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Legislative Council - Fifty-Second Parliament, First Session (52-1)
2010-06-23 Daily Xml
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LAND TAX (MISCELLANEOUS) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 22 June 2010.)

The Hon. R.I. LUCAS (20:26): I rise to support the second reading of the Land Tax (Miscellaneous) Amendment Bill. I will make some general comments first before addressing some of the particular details of the legislation. Land tax reform in South Australia has had a long and chequered history. I note the contributions in another place, with everyone claiming credit for land tax reform in South Australia. I want to put on the record my very strongly held view that land tax reform was due to the work of two groups in the community: the Land Tax Reform Association, led by the now Hon. John Darley (in those days he was not 'the honourable': he was just the simply titled Mr John Darley) and the Liberal Party.

This is not an issue that was raised in the last couple of years. For those who want to be fair to the history of this, in both cases it has been raised for a number of years. I pay tribute, originally, to the former leader of the opposition, Rob Kerin and subsequent Liberal leaders, Iain Evans, Martin Hamilton-Smith and Isobel Redmond, who also championed the cause. A constant through the whole debate has been Land Tax Reform Association and the Hon. John Darley. I am sure he would be the first to acknowledge it was not just him.

There was originally a small group of very hardworking people who got that up and going. Credit should also go to the Hon. Nick Xenophon, who was active with that group in the period leading up to the 2006 election. Some changes were made. The government of the day, prior to 2006, having said that it was not prepared to do anything on land tax reform and that there was nothing that could be achieved, was dragged kicking and screaming to introduce some limited reform, and protest meetings were held in the marginal electorates of Norwood and Hartley, leading up to the 2006 election. Up to 1,000-odd people turned out on relatively cold winter evenings to protest.

The government realised that this was not just an issue being pushed by a small group of dissidents and their political opponents and that there was a grassroots rebellion building. The government of the day made some limited changes leading up to 2006. The Liberal Party promised further land tax reform in the 2006 election but, of course, it was not elected and could not do anything about it, and then the debate continued from 2006 to 2010, with massive property valuation increases. The modest changes that had been made prior to 2006 were immediately swallowed up by those property valuation increases, and the same groups were active again in terms of placing pressure on governments and alternative governments to come up with a policy response.

Again, it was the Liberal Party which led the way in the political sphere, and the Land Tax Reform Association was very active. There were protest meetings and a lock-out meeting at the Norwood Town Hall attended by 700 to 900 people. I cannot remember exactly how many now, but the occ health and safety officer was saying that no more would be allowed in, and 50 to 100 people were unable to enter that particular debate that evening to talk about land tax reform. Again, it was the Liberal Party which came up with the policy response and then the Labor government responded.

I give that historical perspective because, as I said, having looked at the debate in the House of Assembly, there were many jumping onto the podium to claim credit for leading land tax reform, including the embattled and embarrassed Treasurer of the day, Mr Foley, but the credit for it goes to a grassroots movement. It was an uprising recognised by a couple of groups and certainly championed by the Liberal opposition during that time.

We welcome the fact that reluctantly, grudgingly, the Labor government was dragged kicking and screaming to provide some relief in response. Only weeks prior to that, having indicated publicly that it would be financially irresponsible to provide any land tax relief, all of a sudden the polling—

The Hon. R.P. Wortley interjecting:

The Hon. R.I. LUCAS: As the Hon. Mr Wortley would know, once the polling came in and it was indicated that they had to do something, all of a sudden it was no longer irresponsible financial management to provide land tax relief; it was part of a responsible financial package that the Rann government said that it was going to introduce.

Nevertheless, however we got here, we welcome the fact that we have arrived at this particular stage. It certainly is not the end of the task. As the Hon. Mr Darley has indicated, and I certainly support, this really tackles one important part of the land tax reform debate, but it misses the mark completely on another equally important part, that is, the commercial investment we are losing at the moment.

