Land Tax

The Hon. F. PANGALLO (16:20): I move:

That this council—

1. Recognises that the state government’s land tax aggregation policy is hurting investor confidence in the property market in South Australia;

2. Acknowledges the growing backlash over land tax changes that will see increases in rents across the state hurting small business and residential tenants alike;

3. Notes that, if implemented as proposed, the land tax aggregation changes would have a very negative effect on the property market in South Australia; and

4. Calls on the state government to abandon its land tax aggregation policy.

I rise to speak on this motion regarding the Marshall government's draconian and widely condemned land tax reform.

'Truth is not the truth.' That infamous statement came out of the mouth of former New York mayor and lawyer Rudy Giuliani in defending his Pinocchio-esque client President Donald Trump over the Russia investigation by Robert S. Mueller. It earned the distinction of 2018's most notable quote by Yale Law School librarian Fred Shapiro. Every year he picks 10 quotes to add to his list of 12,000 that he says represent 'the spirit of the times'. To quote Shapiro:

I think perhaps the most striking development in our current zeitgeist is a dramatic decline in respect for truth in politics, and this quote fits nicely into that narrative. I thought it was a very representative quote of our times.

To accurately reflect this phenomenon, The Washington Post Fact Checker has introduced a new category, the Bottomless Pinocchio, a dubious distinction awarded to politicians who repeat a false claim so many times that they are, in effect, engaging in campaigns of disinformation. Here is another one: 'alternative facts', a term invented by another Trumpeter, Kellyanne Conway, to explain away the President's former press secretary Sean Spicer's validation in uttering what were blatant falsehoods.

However, we could easily apply them in the lexicon of tales coming from the Marshall government since its 2018 election manifesto, which included land tax cuts. The 100 per cent who paid it through their teeth rejoiced. Eight days before the poll Mr Marshall said:

These amendments will assist small to medium businesses operating out of their own premises, as well as benefitting hardworking people who have investments in residential property which have appreciated over time and those whose superannuation includes property holdings.

However, from the Bottomless Pinocchio that is Treasury and Finance we have seen a land tax reform package that has already had three vicissitudes since it was dropped on budget day.

On budget day we were told that lifting the tax-free thresholds and cuts of the marginal rate of 3.7 per cent (then the highest in the country) to 2.9 per cent (still near the top) over a minuscule seven years would benefit several thousand of those hardworking people Mr Marshall spoke about. The government's tax take would come down to about $40 million, taking a bullet for those hardworking people saving for their retirement. Can you believe such stupendous generosity from our taxman?

Yet there lurked a thing called aggregation, lumping multiple properties held in trust setups in one lot because they were created by 'tax cheats, tax avoiders, rorters', as the Treasurer labelled them, a loophole. Never mind that what they had done was proper and legal and done for various reasons, like insulating assets or creating nest eggs for their retirement so they did not need to sponge off taxpayers. Scour that 2018 election manifesto and you will not find that critical alternative fact of a word, 'aggregation', in any mention of their land tax reform—nothing, nil, nought, zilch, zippo.

Coming to a rate notice near you, revaluations to market value of every piece of dirt, bricks and mortar in our state by that other arm of government, the Valuer-General. What incredible serendipity if you were collecting taxes, of course. That is when it dawned upon those in the frame that the truth was not the truth. After denying they got it wrong by some of the best business brains in the state, the Treasurer conceded that paltry $40 million was going to be more like $118 million—a Powerball.

For those hardworking people, or 'tax cheats' as the Treasurer liked to call them, who have investments in residential property which have appreciated over time, and those whose superannuation includes property holdings, they suddenly found they were going to get hammered, some to near oblivion.

So when the condemnation reached such a crescendo that it would shatter a chandelier, the Treasurer reached into his bag of tricks and pulled out another one: an immediate reduction of the top rate to 2.4 per cent, or equal to the average rate of all mainland states, that was going to benefit 92 per cent of property investors—some 47,000 of them, we have been told.

But there is another alternative fact where the truth is not quite the truth. If that figure is to be believed, which we cannot at this stage, among the 8 per cent left swinging in the gallows for the greater good are actually a large proportion of the very mum-and-dad investors Mr Marshall claimed he wanted to help. I ask, what is wrong with giving a 100 per cent reduction, like they were led to believe going to the last election? That was the very same election where the Liberals failed to mention that dirty word, 'aggregation', even once.

