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Legislative Council - Fifty-Second Parliament, First Session (52-1)
2010-06-22 Daily Xml
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LAND TAX (MISCELLANEOUS) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 27 May 2010.)

The Hon. D.G.E. HOOD (16:27): Family First intends to support this legislation. It is a valid step in the right direction. Members would be aware that the issue of land tax is something I have raised in this chamber on a number of occasions. In fact, on a quick count, I think it has been some 13 occasions to date, so it has been a consistent line of argument for not only me but our party in general. So this is a step in the right direction, and we are pleased to see the government acting on its promise.

It should be pointed out, of course, that Family First are not the only ones to raise this issue. The Hon. Mr Darley and a number of members of the opposition have raised the issue of land tax in this chamber on a number of occasions. I think the key thing that needs to be said with respect to this legislation is that it is a step in the right direction, but really it is a small step in the right direction. A substantial amount more can be done.

I am not so naive as not to understand the fact that governments face cost pressures and financial pressures with respect to balancing their budget on an ongoing basis, so any cut in taxation is to be applauded, but the bigger question I think for this government, and all governments indeed, is whether they need to be involved in all the things that governments involve themselves in these days, to which I would say, resoundingly, no.

It will not surprise members of this chamber to realise that the thrust of this bill is, in fact, warmly welcomed by Family First, in particular the relief that the bill grants to family investors, and small investors, if you like. However, as might be expected, we do have sincere reservations regarding the other aspects of the bill. In particular, we believe that more must be done for business owners and operators of small businesses, and indeed very large businesses as well, because ultimately we all pay for them.

Family First believes that high taxes, red tape and waste are operating as a brake in this country and in this state and that this bill is a small step in the right direction to correcting that. Unquestionably, South Australia's land tax system is the highest in the country, and it still will be after this legislation has passed.

Our land tax is currently levied at some 126 per cent above the national average, according to the Commonwealth Grants Commission. A business with assets resulting in an annual South Australian land tax liability of $35,381 would be paying only $5,560 in Western Australia. That is, our land tax rate is 536 per cent above the land tax rate in Western Australia in an equivalent scenario.

The Hon. R.P. Wortley: But they earn billions in mining.

The Hon. D.G.E. HOOD: They do earn lots of money through mining, that is true, but they are taxed much less, which is the point I am making. The Institute of Public Affairs, in its report entitled Bearing the Burden 2009, noted in its summary the following, 'South Australia imposes the highest land tax burdens on business in Australia.' Again, this is a step in the right direction but much more can and I believe should and will be done. Incidentally, after comparatively analysing each of the states' figures the report also notes the following, 'South Australia has the highest business taxes of the six Australian states.'

In 2002, when the current government came to office, the total land tax revenue figure was less than $145 million a year. Over the last eight years that figure has increased to some $561 million as the total tax take. That is an increase of 300 per cent in this one tax alone. Also, the number of land tax payers has almost trebled during this time, increasing from some 69,000 payers to approximately 188,000 payers. This bill will reduce that number and that is a good thing, as I say, but it will still not reduce the number to the figure that it was some eight years ago.

What are the implications for South Australia? Of course, many people will pay less land tax and a good portion of them will pay none at all—and that is a good thing, as I say. However, there are some people who say that it does not matter what our land tax rate is and that it is for business owners and property investors to worry about. However, the fact is that if you live in South Australia you pay for land tax either way—as you do in any other state, to be fair.

If you rent in South Australia you pay land tax because it is factored into the rent. It hits you if you are a self-funded retiree, if you rent a flat or if you lease a shop. If you buy something from a shop in South Australia the land tax overhead is factored into your purchase—as it is, of course, everywhere else. The implication is that the higher the land tax the more you pay and the greater the effect on everyone. South Australians, to be blunt, are paying too much.

