, claiming the extra revenue let it remove stamp duty for up to 32,000 first homebuyers.

The vendor tax is not considered as politically damaging as not as many people are affected.

It only applies when an investment property is sold. It is applied before capital gains tax is taken into account and therefore is offset to some degree by the lesser Federal Government taxes paid on the sale.

However, it has failed to net the State Government the revenues it expected, falling short by $300 million, and being blamed for dampening the investment property market.

NSW Opposition Leader John Brogden yesterday said that the land tax changes amounted to "proof that the Carr Government's greedy tax grab is hitting those who can least afford it".

"Bob Carr believes only wealthy people own investment properties. That is not true," Mr Brogden said.

The Property Council of Australia, however, said the Government had it completely wrong, giving less sympathy to new land tax payers than those forced to pay vendor tax.

"From our point of view the greater of two evils is the vendor tax," the council's NSW chief executive Ken Morrison said. "It's the largest disincentive to investment. I understand investors who haven't paid land tax before are going to be unhappy ... that's natural but when you talk about tax changes which will be better for investors and the economy, vendor tax would be the biggest priority."

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