When you’re habitually drip-fed something intoxicating if can be hard to just turn off the tap. So what will it take for the New South Wales government to give up its addiction to land tax?
BY NICOLE NAVARRO
It’s New Year’s Eve and laughter from the terrace drifts inside with the sea breeze, glasses full of crisp wine clink in celebratory spirit, and singing attempts of Auld Lang Syne warm up. The clock ticks over to midnight and while the fireworks explode in the distance and embraces are shared all round, your investment properties across the state are at that very moment being lumped with a hefty land tax on the year now just a memory. The New South Wales Office of State Revenue sure knows how to dampen the party mood.
The reality is most property investors acknowledge that property taxes need to be paid as a means to feed both Commonwealth and State Government revenue streams, however most will also argue that paying a tax on a tax is a principle bordering on insanity and one that needs to be more equitable.
In NSW, arguably the state most burdened by land tax, this year the land tax threshold moves up a notch to $396,000 from $387,000 in 2011. These threshold figures represent the combined land value of all your investment properties owned in NSW, so unless you own one investment property only and its land value is lower than $396,000 – a tough challenge in Sydney – chances are you’ll be lumped with a tax of 1.6 per cent of that taxable land value and once your property portfolio breaks through the $2.421 million ceiling in the 2012 land tax year then it’s a two per cent tax on the value above $2.421 million.
What many people probably don’t know is that land tax was only meant to be temporary.
According to Property Owners Association NSW president Chris Young, “In the year 2000 when the GST was introduced we all understood that the GST would be collected to cover all taxes including land tax. Every state was supposed to remove it (land tax), but that never happened.
“We’re finding that many property investors are getting assessed (for land tax) out of a commercial reality, with many investors withdrawing from the rental market altogether.”
Having investors withdraw from the rental market is bad news for tenants, with rents increasing as a result.
“If the government did remove or reduce land taxes from residential properties and opened the door to allow developers back into the market again, the cost of real estate and rents would be driven down and affordable housing wouldn’t be a consideration,” says Young.
Young says that in NSW private landlords provide approximately 80 per cent of the rental properties, and it’s when private landlords retreat from the market that affordable housing issues arise and government housing is more heavily needed to accommodate ‘essential workers’ such as teachers and nurses.
Real Estate Institute of NSW president Tim McKibbin suggests the land tax treatment on a residential rental property should be the same as it is on an owner-occupied residential property – exempt or broader based, because it only further pushes up the rents making it more costly to the tenant.
Young says that when rents are determined the landlord’s costs are certainly factored into the rent charged to tenants. This includes land tax.
The landlord might directly pay the lump sum land tax but it’s the tenant who suffers greatest from the NSW Government’s land tax addiction because to recoup the annual land tax the landlord is forced to increase rents, he says.
The Tenants’ Union of NSW agrees with the idea of broadening the land tax base across all residential properties, cutting the rate to be more equitable, economically efficient and result in more affordable housing.
Once this is done, it says, the rate can be dropped without reducing the government’s revenue.
While some say a broader-based land tax should be applied, others say land tax should be abolished altogether. What do you think?
Nicole Navarro is a journalist and subeditor of Australian Property Investor magazine, www.apimagazine.com.au
Nicole, Thanks for bringing up this important topic. The problem with land tax – and it’s ugly cousin stamp duty – is they are state taxes. GST on the other hand is a federal tax. And, yes, the GST was supposed to replace all the other taxes. That’s how the government sold it. So, with the introduction of the GST, I expected all other taxes to go away … but that didn’t happen. Stamp duty and land tax both survived. And, the federal government also managed to keep the petrol excise tax of 38 cents per litre. Yes, our petrol prices should be 38 cents less than what we’re paying now. But, like you mention, how do you get the state and federal gov off their tax addiction? As far as land tax goes … why would the state give up this tax? It’s revenue controlled by the states; they don’t have to share it with other states, they don’t have to wait for the federal gov to hand it out to them. So, I don’t see this going away. And, it looks like the only way its effects can be mitigated is probably to share the burden across all property owners. But, my personal preference would be do eliminate stamp duty, land tax and – while we’re at it – the petrol excise tax! After all, with the introduction of the GST, all these other taxes were supposed to go away – right?
Comment by Dave Ives — January 20, 2012 @ 12:11 pm