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Legislative Council - Fifty-Third Parliament, Second Session (53-2)
2017-11-28 Daily Xml
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Stamp Duties (Foreign Ownership Surcharge) Amendment Bill

Second Reading

The Hon. K.J. MAHER (Minister for Employment, Minister for Aboriginal Affairs and Reconciliation, Minister for Manufacturing and Innovation, Minister for Automotive Transformation, Minister for Science and Information Economy) (11:28): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation and explanation of clauses inserted in Hansard without my reading them.

Leave granted.

The Bill amends the Stamp Duties Act 1923 to introduce a foreign ownership surcharge on the conveyance or transfer of an interest in residential property to a foreign person, corporation or trust, executed on or after 1 January 2018 (including land holder acquisitions).

The surcharge will be set at a rate of 7 per cent of the dutiable value conveyed but will only be payable with respect to the extent of the interest in the residential property. The surcharge will be in addition to the normal stamp duty that is payable.

The definition of foreign person includes natural persons, corporations and trusts. A foreign natural person is a person who is not an Australian citizen or permanent resident. Generally, a company is a foreign company where it is incorporated outside Australia or where 50 per cent or more of its shareholding is held by other foreign persons or companies in aggregate. A trust will be a foreign trust where the trustee of the trust is a foreign individual or company, or where the trust itself is established for the benefit of, or is controlled by, foreign persons or companies.

Explanation of Clauses

Part 1—Preliminary

1—Short title

2—Amendment provisions

These clauses are formal.

Part 2—Amendment of Stamp Duties Act 1923

3—Amendment of section 2—Interpretation

This clause inserts definitions of the terms foreign person and foreign trust.

A natural person is a foreign person if the person is not—

an Australian citizen within the meaning of the Australian Citizenship Act 2007 of the Commonwealth; or

the holder of a permanent visa within the meaning of section 30(1) of the Migration Act 1958 of the Commonwealth; or

a New Zealand citizen who is the holder of a special category visa within the meaning of section 32(1) of the Migration Act 1958 of the Commonwealth.

A corporation is a foreign person if it is incorporated in a jurisdiction that is not an Australian jurisdiction or a person who is a foreign person or a trustee for a foreign trust (or a number of such persons in combination)—

holds or hold 50% or more of the corporation's shares; or

is or are entitled to cast, or control the casting of, 50% or more of the maximum number of votes at a general meeting of the corporation.

A trust is a foreign trust if the beneficial interests of the trust are fixed and a beneficial interest of 50% or more of the capital of the trust property is held by 1 or more foreign persons. A discretionary trust is a foreign trust if a trustee under the trust, a person who has power to appoint under the trust, an identified object under the trust or a person who takes capital of the trust in default is a foreign person.

The clause also inserts related definitions of wholly foreign owned corporation and wholly foreign owned trust.

4—Insertion of Part 3 Division 9

This clause inserts a new Division into Part 3 of the Act.

Division 9—Foreign ownership surcharge

72—Surcharge for foreign purchasers of residential land

Proposed section 72 makes provision for a foreign ownership surcharge payable in respect of a dutiable instrument executed on or after 1 January 2018 if the instrument effects, acknowledges, evidences or records a transaction whereby an interest in residential land is acquired by a foreign person or a person who takes the interest as trustee for a foreign trust. The surcharge, which is equal to 7% of the value of the interest acquired by the person, is to be taken to be duty payable on the instrument and is payable in addition to duty otherwise payable under the Act.

The proposed section includes a requirement for the Commissioner to refund a foreign ownership surcharge to a person where, within 12 months of the acquisition of the relevant interest, the person ceases to be a foreign person or the trust for which the person is trustee ceases to be a foreign trust. The refund is payable only if the interest is retained by the person when the person ceases to be a foreign person or the trust ceases to be a foreign trust.

There is also a requirement for a person who acquires an interest in residential land effected, acknowledged, evidenced or recorded by an instrument to which the section applies to pay the surcharge if the person becomes a foreign person, or the trust for which the person is trustee becomes a foreign trust, less than three years after the acquisition. A person who is liable to pay duty in these circumstances must notify the Commissioner that the person has become a foreign person, or that the trust has become a foreign trust, within 28 days.

The criteria for determining whether land is residential land are the same criteria that apply under section 71DC. Land will be taken to be residential land for the purposes of the section if—

the Commissioner, after taking into account information provided by the Valuer-General, determines that it is being predominantly used for residential purposes; or

the Commissioner, after taking into account information provided by the Valuer-General, determines that although the land is not being used for any particular purpose at the relevant time the land should be taken to be used for residential purposes due to improvements that are residential in character having been made to the land; or

the Commissioner, after taking into account information provided by the Valuer-General, determines that the land is vacant, or vacant with only minor improvements, that the land is within a zone established under the planning and development law of this State that envisages the use, or potential use, of the land as residential, and that the land should be taken to be used for residential purposes due to that zoning (subject to the qualification that if the zoning of the land indicates that the land could, in a manner consistent with the planning and development law, be used for some other purpose (other than for primary production) then the vacant land will not be taken to be used for residential purposes).

5—Insertion of section 102AB

This clause inserts a new section into Part 4 of the Act (Land holding entities).

102AB—Surcharge where foreign person or group acquires interest in residential land

Proposed section 102AB provides for the payment of a foreign ownership surcharge in relation to transactions entered into on or after 1 January 2018 that are dutiable under Part 4. The surcharge is payable by a foreign entity if the entity, or a group of which the entity is a member, notionally acquires an interest in residential land. A foreign entity is a foreign person or a foreign trust. The amount of the surcharge is 7% of the value of the interest notionally acquired by the entity, or 7% of the entity's interest in the interest notionally acquired by the group, in the residential land. Section 102AB includes requirements for the payment of a refund where an entity that has paid the surcharge ceases to be a foreign entity within 12 months of the relevant notional acquisition. The refund is payable only if the relevant interest is retained when the entity ceases to be a foreign entity. As with section 72, there is also a requirement for an entity to pay the surcharge if it becomes a foreign entity within three years of the notional acquisition of an interest in residential land by the entity, or by a group of which the entity is a member, as a result of a transaction to which the section applies.

The criteria for determining whether land is residential land are the same as the criteria that apply under section 71DC and proposed section 72.

The Hon. R.I. LUCAS (11:29): I rise to speak to the Stamp Duties (Foreign Ownership Surcharge) Amendment Bill. In doing so, as I indicated by way of interjection with the minister across the chamber, from my viewpoint the opposition is very happy to try to meet the government's request for the top 12 or 13 bills it wants to have completed in the three sitting days this week. Certainly, an indication of that is that in the normal process the second reading of this bill had not even been moved today. The reply to the second reading is generally done at least 24 hours after the minister's second reading explanation. We are happy to put those technicalities aside in the interests of assisting the government with the program.