I thought the Hon. Mr Hood might have recounted the program he saw on one of the Foxtel business channels in the period leading up to the election, in which interstate or national investors were saying to national investing audiences, 'Don't invest in South Australia because their tax regime, in particular their land tax regime, is the worst in the nation,' and recommending that they invest their dollars in states other than South Australia. That is the sort of climate that exists.

The reality is, when one is talking about land tax imposts, in particular in the million dollar plus bracket (we are talking about commercial property and commercial investment), we are still massively out of kilter with most of the other state jurisdictions. Our land tax impost in that area is massively out of kilter.

Certainly, it is the sort of area, as we look to the future, whether that be in four years or eight years, where judgments will need to be made by my political party and other political parties. The first part of solving the problem is recognising the problem, and at this stage this government has not even recognised the problem that we are losing investors and we are losing investment dollars because of the land tax rate, in particular above the million dollar mark.

When one looks at the median value of a house in Adelaide, it is now $400,000 plus, so you are really only talking about 2½ of those in terms of going through that million dollar barrier. So, if we are talking about commercial properties, clearly the million dollar mark 20 years ago (or whenever this rate was stuck) was very pricey, but that is no longer the case. Property values have increased significantly and we are losing investment dollars because we are uncompetitive in that rate and in the million dollar plus area.

In terms of the process of handling this bill, given that we have just had the debate about payroll tax, my understanding from discussions with the Hon. Mr Darley is that this evening he has tabled two amendments. Speaking personally, I understand the arguments for it, but we have not had the opportunity to take the amendments to our joint party room. We will meet on Monday to discuss those amendments. I flag to the representative of the minister in the chamber this evening that certainly from our viewpoint we are prepared to support this bill going into committee but not progressing beyond clause 1 this week, because we will not be in a position to determine a position on the amendments until Monday evening. Certainly speaking on behalf of the party, I indicate to the government that we would be prepared to expedite it on Tuesday of next week, having determined our position.

It would certainly assist us if, at some stage in the concluding stages of the second reading, the minister tomorrow morning could indicate the government's view on the two amendments flagged by the Hon. Mr Darley, and in particular what estimate of revenue implications either amendment might have on the budget. It is the Hon. Mr Darley's advice and assessment that they will be modest or miniscule, but it would assist us if the government was able to indicate whether it agreed with that assessment and, if not, to give some indication of the revenue impact of the two amendments.

Along those lines I seek information from the government in relation to the revenue impact of the various proposals within this legislation. We know from the government's original announcements—I think in January this year—that the cost of this relief was to be, I think, $52 million a year. The Advertiser quotes Mr Foley as saying that there would $52 million per annum in lost revenue over the next four years, a cost estimated in January of $208 million over the four years. That seems an unusual estimate, if I might venture a comment from Treasury, in that it would appear to indicate that it is an equal cost revenue for each of the four years. To my mind the estimate would probably vary between each of the years over the four year budget estimates, and I therefore seek a response from the government as to the breakdown estimate Treasury has provided in terms of the cost to revenue of the changes.

I can go through them. What is the cost to revenue for each of the budget forward estimates years from the increase in the threshold from $110,000 to $300,000? Separately, what is the cost to revenue of the adjustments to the tax bracket $300,000 to $550,000? Separately again, I refer to the changes in the tax bracket from $550,000 to $750,000, and, separately again, the government's estimate of the cost to revenue over the forward estimates of the indexation provision being included in the forward estimates.

One minor change that has been made in the bill is the land tax exemption for land that is used for residential aged-care facilities. What is the revenue impact in each of the financial years of that particular change? I think there is a further change in relation to profit and not-for-profit organisations that operate approved aged-care facilities. What is the cost in the forward estimate years for that particular provision that has been included? What is the estimate for each of the financial years of the forward estimates period and what is the total impact on revenue of the changes that we are being asked to approve in this budget?

