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Legislative Council - Fifty-Fourth Parliament, First Session (54-1)
2019-11-27 Daily Xml
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Bills

Land Tax (Miscellaneous) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 12 November 2019.)

The Hon. J.A. DARLEY (11:03): For decades, South Australia has had the most uncompetitive land tax system in the country. As many would know, it is largely due to land tax that I entered this place. I find it ironic that, over 10 years later, I am standing here talking about the same thing. Back in 2007, when I came into this place, one of the major problems was the scale of rates. If I remember correctly, the scale of rates had not changed for about 20 years and, in that time, property prices had shot through the roof. Land tax bills that had been a few hundred dollars very quickly inflated to thousands of dollars over the course of a few years.

We do not have quite the same situation now, as the scale of rates were adjusted in 2009-10 and indexed annually to keep up with changes in property values. However, our scale of rates is still uncompetitive when compared with those of other states.

The government has tried to address this by making a number of changes to the scale of rates. It has now increased the bottom threshold, reduced the tax rates for certain thresholds and increased the top threshold. These changes are very positive and I am completely supportive of these amendments. These changes will benefit many land tax payers; however, for many, the benefit they would receive from a lower scale of rates is negated when coupled with aggregation as outlined in the bill.

When I entered this place at the end of 2007 the then Labor government had amended the Land Tax Act to allow the commissioner to disregard minority interests in a property; that is to say, if someone had an interest of less than 50 per cent, the commissioner could disregard the minor interest and aggregate the property's value with the holdings of the person with a majority interest. This move caused stress and anxiety to many people because they had structured their property holdings in such a way as to minimise land tax. These people were not breaking the law; they simply had a look at the rules and played within them.

Now, 10 years later, we face a similar debate. This bill will expand aggregation to a model which will be similar to what they have in New South Wales and Victoria. Property holdings of associated companies will be aggregated. It is worthwhile noting that the other states also have aggregated ownership for land tax purposes. All interests that individuals hold in properties will be aggregated together, along with any other interests they hold as a beneficiary of a trust.

This is, of course, a simplified explanation of these changes, as the specific details are much more complex than this. This is perhaps one of the biggest problems the government had in selling their land tax reform. Land tax is complex in nature, which has made it very difficult for people to understand what effect amendments will have on them.

I have been contacted by many constituents who think they will be worse off; however, when my office has sat down with them and examined their holdings it turns out that they will benefit from the changes. This is true even of the major stakeholders that I have consulted with who have been very outspoken opponents of the package. Understanding of the details was outdated, and it seems that inadvertently a lot of incorrect information has been circulated in this debate.

On the other hand, I have spoken to many constituents who have fared worse under the changes. These constituents have often spent hundreds or even thousands of dollars on specialist taxation accountants and lawyers to determine the effect of these changes. In many cases their accounts have also been calculated by my office to confirm the outcome.

At this point, I want to say a special thanks to Dejana Graziano in my office for having dealt with the barrage of constituents who have contacted me. I am always very grateful to people for making the time to contact me but, as we all know, we cannot do this job alone, and Dejana has worked tirelessly to assist constituents with their inquiries. Dejana is not a taxation specialist and I think the difficult job she has had over the past few weeks needs to be acknowledged.

Getting back to the subject of land tax, the government has argued that the aggregation proposed in this bill is to address inequity—that if two people hold $1 million in property holdings then they should be paying the same amount of land tax, regardless of how these properties are held. However, in delivering this message the government has, whether intentionally or not, made many ratepayers feel like criminals. They have been accused of exploiting a loophole in the legislation. This is unfair. These people merely structured their holdings as they are allowed to do under the law. Much like those who had created minority interests prior to 2007, they looked at the rules and they played within them.