In relation to the Labour Hire Licensing Bill, as I said, again by way of interjection, the minister has just read a very long reply to the second reading. I would like the opportunity to get a copy of that, which I have asked for from the minister's office, and to at least consult with some stakeholders over the lunchtime break. The opposition's viewpoint is that we are prepared to move on with it immediately after question time. I think that is an entirely reasonable position. In the interests of harmony and getting through the program, people might like to respond accordingly.

In relation to the Stamp Duties (Foreign Ownership Surcharge) Amendment Bill, the background to this is obviously the lengthy debate the parliament and this chamber in particular had in relation to the Budget Measures Bill. The Liberal Party position and ultimately the position the parliament adopted on the Budget Measures Bill was that we, and particularly the majority in the Legislative Council, were prepared to support all elements of the Budget Measures Bill, with the exception of the state bank tax. Ultimately, that was the position that prevailed in the Legislative Council.

Contrary to the claims made by the Premier, the Treasurer and others, at no stage did the Liberal Party, or indeed the minor parties in the Legislative Council who supported the Liberal Party position, indicate that they were voting against the payroll tax concessions, that they were voting against the off-the-plan apartment concessions or indeed that they were going to exercise their right to vote against the original model of the Stamp Duties (Foreign Ownership Surcharge) Amendment Bill.

The position the Legislative Council ultimately adopted was to pass the Budget Measures Bill, which did include the original foreign ownership surcharge provision. The position adopted by the Legislative Council and supported by the Liberal Party was that all of those elements of the budget could be processed; however, the state bank tax would not be supported.

I think I indicated during the budget measures debate that, should we have been in government, we would not have been introducing or supportive of a foreign ownership surcharge. That was the position we put some time ago and it is the position we continue to reiterate, if we had been in the position to introduce our own budget.

What we see in the Stamp Duties (Foreign Ownership Surcharge) Amendment Bill now is an extraordinary backflip from the government, the Treasurer and the Premier in particular, in relation to these provisions. Contrary to the claims being made in pressuring business groups and minor party members in this place, we said all along that the payroll tax concessions and the off-the-plan apartment concessions could all be delivered in one of two ways: either through the passage of the Budget Measures Bill minus the state bank tax, or, if the government so chose, it could deliver the payroll tax concessions and the off-the-plan apartment concessions administratively. Ultimately, that is what this bill is doing.

In the release of the arguments for this bill, the government said, 'Look, we can do the payroll tax concessions administratively. It is more cumbersome but we can still do it. And we can do the off-the-plan apartment concessions. It is more cumbersome but we can do it.' That is exactly what the Liberal Party said weeks ago and it was denied at the time by the Premier and the Treasurer. However, the imposition of the new foreign ownership surcharge on stamp duties did require legislative support. That is why we now have this particular bill before us.

As our position at the time was to allow all other elements of the Budget Measures Bill to go through—whether or not we were wildly, mildly or not supportive of any particular provision of it—as we indicated, that remains our position now in relation to the Stamp Duties (Foreign Ownership Surcharge) Amendment Bill. During the second reading and certainly through the committee stage, when we will have the opportunity to question the government on the detail of the bill, we will raise what we believe are a lot of deficiencies but, ultimately, we are going to leave the government, as they have done on many other occasions, to suggest amendments or to move amendments to budget or money bills in the Legislative Council.

What has been informative in recent weeks is that the Premier and the Treasurer have not been able and, indeed, no minister in this house has been able to rebut the long history of the Labor Party themselves in the Legislative Council, whether they be in government or in opposition, moving amendments to money bills or budget-related measures, contrary to the claims that they made and continue to make that it was unprecedented in some way for a Budget Measures Bill to be amended or have suggested amendments in the Legislative Council.

It is instructive, it is informative, but there has been no rebuttal from the Premier, the Treasurer, the Leader of the Government in this chamber or, indeed, any minister representing the government against the detailed analysis that was put on the public record when we debated this last. So, it is open to the government to amend its own bill in relation to the foreign ownership surcharge. Particularly through the committee stage, I intend to point out, on the basis of detailed tax advice that we have received, the loopholes, the errors and the requirement, certainly from the experts in tax law, that the government, once they have made a decision to impose a foreign ownership surcharge, should contemplate in terms of imposing a fair set of arrangements under this bill.

In the original release from the Treasurer on 16 November this year, the minister indicated that this particular measure is proposed to increase revenue returns over a four-year period by $36.6 million. That is an average over the four years of about $9 million, although there is more to be collected in additional revenue in the last year of the forward estimates rather than in the first year of the forward estimates.

Treasury have estimated that, if implemented, the new 7 per cent surcharge will collect $85.4 million over four years. I think one of the questions I seek a response from the government on is that it looks like ultimately it is estimated to collect about $25 million per annum by the last year of the forward estimates period. In comparison to the state bank tax, which was going to collect $417 million over four years, the additional $36.6 million over four years from this particular provision is small in comparison to the state bank tax.

The situation as it was then in the other states that I think I indicated in the debate on the Budget Measures Bill has now changed or was proposed to be changed in Queensland. That is, the foreign purchaser surcharge currently in New South Wales is 8 per cent; in Victoria, it is 7 per cent; in Queensland, it is 3 per cent, although depending on the results of the Queensland election, if there is a majority Labor government there is a proposal to increase that to 7 per cent after the election; and Western Australia is proposing a 4 per cent surcharge from 1 January 2019. So, on that basis, it appears that of all the states Tasmania would be the only state that, potentially, will not have a foreign ownership surcharge, after 2019 anyway.

In terms of what the potential impact of this measure might be, I seek leave to have incorporated in Hansard a table, which has been calculated by a prominent tax lawyer, on the impact of the base stamp duty surcharge, the increased surcharge. There is also a column in there for the LTO lodgement fee and what the total in terms of charges would be on various property transactions for foreign investors after the implementation of this measure. I seek leave to have incorporated into Hansard without my reading it a table which is purely statistical in nature.

Leave granted.

Value Base Duty Surcharge LTOLodgement Fee Total Total as a% of Value
300,000 11,330 21,000 2,271.50 34,601.50 11.53
350,000 13,830 24,500 2,674.00 41,004.00 11.72
500,000 21,330 35,000 3,881.50 60,211.50 12.04
750,000 35,080 52,500 5,894.00 93,474.00 12.46
1,000,000 48,830 70,000 7,906.50 126,736.50 12.67
1,500,000 76,330 105,000 11,931.50 193,261.50 12.88
2,000,000 103,830 140,000 15,956.50 259,786.50 12.99


The Hon. R.I. LUCAS: That shows that, for a property with a value of $750,000, the base duty on that property would be $35,080, the surcharge would be $52,500 and the LTO lodgement fee would be $5,894, so for a property of $750,000 the total imposts for a foreign investor would be $93,474, or 12.46 per cent of the value of the purchase. For a $1 million property, the equivalent figures are $48,830 for the base duty, a surcharge of $70,000, a LTO lodgement fee of $7,906.50, for a total state impost of $126,736.50 on the $1 million property, which as a percentage is 12.67 per cent of the total value of the property.