I will take a moment to mention the Fair Land Tax Party which campaigned during the state election. It ran a very well-funded campaign, but the success of the campaign is somewhat questionable. In fact, to be frank, I was surprised that it did not attract more support than it did. However, it is significant to note that such a party even exists, that substantial funding is available to it and what that says about the level of passion in the community.

This was a party which Family First was happy to preference. We preferenced it in our top third, if you like, which indicates our thinking on these matters. In one advertisement, Mr Kargiotis noted that as at January this year South Australia had some 533,200 full-time jobs, which is the highest level we have ever had, as I understand it. However, land tax from those 533,000-odd people brings in some $416 million a year more than it did back in 2002. Spread across the 533,000 full-time workers that means that, if you do the maths, quite simply each full-time worker is paying approximately $780.19 per annum in land tax indirectly or about $15 a week—and, of course, that is just the increase. So, this is just one tax item that this bill touches. Of course, there are many more.

I find these figures enlightening because they mean that over the last eight years we have actually seen very substantial tax increases in this regard and it has reached the point where the community has had enough. Again, this bill is a step in the right direction, but I believe it is only a small step in the right direction and substantially more must be done.

One important question and, indeed, I think the crucial question that this government will have to answer relates to the value for money with respect to this taxation revenue and what happens with it. As I understand it, the total budget that the government has to work with has approximately doubled since 2002.

The government—and I noted this most particularly during the election debates earlier in the year—will make regular reference to the extra funds that have been put into police, teachers or hospitals and, to some degree, I think taxpayers would gratefully pay an extra $780 per year (directly or indirectly as it may be with land tax) if these services were dramatically improving and were substantially noticeable.

Spending money is easy—anyone can spend money—but getting value for money is difficult for any government, whatever shape that government may take. However, the public of South Australia and, indeed, other states and our nation have a right to expect that when governments spend money, whatever government it may be, it does so after having sought to get the best possible value for that money under all circumstances.

The trouble with waste is that we need to pay for it through higher taxes. Our high business tax regime puts us at risk of our businesses packing up shop and moving to places where the grass is greener. I am sure nobody in this chamber wants that.

I will just reflect for a moment on a previous situation in South Australia when Tom Playford was premier. He is someone who saw the results of a very low tax regime. At that time we had some of the lowest taxes and, indeed, in some individual cases we had the lowest taxes in Australia. He slashed business taxes, red tape and the like and made South Australia unquestionably the lowest taxed and simplest place to set up business in the commonwealth. That was reported in a number of news sites that I was able to access.

Let us not forget the results of his drive towards low taxes and business focus policy. What did these low taxes bring us? By the time he left office, South Australia's population and economy had doubled. The personal wealth of South Australians was second only to Victoria, and 29 per cent of immigrants to this country from Britain were coming to South Australia. Twenty-five years ago South Australia was home to 21 of Australia's top 100 companies. Now, in 2010, we are home to just two of Australia's top 100 companies, and they are Argo and Santos.

There is a social element to this too, of course. Just over a decade ago, about seven in 100 people lived below the poverty line in South Australia; recent figures now put that closer to 12 out of every 100 people. Taxes play a role in all these areas. I think we lose sight of the fact that higher taxes, whilst in some sense it is argued they are necessary to fund services, actually have a negative social impact as well, in that they create higher prices and therefore higher levels of poverty.

The facts are that since 2002 the take from land tax has increased by 301 per cent, stamp duty by 92 per cent, payroll tax by 50 per cent and motor vehicle taxes by some 39 per cent. Businesses are not stupid. They note these issues, and they simply decide to set up shop somewhere else. The fact that we had 21 of the top 100 companies and now have two is testimony to that. They do move to places like Western Australia, which currently has the lowest business tax rates in Australia, including the lowest land tax rate.

The Hon. R.P. Wortley interjecting:

The Hon. D.G.E. HOOD: Sure, there are other issues. I do not want to oversimplify it, and they are valid points. It is of no surprise that Western Australia also regularly tops the CommSec list of economic rankings of all Australian states.