The government is now changing the manner in which the tax is calculated, which is something it is allowed to do. It is not saying that people are unable to hold their properties in different legal structures; however, what it is going to do is change the manner in which the tax will be calculated. In an ideal world, aggregation would have been considered when land tax was initially introduced in South Australia in 1936. If introduced at the beginning, aggregation would not have had as big an impact on people, as they would have made different decisions based on those rules. From what I understand, this is what they did in New South Wales and, as such, they have never gone through this headache of having to unscramble the egg.

It is interesting to note that the original 1936 act was much stricter in who paid land tax. The only land that was exempt was Crown land, parklands, public roads, public cemeteries, public reserves, hospitals, land used solely for religious or charitable purposes, public libraries, museums and art galleries. Land tax was charged at the rate of three farthings for every pound on the unimproved value of the land. If the value of the land was over £5,000, a further three farthings per pound was applied. Absentee owners paid an additional 20 per cent and there was a minimum amount of one shilling per property.

My biggest issue with this bill was the effect aggregation would have. Whilst I recognise that there was inequity amongst those who paid land tax, I also recognise the changes as being proposed would have a very significant impact on many people. People have not done the wrong thing; they have merely worked within the existing rules. Of most concern to me was those taxpayers who had accumulated modest property holdings over a lifetime in order to have some financial security in their later years. I am mainly talking about those who emigrated to Australia after the two world wars and invested in property as their form of superannuation. Property holdings were often split across couples and the family in order to minimise tax.

As I see it, the introduction of this aggregation hurts these mum-and-dad investors the most. Their property portfolios usually consist of about half a dozen low-value properties which are rented out to low-income tenants. By doing this, they are providing a service by offering low rent properties for many who cannot get into the public or community housing. They know that they cannot pass this cost on to their tenants as their tenants will simply be unable to afford rental increases.

I have spoken to many constituents in this position who are fearful about the changes. They are worried that they will have to abandon what they have worked so hard for. They have advised that they will have to sell their properties as they simply will not be able to afford land tax under this bill. They have advised that they will move and invest interstate or they will stay in South Australia and will apply to receive the pension.

This is in stark contrast to their personal ethics of wanting to provide for themselves in old age rather than being a burden on the public purse. However, when their land tax was calculated against the new tax scale of rates, over half found that their land tax actually decreased. I want to make the point that these are people who were fundamentally opposed to the reforms. I understand the modelling undertaken by Treasury has estimated that the vast majority of those who pay land tax will be better off under the changes. There was also concern that if these owners are forced to sell as they cannot afford to pay the land tax, these tenants would be forced to find alternative accommodation.

South Australia already has a rental crisis with many finding it difficult to find an affordable rental property, especially given the length of public housing waiting lists. There are serious concerns that this will contribute to homelessness in the state; however, if the vast majority of landlords who pay land tax will experience a reduction in land tax then there would be no reason for them to put the rents up. It will be interesting to see if anyone experiences a decrease in their rent because their landlord has received a reduction in their land tax.

In discussions with the Master Builders Association, the Housing Industry Association and developers, they have indicated that new building construction has largely stopped due to the uncertainty surrounding land tax. Similarly, the Real Estate Institute of South Australia has provided information that investors are not purchasing properties due to the uncertainty around land tax. It warned that the market may be flooded with properties that are being sold because people cannot afford to pay the land tax. Others who expressed concern about this advised that there would no longer be investment, especially in the lower end of the residential market in South Australia.

However, the lessons learnt from interstate do not support these scenarios. Victoria changed their land tax rules with regard to aggregation in 2005. There is still investment in lower end residential properties in Victoria, and South Australia did not experience a boom in interstate investment because of our disaggregated land tax rules.

The response to this is that property in South Australia does not have the capital growth that Victoria's does, that is to say that the capital growth of property experienced in Victoria offsets the negatives of land tax. Without fail, every stakeholder or constituent who has made this point to me has said that South Australia does not have the population to push capital growth and it is for this reason that these reforms are necessary.