Obviously, the higher you go (and I will not go through all the detail), for a $2 million property the total impost is $259,786.50, or 12.99 per cent—almost 13 per cent, of the total value. If one looks at the range of $750,000 to $1 million, we are talking, as a result of this particular imposition from the government, a very significant increase in the state tax collections.

It is informative to look at the Treasurer's and this government's history in relation to the foreign investor tax. I refer to a story in The Australian by Michael Owen just over a year and a bit ago on 21 July 2016. The story commences with:

Queensland, NSW and Victoria have been accused of 'xenophobia' by South Australian Labor Treasurer Tom Koutsantonis, who has slammed the eastern states for introducing another layer of taxation on top of regular stamp duty and land tax for foreign investors.

At that stage, the New South Wales government was introducing a foreign investor surcharge of 4 per cent on stamp duty and 0.75 per cent on land tax for residential real estate. Mr Koutsantonis said he had come under intense pressure from the Eastern States to ensure South Australia introduced similar measures, which he had refused. The article states:

'I've been under a lot of pressure from my interstate counterparts to bring in this type of tax on foreign investment', he said.

'They think it's a "no regrets policy"; that no one who is subject to this tax can vote against you, so, "what are you worried about?"'

Asked what was driving the policy interstate, Mr Koutsantonis said: 'I think it's a little bit of xenophobia. It is also a recognition there are a lot of people in Southeast Asia and India who are fleeing…and they want to invest in other economies and bring their capital to Australia…I am never going to say that I don't want a type of investment because "I don't speak your language", I think that's appalling.'

That was a direct quote from Treasurer Tom Koutsantonis just over 12 months ago saying that he was appalled at the prospect of introducing a foreign investor surcharge. He believed that what was driving it was xenophobia. He is quite explicit in saying that he thinks it is a recognition by politicians in the Eastern States that there are a lot of Asians—a lot of people in South-East Asia and India—who are fleeing and want to invest, and he was not going to succumb to that.

He said, 'I'm not going to say I don't want that type of investment because I don't speak your language. I think that's appalling.' These are noble sentiments from Treasurer Koutsantonis. Xenophobic politicians responding to perceptions in the community, anti-Asian sentiment—because people do not speak the language of the foreign investor, these particular measures were being introduced. Just over 12 months ago, he thought that was appalling. How times change.

Out of that same mouth just over 12 months later, what do we hear from Treasurer Tom Koutsantonis as he introduced a measure which he described as xenophobia, as he introduced a measure which he said was being driven by an anti-Asian sentiment, which he said was being driven by a view in the Australian community that because they do not speak the language of the Asian investors, we should impose a foreign investor tax?

What now comes out of that same mouth just over 12 months later? We are indebted to Tom Richardson from InDaily who put—and these are my words, not his—the hypocrisy of the Treasurer's position directly to him because he quoted exactly the comments from just over 12 months ago where the Treasurer railed against xenophobia. This is how Tom Richardson described Treasurer Tom Koutsantonis's response to the questions:

But he struck a very different rhetorical tone today declaring that 'a lot of South Australians are being priced out of their own homes, out of their own suburbs, by foreign investors'.

'The very reason we're putting in the surcharge is to stop that type of activity…we don't want people competing with South Australians to buy a home to raise a family in,' he said. 'They'll pay a penalty—and we hope it will have some impact on it.' He appeared to stop himself midway through using the word 'disincentive', instead of 'impact'.

Informatively, Mr Richardson goes on to quote Real Estate Institute CEO Greg Troughton's response:

But it's a disincentive the Real Estate Institute of [South Australia] is warning of, with CEO Greg Troughton lamenting the increased surcharge was 'even more xenophobic than we were before'.

He is referring, of course, to the Treasurer's own claims of just over 12 months ago. So, what has happened? Out of that very same mouth that mouthed such worthy and laudable platitudes 12 months ago about these sorts of initiatives being driven by xenophobia and anti-Asian sentiment, what caused that very same mouth and that very same mind to now adopt this particular position?

We have had little explanation from Treasurer Tom Koutsantonis because, I suspect, he has no response, as his own words perhaps indicate. He said that he had been under a lot of pressure from his interstate counterparts to bring in this type of foreign investment, and I referred to that quote before. Maybe the Treasurer here had just succumbed to the pressure from his interstate counterparts.

He said he was strong enough to resist it just over 12 months ago, but clearly he was not strong enough to resist it just over 12 months later, because now he is not only introducing it at 4 per cent, he is seeking to introduce it at 7 per cent. At some stage, I think the Treasurer, and the Premier, ought to be interrogated, ought to be grilled by members of the media, or indeed members of the community, as to those statements that the Treasurer made in July of last year about these sorts of measures being driven by xenophobia.

I want to refer to some facts in relation to this debate. That might be an intriguing notion for a budget-related measure. It certainly would be an intriguing notion to the current Treasurer because he has given no evidence in the second reading explanation—and we will certainly pursue this during the committee stage—as to what evidence he has in the Adelaide market, or indeed nationally, that those terrible foreign investors from Asia, some of whom do not speak English very fluently, have been driving up prices in the Adelaide property market.

I refer the Treasurer and the government to the most recent detailed analysis of this that I was able to find, written by the federal Treasury. It is a Treasury working paper called 'Foreign Investment and Residential Property Price Growth' released in December 2016. The authors of this particular Treasury working paper were Chris Wokker and John Swieringa. It is a technical and detailed paper, and certainly one would not expect the Treasurer to understand the mathematics, the regression analysis and other elements of the Treasury working paper, but for the Treasurer's edification, I refer him to just the results and summary section, which puts it into layperson's language, enabling our current Treasurer to at least understand what evidence federal Treasury has been able to establish as to the impact of foreign investors on the property market.

I refer to page 15 of that Treasury working paper, under the section of results. The two major markets, of course, where there has been criticism have been in relation to Sydney and Melbourne. What the federal Treasury working paper says is:

Across Sydney and Melbourne, the models which we consider to be the best specified indicate that foreign demand typically increased prices by between $80 and $122 on average in each quarter.

I point out that the period that federal Treasury analysed nationally, and in particular in Sydney and Melbourne, was the period from 2011 to 2015, a four to five-year period, and they looked at quarterly price movements in terms of residential property. I return to the results of this paper:

This is based on the average postcode in these two cities—

that is Sydney and Melbourne—

receiving around 0.6 more foreign investment approvals each quarter through time. It is important to note that this is very small when compared with the average quarterly increase in Sydney and Melbourne property prices over the period studied of around $12,800.