Since the announcement by the Treasurer of his land tax overhaul, there continues to be widespread community condemnation. The Treasurer keeps rolling out his hypothetical example of someone with seven properties worth $4 million—a figure, mind you, that initially started at around $2.5 million or $3 million, as he keeps changing it—and asking whether it is fair that they pay no tax at all. I will ask again: can you tell us how many are in that category? Everyone I have come across tells me they pay all kinds of taxes on their investments.

One media commentator I have heard appeared to be insulting of the term 'mum-and-dad investors' as if they were pretending to be battlers. The definition can also mean unsophisticated investors who do not have investment skills and have either relied on the advice of others or plonked their hard-earned savings into bricks and mortar, thinking it was the safer investment option. ABS statistics tell us they are predominantly nurses, police officers, Defence personnel, tradies, middle-income office workers, public servants and blue-collar workers (or to use that old-fashioned term, labourers).

It is impossible to have investor confidence when state and federal governments retrospectively change the goalposts on a whim. In the case of property trusts, which the Treasurer and his bureaucrats consider 'bottom of the harbour' type tax evasion, people pay a lot to set them up and stay compliant. As he points out, they have aggregated them in other states, where the rates are much lower and the threshold is higher. Why do we need to follow them anyway?

My phone has not stopped ringing and emails flow constantly into the SA-Best office from people worried sick about what is being proposed. I am certain that other MPs and members of the government are receiving them, although I had to scratch my head in amazement at Labor's land tax forum this week when a Hartley elector claimed the local member and Speaker Vincent Tarzia told him he had not received any complaints about this policy.

Most of those at the Marche Club were his constituents and many said that they had voiced their concerns to their local member. After the meeting I was approached by some who were genuinely distressed. An elderly woman, who had scrimped and saved all her life to try to get ahead, was in tears, wondering why Mr Lucas was doing this to people like her, who have always done the right thing. Also there was Mr Tony Polito, who is now in his late 80s. His English is passable, but he does find it hard to articulate himself and therefore he can frustrate an audience trying to get his message across, but I can do that for him today.

Tony is a kind, generous and respectful gentleman; I have known him since I was a child. Like my family, he came from Calabria, with no education but with high hopes that he could make it in the Lucky Country. His only skill was cutting hair, and he established his barber shop on Henley Beach Road at Torrensville, where he become quite a popular figure among the locals. Tony and his wife also worked other jobs.

Over the years they put every cent they earned into building a portfolio of modest rental properties that were to see them through their retirement years. This was their superannuation. They still do most of the maintenance and cleaning work on them. With his limited English, Tony entered the civic service as a councillor, first on the Thebarton council and then West Torrens.

After more than 20 years, he has defied his detractors, including my good friend and former mayor and Speaker, John Trainer, and is still there. He has been a Liberal voter all his life, but he says this aggregation business is going to kill him and his wife financially and emotionally. Even if he does sell off, the capital gains taxes will cripple him. He says that he came here with nothing and could die the same way. I also want to share some excerpts from the pile of correspondence my office has received. I seek leave to table their contents in full for the benefit of those who read Hansard.

Leave granted.

The Hon. F. PANGALLO: I will table those at the end of my speech, and they will be there for the benefit of those who read Hansard, including the government and its Treasury bureaucrats so they can appreciate the unease and uncertainty they are causing. Let us start with 61-year-old, self-funded retiree John Majeric. He says:

We dodged a bullet with the recent Federal election with regards to the impact on the proposed policies on property, just to be smashed by the state Liberal Party with the Lucas land tax reform—it's unbelievable and troubling.

I have eight properties (banks own more than 60%, so I'm paying a lot of interest, but just keeping my head above with rental income). Currently, I pay approximately $20,000 in land tax, but the new rules will force this to $110,000. This burden, plus the interest bill, would mean I would be making a loss. I would be forced to sell my properties.