Looking at this bill, it does several positive things, as I said at the outset—and it needs to be acknowledged that these things are not easy for the government—and addresses some of the concerns that I have had. Some 13 times I have raised those issues in this chamber as has the Hon. Mr Darley and a number of members of the opposition. It helps, I think most importantly, the mum-and-dad type investors in our community, who certainly deserve and require all the help they can get, so let's not be too negative about the implications of this bill. It is indeed, as I say, a step in the right direction.

The land tax free threshold has increased from $110,000 to $300,000 with a subsequent land tax bracket adjusted to between $300,001 to $550,000 and set at half of 1 per cent. The top band of the following bracket is increased from $750,000 to $800,000. Further, all thresholds from 2011-12 will be indexed by the average movement in land values to address bracket creep.

That is an excellent initiative, and something I have argued for on occasions in this chamber. I see no reason why all taxes should not be indexed so as to eliminate bracket creep. Those changes will benefit many mum-and-dad investors and small business owners. The latest figure, as we were told during our briefing on this bill, is that some 72,000 taxpayers will now be completely exempt from paying land tax—again, a step in the right direction.

Aged-care facilities and some other healthcare providers are also now exempt, bringing the regime in place for nursing homes into line with the exemptions granted interstate—a good move. There will also be an exemption if a principal place of residence is destroyed. These are good things, with a decrease in the tax take of some $54 million.

As I said, those changes are good things. However, this bill only provides negligible relief when it comes to larger commercial properties, and I see this as the next area of reform in land tax. Remember that when we are talking about commercial properties valued above $5 million, which includes virtually all shopping centre developments and similarly sized ventures, South Australian land tax rates are approximately twice as high as the next highest taxing state.

On a $5 million commercial property, a business in South Australia pays around $170,000 in land tax per year. A business in the next highest taxing state (I am not picking the lowest figure but the next highest taxing state) pays around $90,000—some $80,000 less for the same property value.

In a very large development valued at, say, $20 million, a business here would pay around $710,000 in land tax, while the second highest taxing state is charging around only $400,000 in taxes. These are very substantial differences, and I think this is clearly the next area for reform for the government to take note of and tackle. Remember that the cost of doing business, these overheads, flow to everyday South Australians in terms of increased prices and, ultimately, lost jobs.

The Hon. R.P. Wortley: And they provide hospitals and schools and that sort of thing.

The Hon. D.G.E. HOOD: Yes, they do, but they have hospitals and schools in other states too, Russ, as you well know. I have letters on file from investors and businesses that say, 'We are no longer looking at South Australia,' and in fact one letter says they have decided to pull out of South Australia for these reasons. These are very serious issues.

One example that stands out to me happened late last year, when one constituent contacted me to complain about an outrageous land tax bill. Last financial year, that business owner paid $44,938 in land tax. This year, given an increase in land value, and given the way the tax is calculated, that constituent's bill went up $144,500 in one year—an increase of almost $100,000 in just one year or, to put it in percentage terms, something like 200 per cent. He cannot pay this, he has indicated to me, and said that he will probably have to lay off a staff member to pay the tax bill. This is a real case and shows how hard these things can hit.

My adviser asked Treasury officials last week why our land tax rates were high compared with other states when it came to larger commercial properties in particular and why this bill was not addressing this obvious disparity in our tax rates compared with interstate rates. The answer Family First was given was frankly astounding.

We were told that it did not matter that our tax rate was high because the market would simply factor in the higher taxes by reducing the value of our land. We were referred to the writings of an economist called Henry George. I have an honours degree in economics and I had never heard that name, but that was the name that was given to me to back up this argument. It turns out that Henry George was an American economist from the 1800s.