What federal Treasury has said is that, having analysed property prices in Sydney and Melbourne, they were increasing, and increasing dramatically, an average of $12,800 per quarter during that four to five-year period from 2011 to 2015, and that foreign demand typically increased the prices by between $80 and $122 in that quarter. Foreign demand was driving prices up by about $100, but the total price was being driven up by $12,800 through a variety of other explanations.

I will be pursuing in the committee stage of this particular debate what is the evidence in relation to price movements that the Treasurer has relied upon to (a) introduce a bill and (b) make the limited statements he has made as to the impact of foreign investors on the residential property market in Australia. As I said, let us acknowledge the fact that the property prices have moved and moved most significantly over the last half a dozen years in Sydney and in Melbourne. Certainly, the initial impetus for targeted foreign investor taxes started in the Eastern States as a result of a widely held perception—and I acknowledge that—that wealthy, in the main Asian, investors were driving up residential property prices in those particular markets.

That is what is obviously driving Treasurer Tom Koutsantonis to introduce the foreign investor surcharge. He has said he does not want foreigners driving up prices in the Adelaide market. The challenge to him and to the government is: what is the evidence? Do they agree with the federal Treasury working paper? Whilst I certainly would never expect the Treasurer to have any knowledge of the federal Treasury working paper, indeed even to understand the detail of it, I would hope that Treasury and Treasury officers are well aware of this working paper and have done their own analysis in terms of the impacts of the imposition of this particular measure.

On page 25 of that federal Treasury working paper, under 'Conclusion', let me quote the conclusion in its entirety:

Foreign investment has contributed to Australia’s sustained economic growth. Recently, foreign investors have accounted for an increasing share of demand for Australian residential real estate. This paper estimates that only a small proportion of the strong property price growth over the study period can be attributed to foreign demand. It is also the case that the majority of foreign investment approvals are for new dwellings, consistent with Australia’s foreign investment policy for residential real estate which, in part, aims to increase the total supply of dwellings.

I could quote at greater length from the federal Treasury working paper, but I will not, but I think it is instructive, it is informative and it is an issue that the government should respond to and that I will certainly be asking the government to respond to during the committee stage of the debate.

There has been widespread condemnation from a number of the significant industry groups or stakeholders in the real estate, construction, property sectors. I quote from the Real Estate Institute. Some of the language is extravagant so I will not quote in precise detail, but suffice to say their very strongly held position, as expressed by CEO Greg Troughton, is opposition to the particular measures. They refer in some detail to the Treasurer's previous position, to which I have referred, about xenophobia, and they have indicated their strong opposition to the measure before us.

The Housing Industry Association has also indicated their position. They say they do not support the introduction of the surcharge, and they are especially concerned about the further increase from the original proposal of 4 per cent even to 7 per cent. Part of their letter to me says:

At a time when residential land development and building is facing a prolonged period of reduced activity in South Australia, the introduction of a foreign investor surcharge from 1 January 2018 is considered a wholly inappropriate step. Given the introduction of similar surcharges in the eastern states where housing activity is much stronger, it would seem more appropriate for the South Australian government to be promoting the fact and seeking investment from other states based on not applying this type of tax.

They do raise a particular issue that I will pursue in the committee stage, namely, that in relation to the definition of foreign persons or trusts, the HIA considers that an exemption should apply in similar terms to those that apply in Queensland and Victoria, whereby the surcharge does not apply where the purchaser can show that they demonstrated to the Commissioner of Taxation that they are actively investing in and significantly adding to the supply of housing stock. In the committee stage, I will refer in detail to the provisions that exist in most other jurisdictions, as I understand it, that are not covered in the legislation that we currently have before us.

The Property Council of Australia's public position has been to strongly oppose the imposition of a foreign investor surcharge. That remains their particular position; however, they indicate that if the government is going to proceed with the legislation and is likely to get the support of the parliament, they urge it to consider some significant amendments to the bill that we currently have before us.

Members will be aware that, during budget measures bills, I normally consult widely and, in particular, consult a certain prominent tax lawyer. My normal modus operandi has been to read the detailed critique in the second reading to allow the government and its advisers to prepare a response for the minister that will help expedite the committee proceedings. Given that the government has indicated that they are desperate not to sit during the optional sitting week of parliament next week and want to conclude this bill and all their other priority bills in the next three days (or just over 48 hours), that would not seem a sensible course of action.

However, I have had a detailed analysis of the foreign investor surcharge provided to me. It provides a further rebuttal, or critique, of the government's position as outlined during the budget measures debate. I will necessarily have to raise each of those issues during the clauses of the bill during the committee stage, and the government's advisers will need to provide answers on the run. So, I alert the government's advisers that there will be detailed questions provided by the prominent tax lawyer for the committee stage of the debate and that I will be seeking detailed responses during the committee stage of the debate to assist the government in expediting this bill through the parliament in the next two-and-a-bit days.

One of the issues I want to raise has come from a person who has, as I understand it, corresponded with all members of parliament, both in the Legislative Council and the House of Assembly. I am assuming that it has also gone to all ministers, but I know that it has gone to all opposition and minor party members in the Legislative Council. I want to refer to the detail of this particular series of letters because this person is raising what they believe to be a very significant inequity in the way this government is proposing to implement the bill.

The first email I received, and I think all members received, was on Sunday 19 November, and this raised the issue of what the correspondent kindly referred to as 'unintended injustices' within this particular bill. He refers to what he says very kindly again, 'the inadvertent inclusion under the new stamp duty surcharge of long-term holders of 410 retirement visas living in South Australia'. He also refers to the inequity or the unfairness of those who had contracted to purchase their property off the plan before any knowledge of the surcharge was made public but whose settlement dates are after the proposed introduction of the new surcharge on 1 January 2018.

This particular correspondent is seeking amendments to the legislation to cater for what he indicates is unfairness and inequity. Subsequently, on 26 November, the same correspondent outlined in greater detail further inequities, and I want to quote from the correspondent's concerns:

Further to my mail a few days ago, I am writing again as I now have some further information on the issues I raised…

It's useful to note that, since I first wrote, it has become clear that the proposed surcharge of 7% of the purchase price applies in fact to two classes of Retirement Visa holders living in South Australia, the still renewable 410 Retirement Visa…and the still on offer 405 Investor Retirement Visa.

Nowhere in the application processes for either retirement visa was, or is there, any mention of the likelihood of any Stamp Duty Surcharge—nor by the way, of the FIRB fee on 'foreign buyers', in our case, $10,000.

This further adds to the unfairness of the measures I believe, particularly as retirees are likely to have very carefully budgeted their finite resources when buying a new home, and are perhaps the least able to withstand such a sizeable new surcharge.

Again, I interpose here, regarding the size of that surcharge, that I indicated earlier in my second reading contribution what it is on properties, for example, in the price range of $750,000 to $1 million. I continue with the letter:

The second category of unfairness that I mentioned, those Temporary Residents who Contracted to buy well before any mention of the Stamp Duty Surcharge, but will go to Settlement after the new measures are introduced on 1st January, still applies. This mainly applies to 'off the plan' buyers of course, which both Government and the Adelaide City Council have been heavily promoting.