As I have said, I am cynical—but that is too strong a word; 'sceptical' is probably a better word—of the estimate the Treasurer provided in January of $52 million a year for each of the four years. That just does not ring true to me. I therefore seek either a confirmation of those numbers or, if they are not the correct numbers, what the actual numbers are for each of the four years. In particular, I seek the breakdown of the cost of each of the individual changes that have been incorporated in the legislation.

I want to respond to one of the other contextual matters that the Hon. Mr Darley referred to in his contribution. The man known as the welsher from the west—but I think more accurately described as the member for West Torrens—made a series of outlandish and extraordinary claims, as is his wont. He makes claims but never pays his betting liabilities to me. In those claims, he indicated—and the Hon. Mr Darley has corrected the record, but I want to correct the record as well—or accused the Liberal Party of having some secret land tax plan and that that secret involved the Hon. Mr Darley initiating and commissioning a review of land tax.

As the Hon. Mr Darley has indicated, that is not correct, and it was not correct, obviously. It was publicly announced—it was no secret—I think by the then shadow treasurer, and certainly confirmed by him and I think also by the Leader of the Opposition, that there would be a review. If elected, a Liberal government would initiate a review of land tax. In particular, we had indicated that one of the areas that we believed needed to be addressed was the investment impact of the uncompetitive nature of our land tax rate in the dollar on properties above $1 million—the issue I raised earlier. That was one of the issues that needed to be addressed. There were many others as well, but that was one of the issues that needed to be addressed.

That review was to be chaired as appropriate by the treasurer of the Liberal government, if we had been elected. There would be a number of members of that review committee, one of which was intended to be the Hon. Mr Darley, not because he was a member of the Legislative Council interested in this issue—but that is obviously one part of it—but because he had been a champion of land tax reform through the Land Tax Reform Association over a long period of time. As I think has been demonstrated even during this debate, the Hon. Mr Darley has greater knowledge on land tax issues than any other person in the parliament, including the Treasurer, not that that probably says much. It is all relative, I guess.

It is my judgment that the Hon. Mr Darley knows more about this land tax issue than anyone else in the parliament. He would have been a most appropriate member of a review committee chaired by a Liberal treasurer.

The Hon. J.S.L. Dawkins: He knows more than all the rest of us combined.

The Hon. R.I. LUCAS: Yes. So, there was no secret 'nudge, nudge; wink, wink' tax plan. As an opposition, all we said to individuals or groups who approached us was the same thing that we said to journalists who approached us. The welsher from the west, the member for West Torrens, with others, did try to put the story around, pre-election, that there had been some secret deal negotiated. Journalists spoke to me and others relaying allegations that were being made, and we said to the journalists exactly what we said to individuals and associations, exactly what we said to anyone who asked what our position was on land tax. I reiterate that today.

I am happy to support the comment from the Hon. Mr Darley, but I am disappointed that the member for West Torrens would seek to attack and denigrate the Hon. Mr Darley in the way that he did in the House of Assembly, suggesting that in some way he would be party to some sneaky deal with the Liberal Party. That was the smelly inference the member for West Torrens made in his contribution. Mr President, I guess you would be unsurprised by that sort of contribution from the member for West Torrens, as you know him well—as, indeed, do I.

However, enough on that particular issue. In relation to other aspects of the legislation, the member for Davenport, the shadow treasurer, Mr Evans, raised a series of questions in the House of Assembly debate on this, in particular in relation to the formula that would be used to establish this indexation principle. The questions were put and, after the bill went through, the Treasurer provided to the member for Davenport a copy of a two page note headed 'Land Tax (Miscellaneous) Amendment Bill 2010—Additional Information'; however, it was never incorporated into the Hansard.

I will incorporate some of the aspects of that answer into my contribution, because they are important, as I will indicate later. The note to the member of Davenport read:

On 12 May 2010, Department of Treasury and Finance (DTS) officers briefed you on amendments contained in the Land Tax (Miscellaneous) Bill 2010.