The Hon. R.I. Lucas interjecting:

The Hon. D.G.E. HOOD: Okay. It turns out that Henry George was an American economist from the 1800s who thought that land should be shared by society rather than owned by individuals. One tactic he thought could be used to achieve this end was the imposition of very high land taxes, which would actually decrease the value of land for individuals. I must say that I find it astonishing that we are referring now to a marginalised economic thinker from the 1800s to back up our high land tax situation.

In Family First's view, it is time to more comprehensively dismantle the onerous land tax regime that has been difficult for South Australian businesses for too long. South Australia was the first Australian state to introduce land tax in 1884 and is now very substantially the highest land taxing state without question. This needs to change.

I state again that this is a good move. I do not intend to focus on the negatives too strongly because I give credit where credit is due. This is a step in the right direction, but clearly much more should be done. South Australian business wants change. South Australian business deserves change. We will certainly support this bill because it is a step in the right direction, but there is really so much more to be done in this area, and we call on the government to take on this challenge as the next step in reducing taxes on South Australian businesses and families in particular.

The Hon. J.A. DARLEY (16:45): I rise to speak on the Land Tax (Miscellaneous) Amendment Bill 2010. As many members would be aware, as a former valuer-general, I have a particular interest in property-based taxation and have been actively campaigning for land tax reform for many years.

Whilst I support this small step to improve the land tax situation for many taxpayers, I do not believe the current bill goes far enough in terms of reforming land tax within the state. There are two fundamental problems with land tax. The first problem is that, other than a minor change in 2005, the scale of rates used to calculate land tax has not changed for 20 years, yet valuations have increased significantly, resulting in sharp increases in land tax liability.

The second problem is that the taxpayer base is very small; that is, we have a very small taxpayer base, which is burdened with paying the full contribution of land tax to the state. This problem was exacerbated by the Dunstan Labor government exempting primary production properties in the mid-1970s and by the Tonkin Liberal government exempting the principal place of residence from land tax in 1980.

Many people believe that another factor compounding the land tax problem is the issue of aggregation. Whilst there is no doubt that many taxpayers have experienced a significant increase in their land tax liability, aggregation has always been incorporated in the Land Tax Act to give regard to the basic principle of taxation, which is 'the more you earn, the more you pay, and the more you own, the more you pay'.

In giving evidence to the select committee of inquiry on property taxation, I indicated two solutions to solve the land tax problem for taxpayers, that is, either abolish land tax entirely or extend land tax to all property, neither of which would be palatable to any government. In fact, Ken Henry, in his review of the Australian tax system, gave regard to the latter proposition when he said, 'The structure of land taxes could be improved by broadening the land tax base to eventually include all land.' The Henry review even went so far as to suggest that a person's principal place of residence should be subject to land tax. I do not necessarily agree with that proposition.

The government should be commended for increasing the threshold to $300,000, but the indexation does not apply until 2011-12. I understand the reasoning for this is that the increase in property values for this year were already taken into account in the midyear review in January and therefore taken into account during initial calculations in determining the increase. However, it seems that the estimates made in the midyear review now appear to be conservative and therefore the $300,000 increase in threshold would appear to be diluted and will again be diluted next year.

The increase in threshold will provide relief for many land tax payers, especially those who are commonly referred to as mum-and-dad investors. Typically, these investors will have a handful of properties, which were purchased many years ago with the intention of these properties forming their superannuation.

I am aware of many small investors who are receiving less than an economic return from their properties due to an outrageous land tax burden. For example, one constituent who falls within the mum-and-dad investor category has two properties with a gross annual income of $30,000. Last year, their land tax assessment was $27,000. Another constituent had a gross income of $100,000, which paled in comparison with their land tax liability of $150,000. People such as these two constituents will warmly welcome the increase. However, with a maximum benefit of $1,245 and the highest land tax rates in the country, South Australia's land tax system is far from ideal.

Furthermore, as the Valuer-General conducts annual valuations in South Australia, valuations are more up to date and higher on a pro rata basis than anywhere else in the country, which directly translates to a higher land tax liability, as the higher the valuation, the higher the land tax.