In our case, as long-term SA residents (firstly in work for a number of years and now in retirement), we are examples of buyers who unfortunately fall into both these punitive categories...

As you will be fully aware of course, two opportunities to correct these two examples now arise…

He then outlines amendments to this particular bill, and erroneously he thinks that the Budget Measures Bill is still before the parliament. That is obviously no longer an option. He argues for a straightforward amendment to both these bills, perhaps offering exemptions for the above two categories. In relation to the retirement visa holders issue, he has further provided detail as follows:

In the case of 410 Visa holders, the argument is that no recognition is given at all to the special case of 410 Retirement Visa Holders, many of whom have been here for years and have contributed widely to the Australian economy and social fabric. Although our visas are renewable every 10 years, we are it seems permanently stuck in the 'Temporary Resident' category, presumably (and understandably perhaps), only so that we place no burden on Medicare as we grow older, being required instead to fully insure our own costs privately.

Nonetheless, it does seem very unfair that we are now being put into the same category as offshore 'foreign investors', when it comes to the new Stamp Duty Surcharge. Any 410 holders moving into property nearer the City, or more convenient for hospitals and other services perhaps, as the years pass, would currently be hit by the new Surcharge.

In one of these emails—I cannot quickly pick it up at the moment—this correspondent makes it quite clear that they are not entitled to actually become Australian citizens. So, whilst they can renew their retirement visa on an ongoing basis every 10 years, they are not capable of moving out of what the government describes as a 'foreign investor' category, as they read the bill, and are therefore permanently caught in this position.

The correspondent also gives some examples in relation to the potential impact on the settlement contract timing issue. He gives examples of a contract date before the surcharge became public knowledge—that was July 2017 settlement—and settlement after the introduction of the surcharge on 1 January 2018. He says, 'Such a timespan is entirely likely in the case of many, if not all, off-the-plan new property purchases, particularly apartments.'

He goes on to highlight that the purchase of a property of $450,000 would include additional stamp duty of $31,500 or $63,000 on a $900,000 property, according to his calculations in this letter. Both sums are, of course, in addition to normal stamp duty, and, again, they are similar sorts of numbers to the earlier figures I put on the public record. I have now found the additional material he provided on 18 November to all of us. He said:

Temporary residents living in South Australia under rolling 10-year 410 Retirement Visas.

A significant number of Temporary Residents in South Australia are here under the 410 Retirement Visa provisions.

Available for new applicants up to 2005 and subject to initial means testing, family circumstances, character and health criteria, these visas were designed for retirees and near-retirees and their partners who wish to spend their remaining retirement years in Australia. Only renewals are now allowed, at 10 year intervals.

Many of these 410 Retirement Visa holders have lived, worked and contributed to the South Australian economy for many years through the import of their personal savings, part-time work and their spending and taxation in Australia. They have also contributed in a number of ways to the fabric of society through social and voluntary activities.

It is important to note that under the conditions of these Visas, holders have no path to either Permanent Visas or Citizenship, however much they might wish it. There is therefore no choice for them but to remain Temporary Residents.

Another condition of this Visa is that there is strictly no access to Medicare, and holders have to show full Private Health Insurance history at renewal. 410 visa holders therefore make no demand whatsoever on the health or other support services in Australia, despite being Tax Residents and paying income and other taxes here.

It seems unfair therefore that such committed and mature senior residents are now being aggregated together with what are perceived, by some at least, as wealthy offshore foreign investors and that similarly, by implication, 410 Visa Temporary Residents are therefore also somehow speculating and helping push up local property prices.

On the contrary, a retiree living here is simply seeking to purchase a place to live as full-time resident owner. Often, for age considerations, their choice is apartments—frequently new-build apartments, further boosting the local economy.

Is it really fair therefore that 410 Retirement Visa holders should pay an extra 7% supplement on top of normal Stamp Duty, pushing their total Stamp Duty charge in some cases up to a total of almost 12% of the purchase price? This is a really significant extra penalty for them—and comes on top of a $10,000 FIRB house purchase approval fee already levied on all Temporary Residents, regardless of Visa or purchase purpose.

That particular correspondent, as I said, has corresponded with all members of parliament. During the committee stage of the debate, I will be seeking the government's response to the concerns that have been raised in that particular correspondence. I will conclude my second reading speech by indicating, as I said earlier, that there are many detailed questions raised by the prominent tax lawyer that I will pursue during the committee stage of the debate. I look forward to the committee stage.

I again indicate that the Liberal Party's position is the position we outlined originally in relation to the Budget Measures Bill; that is, if the government removed the state bank tax, the opposition was prepared to allow and support the remainder of the Budget Measures Bill, including the original form of the foreign ownership surcharge provision. Given that was the position we adopted then, it will be the position we adopt now.

In relation to the period between now and the state election, the Liberal Party has already indicated a contrary view to the Weatherill Labor government, which sees the response to any problem being another tax or another charge or another impost. We have seen the massive increase in ESL bills in South Australia. We saw the attempted imposition of a car park tax. We see the imposition of a wagering tax in South Australia. We have seen the attempt to bring in a state bank tax.

We see a foreign ownership surcharge bill, and we have seen the state government supporting a massive increase in the GST from 10 per cent to 15 per cent. Their plan B in relation to the GST, if they cannot get that proposal up, is to spread the GST across a whole range of other financial services which are not currently covered by the GST, which would mean a massive increase in charges for struggling South Australian families and businesses.

It is quite clear that, if the Weatherill Labor government is elected, they will return to their common tactic, their common path, of looking at further ways to massively increase taxes in South Australia. To the contrary, the Liberal Party has indicated that we will significantly reduce ESL bills by $90 million a year—a $360 million cut—commencing in July of next year. We will be capping local government council rates. We will be capping NRM levies, although they come under another name, if there is a Liberal government elected in March.

In relation to a raft of measures, including this foreign investor tax, land tax, payroll tax and stamp duty, as consistent with the 2014 and 2010 election, closer to election day we will be releasing a lower tax package than the high-tax environment of the Weatherill Labor government. Our specific response, if elected, in these particular areas, including this particular new surcharge, will be outlined in detail prior to election day. I look forward to the committee stage of the debate.

The Hon. K.J. MAHER (Minister for Employment, Minister for Aboriginal Affairs and Reconciliation, Minister for Manufacturing and Innovation, Minister for Automotive Transformation, Minister for Science and Information Economy) (12:18): I thank the honourable member for his contribution on the second reading, and I look forward to the swift passage of this bill through the committee stage.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

The Hon. R.I. LUCAS: I flagged this question in the second reading contribution: can the minister indicate to the chamber what detailed work, if any, has the South Australian Treasury done in relation to the impact of foreign investors on residential property prices in South Australia and, in particular, investors—as the Treasurer referred to last year—from South-East Asia and India?