I stand corrected, Mr President; these were issues raised by the member for Davenport in a briefing with Treasury officers. The note continued:

At that meeting you requested additional information. Please find below the additional information requested:

Formula used to calculate average percentage change in land values

Each year the Valuer-General will calculate the average percentage change in land values relevant to land tax.

This percentage change will then be applied to the previous year's index value.

The index value will be set at 1 for the 2010-11 land tax year. The index value will be applied to 2010-11 thresholds only when the index value is greater than all previous years' index values.

While it is a matter for the Valuer-General to determine an appropriate method for calculating the average percentage change in land values, the following working formula summarises the Valuer-General's proposed approach:

Working formula

Index value year x equals index value year x minus 1 multiplied by (1 plus average percentage change in site values)

Average percentage change in site values equals residential percentage growth multiplied by (1 minus A ) plus non-residential percentage growth multiplied by (A).

A equals percentage of total taxable land that is non-residential, equals

total non-residential site value divided by total non-residential site plus total residential site value multiplied by B

B equals estimated proportion of residential land not subject to a principal place of residence exemption (currently 25 per cent)

Residential (R) percentage growth equals

total R SV year x, for R property assessments in year x minus 1 minus total R SV year x minus 1 divided by total R assessments year x minus 1 multiplied by 100

Note: calculation includes vacant land zoned for residential purposes.

The Valuer-General maintains a property database that includes a land use code for each property, and he will use this information to determine which properties are to be treated as residential.

The (R) growth formula aims to ensure that the percentage growth measured from one year to the next is based only on assessments that were in force in both years. Any new assessments created over the year (generally resulting from land division) will fall into the calculations for the following year.

Non-residential (NR) percentage growth equals total NR SV year x, for NR property assessments in year x minus 1 minus total NR SV year x minus 1 divided by the total NR assessments a year x minus 1 multiplied by 100.

Note: calculation includes vacant land zoned for commercial industrial purposes but excludes primary production land. Consistent with the formula (R), the formula for NR growth compares like with like from one year to the next.

Example of average growth and calculation of index value.

That is in a table which I will seek leave to have incorporated into Hansard without my reading it.

Leave granted.

Year 1 Year 2 Year 3 Year 4
Residential growth 9.0% 2.0% -1.0% 4.4%
Non-residential growth 7.0% 4.0% -2.0% 4.4%
1 — A 63% 63% 63% 63%
A 37% 37% 37% 37%
Average percentage increase 8.3% 2.7% -1.4% 4.4%
Index value applied to thresholds 1.000 1.027 1.027 1.058

Year 1 will be 2010-11


The Hon. R.I. LUCAS: That is the formula which was explained by the Treasurer's advisers and which was to be included in this bill. As a result of the hard work of the Hon. Mr Darley and his advisers, I am now informed that the formula has now been changed completely; that is, the advice given to the member for Davenport, and through him to other members of the House of Assembly, has now been changed completely.

The minister was kind enough to give to me a copy of his proposed answer to the second reading contributions which now outlines the new formula. I trust that the minister will include that new formula in the Hansard record; and, if he does not, when we get to the committee stage, I would propose to do so. It will be self-evident to those assiduous readers of Hansard that, as a result of the work of the Hon. Mr Darley, the government's proposed formula for the land tax—this complex calculation—has changed significantly.

In pursuing this issue of the new formula, I am endeavouring to understand it as best I can. I have listened to the contribution of the Hon. Mr Darley and I have read the brief contribution to be made by the minister. As I understand it, the Valuer-General some time between late May and late June—but certainly before 30 June—will have to make this calculation in order for the indexation to be applied. For the first year it will be just before 30 June 2011.

My understanding is that the Valuer-General will be aware of all the site values, both commercial and non-commercial, that have paid land tax in the 2010-11 financial year, because this calculation, we know, is done at a certain date, namely 30 June, which will be 30 June 2010 for 2010-11 financial year.