Cheryl Graham's family built up several small rental shops, held in trusts since the 1960s to give each family fair income. She says:

Land tax this year is estimated to be $110,140. With the proposed new changes to land tax, the next year will be approximately $263,660 (that is if there is no addition to the site values). None of these land tax charges can be passed on to tenants in outgoings, etc. We still have to pay land tax, even if the area is not tenanted. We have no choice but to sell all but one property here in South Australia and invest in several other states to enable family to obtain an income.

Then there is Graeme Mac, who worked hard as a carpenter and builder for his portfolio of five properties. He says he will be taxed out, making his holdings unviable, and is thinking of moving to Queensland. He makes a good point:

Once governments start taxing in multiples where does it all stop? Just imagine if shares were taxed in multiples, nobody would buy shares anymore and the world economy would stop dead in its tracks. (An apocalypse.)

This from Lou Pargaliti, the son of Italian migrants who settled here after World War I. Typically, like other Europeans, they worked many menial, unskilled jobs to be where they are today:

Our story can be echoed by thousands of people like us but this Land tax issue is unfair and retrospective. We committed ourselves under one set of rules and now the Government wants to change the rules.

Prominent builder John Culshaw has written to the Treasurer with a solution he says is a winner—no response yet. I will table the modelling he has done that he says still enables the government to get additional revenue without much pain. Phil Craven of Oakford Homes believes it would send more builders to the wall. He says:

We have started looking at selling assets with a plan to invest interstate.

Real estate lawyer Tony Britten Jones writes about one of his clients, who will not be able to pay their interest bill, breaching bank covenants and facing an annual loss of $27,000. If Alex was in Victoria, she would pay more than $50,000 less than in South Australia. He concludes:

What is it about the SA Liberals. Stephen Marshall, courtesy of this poorly thought through tax grab, could be set to join that sad line of SA Liberal Premiers one-term wonders.

Marissa Schulze runs a mortgage broking business. She employs 20 people and has thousands of clients in every electorate. She spoke at the Labor forum this week. She is concerned aggregation will impact on property values by forcing investors to sell, driving away investment and resulting in a drop in retail spending and rising rents for low income households. She says:

The average rental return for an Investment Property in metro SA is just under 4%. For land holders that own in excess of $1.3Mill of property the SA Government is proposing to take between 73-93% of their rental income just for land tax. On top of this, they have to pay interest on their investment loan as well as council rates, maintenance, insurance etc. This will make holding property in South Australia at this level or above unsustainable.

It is understandable if the SA Government wishes to change the land tax aggregation rules for properties purchased in the future. However, to enforce these aggregation changes on local South Australians who purchased property with good intentions and complied with the legislation at the time of the purchase seems unfair and unnecessary.

Robert Formato wrote to his local Liberal member, Matt Cowdrey. He sent me a copy:

I now feel sick to the stomach knowing my tirelessly hard work investing in SA property for some 35 years may come crushing down to an end in one foul swoop with your proposed changes.

My calculation shows my land tax bill could escalate from approx. $11,000 to $65,000 (approx. 600%) which is unsustainable with the income the properties generate. How can we allow a land tax bill to be greater than what the investment brings in? This is a very real potential aspect that the government fail to consider.

This is not a fairer land tax system that the SA State Government claims, and I am deeply offended and angry that the government is choosing to ignore/obscure the impact it will have on mum and dad investors like myself. We may be a minority but that does not mean the government should ignore us.

Ian and Marjorie Stewart say they are facing a tax hike of $81,624, making their holdings unsustainable. They recently sold some properties for their children, incurring a capital gains tax of $1.4 million. As you can see, the Stewarts are paying their way and contributing to our economy. They say:

So overall, we feel quite let down by your Governments decision to increase this Tax, particularly as you were voted in on the often quoted saying 'We are a party of lower taxes in South Australia'.

Lastly, here is a letter to a real estate agent from commercial real estate experts Colliers International, with a real-life example that they claim will result in a 2,801 per cent increase in land tax:

These proposed changes will have a significant impact on owners, tenants, property values, investment returns and the South Australian economy in general.

I have not seen any real stories yet from the Treasurer, just his hypotheticals and the figure he claims will benefit from a cut, but even the modelling he has provided from PricewaterhouseCoopers has a rider that revaluations have not been taken into consideration. The pressure coming from the community, of course, forced the government's hand, and they recently had to not only bring forward their rate reduction but went further by dropping it to 2.4 per cent, while also imposing other conditions on trusts. It still has not quelled the fires of discontent.