The Hon. K.J. MAHER: I thank the honourable member for his question. I am advised that data from the Foreign Investment Review Board shows that property applications for residential property from foreign residential investment has increased in South Australia. The total value of applications for foreign investment in residential property in South Australia has increased.

The Hon. R.I. LUCAS: That is entirely unsurprising, but my question is in relation to the driving up of prices in South Australia as a result of foreign investors, as the Treasurer referred to in July last year, in particular from South-East Asia and India. Is it correct that Treasury itself has done no analysis of the current impact of foreign investors on residential property prices in South Australia?

The Hon. K.J. MAHER: I am advised that the South Australian Treasury does not have a detailed analysis; instead, as I said, they rely on data from the Foreign Investment Review Board.

The Hon. R.I. LUCAS: Can the minister outline exactly what that data demonstrates?

The Hon. K.J. MAHER: My advice is that the total value of applications to the Foreign Investment Review Board for foreign investment in residential property from the financial year 2013-14 to 2014-15 increased by 98 per cent, and the advice is also that from 2014-15 to 2015-16 it increased by a further 19 per cent.

The Hon. R.I. LUCAS: Does the minister accept or do the minister's advisers accept that part of that would be driven by property price increases generally in the market; that is, property prices have increased generally in the market with or without the investment from overseas in relation to it and that property prices were going up during 2013-14 and 2014-15 anyway?

The Hon. K.J. MAHER: There are obviously a range of factors, but certainly I do not think it holds true that that increase is responsible for a 98 per cent increase between 2013-14 and 2014-15.

The Hon. R.I. LUCAS: Let me refer the minister and his advisers to this federal Treasury working paper, which has actually done some detailed work in this area. First, are the government's advisers aware of the Foreign Investment and Residential Property Price Growth, Treasury working paper, published in December 2016?

The Hon. K.J. MAHER: I am advised that they are aware of that paper.

The Hon. R.I. LUCAS: Let me refer to that paper, because the minister refers to a 98 per cent increase in the total value of applications for residential property between 2013-14 and 2014-15. This particular paper looked at property price increases between 2011 and 2015, so it covers the period to which the minister has referred (it covers a wider period, obviously).

That paper has referred to the fact that, whilst there had been a $12,800 average quarterly increase in property prices, you could only attribute foreign investor demand to be the cause of $80 to $122; that is, whilst there had been a very significant increase in the value of property prices during that period, federal Treasury has analysed Sydney and Melbourne, which are clearly the ones that have been most impacted over the years, supposedly by foreign investor demand, and said that the foreign investor demand was just a very small $100 out of $12,800. If the minister's advisers are aware of this particular paper, do they have any disagreement with the analysis and results of the working party report from federal Treasury on foreign investor demand?

The Hon. K.J. MAHER: I am advised that our advisers have not analysed the assumptions or the methodology underpinning that study: they are aware of it, but they have not done any analysis of the methodology or the assumptions that underpin it.

The Hon. R.I. LUCAS: I understand that. It is disappointing, given that we are having to go through this particular debate, that we do not have access to those Treasury officers who have done the work, but clearly at the very least there is no rebuttal from the government here at the moment. If the government at a later stage wishes to send a rebuttal through the post, I would happily receive the rebuttal; I do not intend to delay the proceedings here.

It is unrebutted evidence at this stage, and it is the only evidence at this stage, contrary to the claims from the minister of a 98 per cent increase as being proof positive that there is a particular issue in Sydney and Melbourne (and their analysis covers all capital cities, it is just that they have highlighted the big increases in Sydney and Melbourne), that the big percentage increases the minister is talking about, the 98 per cent, the overwhelming bulk of that is caused by factors other than foreign investor demand. So, it is a nonsense for the minister or the minister's advisers to take the view that, because there is a 98 per cent increase in the value, that it has been driven by foreign investor demand driving up prices in Adelaide, which is the inference from the minister's response to my earlier question.

Given that neither this minister nor the minister's current advisers have seen the paper, the findings remain unrebutted and unchallenged at this stage by the minister. All I am saying is that the flimsy excuse or reason the government has given to justify this particular surcharge is unsupported by any evidence or any statement that the minister has made in the second reading or response to the second reading or on behalf of the government so far in the committee stage of the debate.

The second issue on which I seek the minister's response, as the Leader of the Government but also as the minister handling this bill, is what changed from the government's position, in particular the Treasurer's position, where he indicated in July of last year that this was driven by xenophobia and a fear of investors from South-East Asia and India in particular to now introducing the exact same measure? Can the minister outline on behalf of the government and on behalf the Treasurer (as he represents him) what changed between July of last year, where this measure was xenophobic, and now? Does the minister now concede that it is xenophobic and still is, but he is happily introducing it, or does he disagree with the statement of the Treasurer from July of last year?

The Hon. K.J. MAHER: This is not a debate I am going to get to in the committee stage of the bill. It has nothing to do with the operation of this bill.

The Hon. R.I. LUCAS: Let the record show that the minister was unprepared to defend the statements of the Treasurer. The minister was given the opportunity to defend the statement that this was a xenophobic approach, that the Treasurer would never countenance it and was appalled by it, and the Treasurer is now introducing it. He is the Leader of the Government in this chamber. He is handling the bill and he now says that this has nothing to do with it, yet the Treasurer is on the public record saying that he is appalled by these particular measures and that he was not going to introduce it because it was xenophobic. It was attacking South-East Asians and Indians because some people did not think they could speak the language or understand them.

Yet, given the opportunity, the minister in this chamber is not prepared to stand up and defend Treasurer Koutsantonis. I am not surprised: I would not defend him either. I think it is an appalling position the Treasurer has got himself into because of the language he used in July last year to pat himself on the back as having resisted the pressure from those nasty people in the Eastern States who wanted him to introduce a foreign investor surcharge. I think it clearly indicates that this Treasurer and this government have very flexible principles. The principles of July last year and the things you supposedly believe in, you can jettison those just over 12 months later, as soon as you wish.

In regard to the set of detailed critiques that I gave from the individual correspondent about the 410 visas, I understand the government has received that correspondence and I think some members have corresponded with the government on the issue. What is the government's response to that position that they think it is unfair and inequitable? Is the government prepared to amend its own bill to provide some exemptions?

The Hon. K.J. MAHER: This is a matter where a line needs to be drawn somewhere over who is in and who is out. It will apply to a natural person who is not an Australian citizen, an Australian permanent resident or a New Zealand citizen who holds a special category visa. Of course, there will be some who fall within and without who will complain about the operation and that is understood, but a line has to be drawn somewhere and this is where it is drawn, consistent with the operation of these measures in other jurisdictions.