When we get to May 2011, that is all done and dusted. He will know all the properties that have paid land tax. He will also be calculating or estimating those properties that will be paying land tax in 2011-12 and comparing like with like. The Hon. Mr Darley referred to some of this in his contribution, saying, 'Well, for example, you can't include from the first year, say 2010-11, land which is unsubdivided at a certain value and then, if the land is subdivided in the following financial year and therefore is at a higher value, incorporate that in the formula because that would be misleading.' He did not use those words, but he is nodding to me that, in essence, that is the point he was making.

Equally there would be situations where properties which would be paying land tax in 2010-11—at 30 June 2010—would not be paying land tax at 30 June 2011 because there would have been a change of ownership or use or a variety of other reasons.

What I want to have clear in my own mind is: how is the Valuer-General in practice, and Treasury, going to manage this process? They have to make a decision before 30 June but, of course, the land tax payable properties for 2011-12 cannot be confirmed until 30 June has passed, because 30 June is the operative date for those properties to pay land tax for 2011-12. I have indicated what the old formula was, and I am looking for a confirmation during committee for the reasons why the government changed that formula to the formula that has now been put. It does appear to make more sense, and I understand that is to do with a lot of the work from the Hon. Mr Darley.

However, we need to have on the record from the government why its position has changed so markedly. It needs to explain the reasons for the change, having advised the shadow treasurer that this is how the formula will operate. That bill went through the House of Assembly with members being told, 'Here's the formula' (quite a complicated formula), and now, when it gets to the Legislative Council, the formula has changed completely. I was discussing this with the member for Davenport over the dinner break, and he said, 'Well, have we been misled again?' I said, 'Well, you probably have been; this is the same Treasurer. But maybe this is because the Hon. Mr Darley and others have pointed out that the formula you are using did not make any sense at all and would lead to a number of—errors may be too strong a word; inequities is probably a better word—and that the government has agreed to change the formula based on a sensible consideration of the issues the Hon. Mr Darley has raised.'

The government needs to stand up in this house and explain why the formula has changed and its reason for changing it, but then it has to explain how this new formula will operate. I have raised only one of the issues in terms of the practical task of how this job will be done. How on earth can the 2011-12 values for those properties which will be paying land tax be calculated before 30 June when you do not know whether or not a property is land taxable until 30 June has passed and you know what the ownership arrangements are and a variety of other issues such as that? The land tax judgment is made as at 30 June; it is not done for the financial year.

A number of other technical and practical issues need to be teased out during committee. I indicated this earlier but I indicate it again for the benefit of the minister that there are two reasons: the Hon. Mr Darley does have two amendments, but we have not considered them and we will not be able to consider them until Monday evening. Therefore, we are happy for the bill to go into committee tomorrow but not to progress beyond clause 1. We are prepared to debate the issue and expedite it on Tuesday to assist the government's program.

Secondly, I repeat for the minister's benefit that if the government can provide some estimate of those cost impacts that would be useful for the opposition's consideration of the legislation. With that, I indicate opposition support for the bill.

The Hon. P. HOLLOWAY (Minister for Mineral Resources Development, Minister for Urban Development and Planning, Minister for Industrial Relations, Minister Assisting the Premier in Public Sector Management) (21:09): I thank members for their contributions to this debate. The Hon. Mr Lucas has just indicated that he wishes to raise some issues, and I will endeavour to have those available as soon as possible so that we can facilitate the finalisation of this debate next week. Like the opposition, the government has not yet had a chance to have a look at the Hon. Mr Darley's amendments in detail, so we will do that. I will have a look at Hansard and endeavour to get a response for the honourable member to the issues he has raised.

With those comments, the government obviously looks forward to the passage of this bill so the much-needed relief on land tax can be delivered, but we will come back to that matter, perhaps briefly tomorrow if I have any answers, and finalise this next week. With those comments, I commend the bill to the council.

Bill read a second time.

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