For some, this relief will come too late. Last year, I was contacted by a pensioner couple with a son who is a disabled pensioner. Rather than endure the lengthy wait for a Housing SA property, the couple were able to purchase a modest property for their son. This stopped their son from entering the public housing system and thus lessened the burden on Housing SA. However, due to continued land tax increases over a few short years, my constituents had no choice but to sell the house and take their son into their home.

The Henry tax review states that 'levying higher taxes on larger holdings discourages land-based investment by institutional investors, such as in rental housing'. There is persuasive evidence that businesses and developers have a reluctance to invest in South Australia due to the repressive nature of this tax.

Landlords from both residential and non-residential sectors are forced to pass on the increases in land tax through their rent when leases are renewed, which increases the cost of living. As the current legislation prohibits landlords from passing on land tax as an outgoing, as is the case with other rates and taxes, their only alternative is to increase the rent. Tenants are unable to budget for larger increases in rent and may go out of business. Land tax is the only tax that is not able to be included as an outgoing to a lease, and I foreshadow my intention to provide for greater transparency by making legislative changes to rectify this in the future.

This is not the only inconsistency within the Land Tax Act. For almost two years, I have been assisting the owners of a small country motel in gaining an exemption, or at least a partial exemption, from land tax. The motel is in direct competition with caravan parks, which receive a full exemption from land tax, and bed and breakfast operations, which are exempted or receive a partial exemption.

The owners of the motel are required to reside on the property in order to retain their AAA three star rating. However, they do not receive an exemption for the motel as their principal place of residence. Notwithstanding the fact that the Valuer-General classifies the property as predominately residential, as a motel, and the owners reside in the property, the Commissioner of State Taxation is unable to grant partial exemption because the act specifies that the buildings on the land must be predominantly residential in character. Despite lengthy discussions with the Commissioner of State Taxation, he considered that the property is not predominantly residential in character.

To complicate matters further, there is currently no definition in the act of what constitutes a property as being predominantly residential in character. Therefore, I foreshadow that I intend to move amendments to address this situation. The motel has been rendered non-viable due to the impact of land tax, as the total net profit was paid in land tax last year. Even with the increase in the threshold, the owners will still face an increase of approximately $2,000 to their land tax from 1 July 2010.

The owners of the motel could pay around $15,000 to have the property subdivided under a community title arrangement, which would then provide an automatic land tax exemption for the allotment that covers their principal place of residence—as occurs with properties such as the Oaks Pier Hotel at Glenelg and other similar international hotels. Clearly, these hotels are operating on a commercial basis, yet the owners of the apartments have the benefit of being exempted from land tax if they live in the apartment. Similarly, bed and breakfast operations—which, coincidentally, have minimal compliance requirements compared with hotels and owners who also reside at the property—receive the benefit of at least a partial land tax exemption.

As a solution to the problem I suggested to the Valuer-General that he could invoke the provisions of section 16 of the Valuation of Land Act, which would enable him to create two separate assessments for the property—one for the portion of the property that is occupied as the principal place of residence of the owner and another for the commercial component of the property.

Notwithstanding the fact that there are hundreds if not thousands of situations where this has occurred and which exist on the Valuer-General's property file, the Valuer-General and his department suffers from what is commonly known as Public Service paralysis and declined to make this change for no particular reason.

I encountered another example of this attitude when discussing the way in which the average increase in site values would be determined. New section 5(10)(ab)(iii)(B) of this bill provides for the Valuer-General to determine the average increase in site values in order to determine the average percentage change in site values to be used to adjust the threshold each year.

The shadow treasurer (Hon. Iain Evans) in the other place asked how the indexation would be calculated and was provided with a formula from the Valuer-General. I understand that this was distributed to all minor parties and Independents for consideration. While the act provides that the increase in site values is to be determined by the Valuer-General, having received a copy of this formula it was evident it had all the markings of Treasury's fingerprints all over it. It should be remembered that the Valuer-General is an independent statutory officer responsible only to parliament, and this bill requires the Valuer-General to determine the method for calculating the average percentage change in site values.