The Hon. R.I. LUCAS: So, the government's position is essentially to say, 'Stuff you, we don't care how unfair and inequitable this might be. We've just drawn the line.' Even though these are people who have been here for many years, some decades in fact, the government is saying, 'We're not going to do anything.' There is no willingness to consider an exemption or any particular set of arrangements that will provide relief to these particular people who, as the correspondent has indicated to the government and to us, have no opportunity to get a permanent visa and have no opportunity to become Australian citizens.

They are permanently locked into these 410 retirement visas. They can renew them every 10 years. They clearly say that they are not speculative offshore foreign investors driving up property prices: they are long-term residents of South Australia. They have paid tax and they have contributed to the South Australian and national economies. They are captives of the visa arrangements they entered into when they came to South Australia many years ago. Is the minister's response as cold-blooded as, 'Stuff you, we're not going to do anything to help you. We've drawn the line and we're not interested in, firstly, recognising that there might be an issue and, secondly, seeking to address it in some way'?

The Hon. K.J. MAHER: As I said, when people accuse the Hon. Rob Lucas of verballing them and putting words in their mouth, I think this is a great demonstration of how one stands to be accused of these things. That is not what I said at all. Of course, when a line is drawn, there will be people who fall on one side or the other of that line. This is where the line is drawn for this measure. It is consistent with other jurisdictions, and I look forward to the Hon. Rob Lucas, if ever he is on the Treasury benches, reversing this to make up for what he is saying needs to be changed. I am sure that if ever he is on the Treasury benches he will go back through the Hansard and change all of the things that he is outlining.

The Hon. R.I. LUCAS: The other issue that was raised by this correspondent was the unfairness he outlined to all members of, in essence, what the government and city council and many others encourage a lot of people to do, which is to purchase off the plan. There are other elements of the Budget Measures Bill that are now to be implemented administratively that provide a range of concessions to encourage people to buy off the plan and to encourage city living, which is again a government and Adelaide city council policy goal.

Another policy goal that the Labor government and many others have supported has been to encourage couples or individuals to downsize; that is, if they have a big property, to move into apartments closer to the city and free up bigger suburban houses, if they own them, for younger families to move into. This is the sort of circumstance that this correspondent has highlighted. They are saying that, in some cases, people have entered into an off-the-plan arrangement prior to the surcharge originally being announced in July—so not just the recent increase—but settlement date is not until after 1 January.

What they are saying is that, on a $450,000 or $900,000 property, they have entered into an arrangement prior to the surcharge being announced, but the settlement date is not until 1 January, and the way the government has drafted this means, in essence, that retrospectively they are going to bang these particular people with the additional surcharge because of the arrangements of the contract that they have entered into.

I think the minister would be aware that there are many off-the-plan apartment arrangements where your settlement date is significantly after the date you originally enter into the contract. This particular correspondent, and I assume some others, have found themselves in the unenviable position of having signed up to something thinking they know what the costs are, and because of the way the bill has been drafted—that is, it is payable on settlement—it is going to significantly increase their costs.

The government has been asked whether it is prepared to consider relief in these particular circumstances by way of an amendment to the bill. Is the government prepared to consider that, or is its response as cold-hearted as it was before, which was essentially to say, 'Stuff you, we're not interested in giving you any support'?

The Hon. K.J. MAHER: I thank the honourable member for his question. Again, I thank him for his attempt to put words into my mouth and give me my opinions for me. It is very helpful of him to occasionally do that. Again, whenever legislation or these measures are drafted, there is a line that is drawn somewhere, and that is where the line is drawn on this bill. I look forward to these promises that he is making, should they win the election, to change all these things that he has raised.

The Hon. R.I. LUCAS: That was interesting, but he did not actually answer the question: is the government prepared to either amend the bill or provide relief in the circumstances this correspondent has outlined?

The Hon. K.J. MAHER: We have the bill before us and we are not proposing amendments to the bill.

The Hon. R.I. LUCAS: The minister is indicating that he is not going to change the bill, but does the minister indicate that the correspondent has accurately outlined the position; that is, that people caught in the circumstances that he has outlined will in the end have to pay this additional surcharge? Is it a confirmation that that is, in fact, the case under the bill that the government has proposed?

The Hon. K.J. MAHER: My advice is that if the property settles after 1 January, that is the case.

Clause passed.

Clause 2 passed.

Clause 3.

The Hon. R.I. LUCAS: I now enter what I outlined in the second reading as the detailed analysis done by a prominent tax lawyer, and the first series of questions relate generally to clauses 3, 4, and 5 of the bill. Firstly, the prominent tax lawyer has made the claim that in effect the duty outlined in this bill could be payable on an option or contract for the sale of land to a foreigner, as it is likely to be regarded as an instrument that affects, acknowledges, evidences or records a transaction whereby an interest in residential land is acquired by a foreign person or a person takes the interest as a trustee for a foreign person. Can the minister indicate whether that is in fact correct?

The Hon. K.J. MAHER: My advice is that a very general question like that is almost impossible to answer. If there was an exact nature of a particular transaction, that advice might be able to be provided as to how that exact example might work, but with a very general one, there is not advice on such a general question to be asked, is my advice.

The Hon. R.I. LUCAS: It is not a general question at all. It is quite a specific question from the tax lawyer. In effect, he says, as drafted the duty imposed could be payable on an option or contract for the sale of land to a foreigner. He refers to the tax case of George Wimpey and Co v IRC [1974]. He says to see also section 2(4) of the Stamp Duties Act. He goes on to say, quite specifically—so it is not a general question—the reason why, in his view, this duty could be imposed on an option or a contract for the sale of land to a foreigner is it is likely to be regarded as an instrument, under the definitions, that affects, acknowledges, evidences or records a transaction whereby an interest in residential land is acquired by a foreign person, or a person takes the interest as trustee for a foreign person.

So, it is a specific question. It is not general. It is based on a previous case, going back to 1974. Does the government agree that this duty could be payable on an option or contract for the sale of land to a foreigner?

The Hon. K.J. MAHER: My advice is if the effect is that there is an actual transfer of land, then it would attract this, yes.

The Hon. R.I. LUCAS: The minister can correct me if I am wrong. I take his response to be that the minister's advice is that the tax lawyer's view is correct; that is, in effect, the duty imposed could be payable on an option. So, the minister is saying, in the circumstances he has outlined, on the basis of the advice given to him, that that is correct—

The Hon. K.J. MAHER: Yes, if there is an actual transfer of land.

The Hon. R.I. LUCAS: The tax lawyer claims that this is a significant departure from the current taxing regime of the Stamp Duties Act. Do the minister's advisers agree that, given that they have now conceded that is correct, this is a significant departure from the current taxing regime of the Stamp Duties Act?

The Hon. K.J. MAHER: My advice is that there is not a departure and that the foreign investment surcharge is only liable if there is a duty that is liable.

