Land Tax

In reply to the Hon. J.A. DARLEY (15 May 2018).

The Hon. R.I. LUCAS (Treasurer): Growth in land tax revenue in a financial year is impacted by various factors. These factors include growth in site values as estimated by the Valuer-General, land tax threshold indexation (based on average growth in site values as determined by the Valuer-General) and changes in the composition of the underlying land tax base.

If it is estimated that total land tax revenue growth will exceed estimated CPI growth in an upcoming financial year and a decision is made to cap revenue growth at that estimated CPI level, this would imply that land tax bills, on average, could only increase by a maximum of CPI growth.

This could be achieved by adjusting land tax rates and thresholds or capping all land tax bills at the estimated CPI growth rate. Each option would result in different distributional effects among taxpayers and could necessitate an adjustment for taxpayers following the end of the financial year to reflect actual experience (e.g. actual site value and CPI growth in the financial year).

If total collections are capped at CPI, then when total land tax collections are forecast to increase by more than CPI in the coming year, rates and thresholds would need to be adjusted to ensure estimated collections did not exceed the cap. This would require a judgement to be made about which rates or thresholds would be adjusted. These adjustments would assist in limiting overall collections but would not avoid the potential for the land tax liability of individual ownership to increase by more than CPI.

Alternatively, a decision to cap the growth in individual land tax liabilities at CPI would result in inconsistent treatment between landowners and equity issues. Land tax has a progressive rate structure, meaning that larger landholdings pay more tax than smaller ones. A cap would erode the application of a progressive rate structure as the tax treatment between taxpayers would become inconsistent.

If the site value of an ownership increased by more than CPI due to an improvement in the value of the land within the ownership or a change in the composition of the ownership (e.g. an increase in the number of properties), this ownership would be liable for less tax compared to another ownership with the same site value that did not benefit from the same appreciation in its landholdings.

For example, under a CPI capping policy, an ownership that experienced an increase in its site value from $1 million to $1.1 million between 2016-17 and 2017-18 would have received a land tax bill that was capped at $8,865 in 2017-18 (assuming a 2% CPI cap). In comparison, an ownership with a site value of $1.1 million in 2017-18 that did not experience any site value appreciation from the previous year would have received a land tax bill of $10,137.

A scheme which caps growth in liabilities at CPI would therefore provide the greatest benefit to those landholders that experience high levels of site value appreciation above CPI growth. However, due to the large differences in liabilities that could occur for ownerships with the same site value, this could be perceived as effectively penalising landholders who experience little or no site value appreciation.

To minimise the impact of bracket creep, land tax thresholds in South Australia are currently indexed in line with average growth in site values as determined by the Valuer-General. This works to offset the impact of bracket creep where ownerships move in line average property values.

The Liberal government has also committed to cutting land tax bills. From 1 July 2020, the tax-free threshold will be increased to $450,000, up from the current threshold of $353,000 applicable in 2017-18. This will mean that thousands of land tax ownerships will no longer be liable for land tax. It will also provide an ongoing reduction in land tax for all other ownerships that remain liable for tax. The government has also committed to cutting the land tax rate from 3.7 per cent to 2.9 per cent for ownerships valued from just over $1 million up to $5 million.