My experience within the Public Service has shown that Treasury will always endeavour to influence outcomes to suit itself, irrespective of which government is in power. I believe that Treasury's hand in determining a formula resulted in an overly complex method of calculating something that could be done quite simply.

I have received a number of briefings on this formula from Treasury and the Valuer-General's Office yet I have had considerable difficulty understanding it. I am convinced that the Valuer-General's Office does not understand it, either. This matter was further complicated when my office discovered that there was an error in the original formula. Gone are the days when ministers of the crown would stand up to these Public Service mandarins to ensure the public receives justice and a fair outcome.

For example, I was contacted by a constituent whose daughter's marriage had dissolved. She was faced with purchasing her husband's share in the matrimonial home—an option she could not afford—or downsizing and purchasing a less valuable property. I was of the opinion that an amendment to the Stamp Duties Act would provide a basis for providing stamp duty relief, with no impact on state revenues.

When I raised this matter with the Treasurer, he suggested a way in which the matter could be resolved, but in the end I believe he was rolled by his Public Service advisers as he reneged on his resolution. His suggested solution would have had little or no adverse revenue impact.

I am pleased to say that, after extensive discussion with the Valuer-General's Office, it has been agreed a simpler method could be adopted to determine the average increase in site values from year to year. I understand the Valuer-General will now request from Revenue SA a list of properties which were subject to land tax in the past financial year; that is, residential and non-residential properties. The Valuer-General will then calculate the total site values on these properties for the current financial year and also the total proposed site values for those same properties for the impending financial year. As a result they will ascertain the average percentage change in site values.

I understand that all properties, both residential and non-residential, that paid land tax in the financial year will be used to calculate the interest; that is, if new properties are created they will not be included in calculating the increase until the following year. Similarly, if properties are no longer liable to pay land tax, they will still be included in the calculation for that particular year. These changes will be accounted for in the following year.

I am sure those who have taken the time to consider the formula would agree that the new method of calculation is much easier to understand and more transparent. I look forward to the committee stage of the bill, and I foreshadow that I will be asking the minister a number of questions, including whether land tax is calculated on properties owned by the South Australian Housing Trust, the South Australian Land Management Corporation and other state-owned trading enterprises, such as SA Water, in the same manner as private taxpayers and then debited to each property within the ownership.

Finally, I would like to respond to a number of comments made by the member for West Torrens (Hon. Tom Koutsantonis) in the other place. The member for West Torrens made mention of a secret plan of the Liberals for land tax. I am not aware of the Liberals' secret plan which the member for West Torrens mentioned in the other place. I believe that the Liberals' pre-election policy on land tax was published in their public policy document entitled 'Land tax reform—the first step'. I am not aware of any further plans or policies, secret or otherwise.

The member for West Torrens said that the opposition intended to engage 'the Hon. John Darley to run a review'. I put on the record that prior to the election I was invited by the opposition to be part of a committee to undertake a complete review of the land tax system. The committee would have been chaired by the treasurer and would have been established within 100 days of the Liberals coming into government. The Leader of the Opposition wrote to me about this matter, and I am happy to provide a copy to anyone who is interested—in fact, a copy of this letter was posted on the internet on 28 February. I have always answered questions regarding this matter openly and honestly. It was never my intention to run the review. However, I was enthusiastic to be included in discussions on land tax reform as I have been a long time campaigner for land tax reform and was elated that, finally, it seemed like some change was going to occur.

I am disappointed that there will be no review of the land tax system, as I believe it is required. Should the government wish to establish a similar committee—and I urge them to do so—I would be more than happy to assist. However, in the meantime, I am hopeful that this bill is only the beginning of a number of changes to land tax. I look forward to the committee stage of the bill.

Debate adjourned on motion of Hon. R.P. Wortley.

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