The Hon. R.I. LUCAS: The tax lawyer's view, which the minister's advisers have agreed with, is that duty imposed could be payable on an option or a contract for the sale of land. So, the minister has already agreed with that in certain circumstances that he outlined. The tax lawyer is saying that that is a significant departure from the current taxing regime. The minister is saying, on the basis of his advice, that the government and the government's advisers disagree with the tax lawyer's interpretation.

The Hon. K.J. MAHER: Again, my advice is that the foreign ownership surcharge is only payable if it is a dutiable instrument. We are at a loss to see how that is a departure if it is only payable on a dutiable instrument.

The Hon. R.I. LUCAS: I guess the government's advisers and the tax lawyer will just have to agree to disagree. Ultimately, a court of law will determine that. I move on to the next area. This is in relation to the advice I have received, as follows:

So the current drafting of the proposed section—

this is under the 'dutiable instrument' section—

suggests the surcharge applies whether or not any ad valorem duty is payable or not payable. Section 72(2) is fundamentally a new head of duty. All that is required is that there is an instrument; that instrument effects, acknowledges, evidences or records a transaction; the transaction involves a foreign person acquiring an interest in residential land.

Therefore, it should be clarified by an express provision in the proposed section 72 that a dutiable instrument is one assessed with ad valorem duty under the SDA [Stamp Duties Act]. This is so that the surcharge is only payable where ad valorem duty is payable. Further, as previously suggested, on one view the surcharge appears not to apply to an instrument that is liable to ad valorem but then exempted from such duty. The provision should then specifically exempt from the surcharge those instruments that are not liable from conveyance duty.

The second part of that was raised in the debate on budget measures, and I think the government's advisers agreed to disagree in relation to that aspect. However, my question remains. According to the tax advice I have received, there should be an amendment, a clarification and an express provision in proposed section 72 that a dutiable instrument is one assessed with ad valorem duty under the SDA. What is the government's response to that tax advice?

The Hon. K.J. MAHER: I thank the honourable member for his question. The very simple advice I am getting is that the response that we previously gave has not changed. It is the same as when this was raised a couple of weeks ago when we were doing the Budget Measures Bill.

The Hon. R.I. LUCAS: Which is what? That the government understands the tax lawyer's position but does not agree that there should be an amendment?

The Hon. K.J. MAHER: Yes, that is correct.

The Hon. R.I. LUCAS: As I said, these questions all range over clauses 3, 4 and 5, so with your concurrence they alternate between clauses. This one is in relation to clause 4, residential land. The background to this is, as outlined in the budget measures debate, the Commissioner of Taxation is going to rely on the land use codes provided by the Valuer-General. In most situations, it is determined whether a property is residential land, which is clause 4, proposed section 72(8):

Such land use codes are provided by the Valuer-General as an administrative practice. They are not mentioned in the Valuation of Land Act 1971 or the regulations made thereunder. There is no right to object to such a code as may be assigned by the Valuer-General, yet such codes are being increasingly used.

What the tax lawyer is highlighting again is that this legislation is referring to land use codes and the commissioner is going to rely on the land use codes produced by the Valuer-General and there is no mention in the Valuation of Land Act about land use codes. It is done administratively and there is no right to object from a complainant to such a code as may be assigned by the Valuer-General. The complaint is, 'Well, these are now being increasingly used under this provision and the government is relying on that again.' The tax lawyer is suggesting that there should be a right to object to such land use codes:

This should be addressed by adding a right to object to them in the Valuation of Land Act and ensuring they are subject to a full merit review.

This is not addressed in this bill or in the package of legislation. What is the government's response to the first point, that is, the use of the land use codes? Secondly, what is the government's policy position in relation to whether or not a complainant should have the right to object to what they may well argue is a completely erroneous decision taken originally by the Valuer-General about a land use code, which is now being used by the tax commissioner, which is now going to be used to impose additional stamp duty surcharges?

The Hon. K.J. MAHER: My advice on the first part of that is that the government believes the Land Use Codes is the most appropriate mechanism. On the second part, and I cannot remember exactly how it was described, but if someone believes it is a completely erroneous categorisation, the advice that was given last time when we discussed it in budget measures is that the commissioner and the Valuer-General had preliminary discussions and are committed to considering the issue in greater detail about providing some sort of right for objection to be considered.

The Hon. R.I. LUCAS: I guess the tax lawyer was optimistically hoping that, given it has been a few weeks since the last time we debated it, the Valuer-General, the commissioner and the government might have progressed it so that they could have introduced a right of complaint. It seems to me that the tax lawyer has identified a problem. The government is not arguing that there is not a problem, saying, 'Look, we will have a look at it.' Here is the opportunity to have done something about it but the government's position is currently that they do not have a resolution and they will look at it if they are re-elected in March of next year.

Moving on to another issue: in relation to the issue of residential land definitions, tax advice provided to me indicates:

Under the proposed provisions if the land is not being used for a particular purpose at the time but the improvements to the land are of a residential character, then it will be taken to be residential land. If the land is not being used for a particular purpose at the time of transaction and there are only minor improvements then the zoning of the land under zoning laws is to be used, so land with buildings of a residential character no matter what the zoning will be treated as residential land for the purpose of these provisions.

My question to the minister is: do the government's advisers agree with that? In essence, what he is saying is that the land is not zoned residential—it is zoned commercial or whatever other zoning it might be, not residential—but if the government decides that land has buildings of a residential character, no matter what the zoning is you will be applying these particular provisions to that particular purchase.

The Hon. K.J. MAHER: The advice stands from last time. The methodology set out in this act, which was previously in the Budget Measures Bill, is identical to the methodology adopted in the Stamp Duties Act, and we think that is the appropriate mechanism.

The Hon. R.I. LUCAS: I will check the record, but I do not believe this particular issue was raised in this detail in the Budget Measures Bill, although I will stand corrected if it was.

The Hon. K.J. Maher interjecting:

The Hon. R.I. LUCAS: Well, it might have been very broad, but it was not this particular issue. The issue of the land use codes was, but this is actually the definition of residential land. The question still remains, irrespective of whether it is consistent with what has been there or not. That is, is it correct that, irrespective of the zoning, if there is a zone that is not residential but the government decides, or the commissioner decides, that the buildings on that commercial zone are of a residential character, that this particular surcharge can be imposed in that case?

The Hon. K.J. MAHER: I thank the honourable member for his question, and I preface what I am about to say, for the future use of what we put onto Hansard, that this is advice from Treasury, not advice from experts in the land use area. Working through the section, the predominant use test, if it is predominant residential use, would, on the plain reading of it, tend to indicate that if its predominant use is residential then, yes—but these are not land use experts, these are Treasury officials.

The Hon. R.I. LUCAS: Can I suggest we report progress? I would like to pursue this after lunch.

Progress reported; committee to sit again.

Sitting suspended from 13:00 to 14:18.

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