Business SA released its position paper on 22 August, asking the government to delay its changes because of the uncertainties from the revaluation initiative and the impact it could have on a wide range of business owners. The Adelaide city council agrees. So, too, other experts, like respected economist Darryl Gobbett from the Centre for Economic Studies. Here is some of what he had to say on Leon Byner's FIVEaa talk program on 10 September. He said that mum-and-dad investors are going to be worse off. Here is what he had to say:

Well, Mr Lucas and Mr Marshall are saying that this…one of the biggest changes we've seen and we're bringing into line with what's happening in the other states, I'd still make the point that our threshold where the 2.4% is going to cut in is still well below what you see in New South Wales and Victoria…if you're in Victoria that threshold really doesn't cut in till $3 million of value, whereas here it's going to cut in, if the schedules remain the same, around about sort of $1.04 million…same in New South Wales, that schedule cuts in at 2%, so we're still well above their top rates; that cuts in at $4.2 million…

I think it's a bit strange to say that this is going to provide relief because there needs to be something done, and you'll hear this probably from your other speakers too, there needs to be something done for really what are the mums and dads investors because they're still paying some of the highest land tax rates…in Australia.

The other point I'd make is that the scales are supposed to be indexed to the Valuer-General's numbers. It'll be interesting to see how that happens, but if we look at what they call the median price…the median price for a house in South Australia is now $480,000…that's from Real Estate Institute and other groups…So, this new scale of $450,000 above which land tax will be payable I think you're going to find a lot of people with these changes are actually going to slip straight into that higher rate, but you know they're going to start paying land tax anyway because of what's happening to land prices here…but I'd also make the point, when the Valuer-General looks at it, is that values are going up because interest rates are coming down…it's not because rents are going up…

I'd still make the point, as we've made a couple of times, that the scales and the rates in those scales are highly inappropriate in an environment of very low interest rates and therefore high valuations because it doesn't reflect the cashflow that people are getting off these properties. You know, often with residential properties the rental yields are often no more than four, four and a half per cent…people are still going to be paying away perhaps in the order of one and a half to two per cent on those properties, so probably keeping no more than half the rent that they are getting.

So said the Centre for Economic Studies' Darryl Gobbett on the radio. Real estate agent Frank Azzollini reports that his investment market has dropped off to zero inquiries since the announcements and that the drop to 2.4 per cent has made no difference at all to investor sentiment, despite what the Treasurer and the Premier have been saying.

The Marshall government is giving South Australians the frightening reminder that the two most certain things in life are death and taxes. So let's go back to truth is not truth, the Bottomless Pinocchio and alternative facts. They promised no new taxes. Privatisation was not on the agenda. Farmers at Paskeville told me yesterday that several Liberal MPs, including one who is now a minister, swore on their hearts and hoped to die that they would not support the mining bill. Only four have, and good on them for sticking to their guns.

This land tax plan will be a double-edged battleaxe and an unexpected hit to the business sector and households already struggling with power bills, which have not really gone down, low wages growth and a retail sector described by the owners of David Jones as being in a recession. Add to that the highest unemployment rate in the nation, and the highest we have had in three years. Add on to that the recent BDO South Australian State Business Survey results, which show business confidence in South Australia has plummeted to its lowest level in nearly five years. It should serve as a stark wake-up call to the Liberal government.

The pain is already rippling through the community, as forecast. This move looms as the Premier's and Mr Lucas's reincarnation of Bill Shorten's disastrous retiree tax and the assault on negative gearing, yet they maintain a defiant and arrogant stance in the face of the enormous backlash against them. Everyone is prepared and willing to pay taxes, but they must be fair and equitable. Governments cannot shift the goalposts when it suits them and not without proper modelling and/or going through a consultation process let alone going to an election without flagging such intent.

I have filed this motion that calls on the government to rethink and abandon its land tax aggregation policy. When the bill does arrive, I will be moving for it to be deferred and for a select parliament committee to conduct an inquiry. I thank my Labor colleagues for saying they will support this. I hope others in this chamber at least follow convention and support it no matter what their position is. I commend the motion to the chamber.

Debate adjourned on motion of Hon. T.J. Stephens.