South Australia's top land tax rate of 3.7 per cent has been a disincentive for the top end of town to invest here. If big businesses and companies are incentivised to come to South Australia, this brings jobs. Jobs bring people and these people need somewhere to live. Some may choose to buy in South Australia and others will rent, but undoubtedly there will be a trickle-down effect of attracting big investment to South Australia.

There are many landowners who will benefit from these changes. These landowners have not spread their property holdings over multiple ownerships, but instead have them in a single ownership. These people will benefit from the changes in the threshold and the lowering of the rates. As I have said before, I have spoken to quite a few constituents who were surprised to learn that they would actually be better off under these changes.

I have also been contacted by several business investors who will benefit from the changes in the threshold. Whilst it is easy to dismiss these submissions because they are from the 'richies' and many feel that these people should not be the ones who benefit from the tax reform, it is these people who fund developments and investment that create employment and therefore attract people to come to South Australia.

The changes made to the scale of rates in this bill are undoubtedly better, but when coupled with aggregation it is very difficult to support the proposal. I have been working with the government to try to find a compromise and thank the government for assisting with information requests and making themselves available.

A few weeks ago, I approached the government with an alternative scale of rates, which had the support of almost all stakeholders I consulted with. It was more in line with the scale of rates in Victoria and New South Wales; however, without access to land tax data, it was not known what the revenue impact would be. The government ran the numbers and came back to me advising that the revenue impact would be too great.

I understood this and thought that it would present an alternative scale of rates; however, it did not do this. It came back with a number of measures to address affordable housing. Whilst it is good that the government is thinking about ways to improve affordable housing, it did not address the issue of the land tax and in particular the effect aggregation will have on a particular cohort of people.

In the spirit of compromise, I suggested to the government another alternative to help soften the blow of aggregation, which would involve capping land tax increases over a number of years. Capping increases would also address the issue of the revaluation initiative, which could see values increase dramatically.

In combination with this, I suggested a flat land tax of $1.95 for all income-producing properties that would be subject to land tax if the site value was under the land tax threshold; that is to say, that is only because the site value is below the threshold that there is no land tax payable. Exemptions for principal place of residence, primary production and so forth would still stand. Even though this was a measure which would not have had a negative impact on the budget, the government did not agree to this, even though, again, it had the support of all stakeholders that I consulted with.

To try to address my concerns about aggregation, the government suggested a one-off $10 million transition fund to offer a subsidy to those who would be worst affected by the aggregation measures. I commend the government for this suggestion and note that it is more than what the Labor government did when they introduced aggregation of minority interests in 2007. The transition fund was a good start, but more needed to be done to help those at the bottom end who would be most severely affected.

As I said, I have spoken to constituents who will still have to find a significant amount of money even if they were to receive a substantial subsidy for the first year. This in itself highlights another problem: that there are people who have structured their holdings in a way that they are not paying the same amount of land tax as others who are holding their properties in another way. Even though both parties own the same amount of property, they are paying different amounts of tax. This is the inequity that the government is trying to address.

The contentious issue of the bill obviously comes down to aggregation. However, the problem we face is that we are trying to amend an existing land tax system rather than starting afresh. If starting afresh, then these measures would not have as big an impact. If we had the opportunity to rewrite the Land Tax Act at the beginning, then it would be very different with the benefit of hindsight. Given that the government was unwilling to negotiate on removing aggregation, it was clear that measures needed to be put in place to offset the effect of aggregation.

Over the past few months, the government has changed its position considerably. The most notable was when a compromise was reached with the Property Council which inserted an additional threshold between $1.098 million and $1.35 million at a rate of 2 per cent. This threshold would increase to $1.6 million in 2022-23. Again, this was a move in the right direction and was successful in gaining the support of one of the biggest critics of the plan; however, it was widely panned as a backflip and only benefitted the big end of town.

The Property Council has received harsh criticism for changing its position, but I think it should actually be applauded in its approach. Whilst I did not think that the package it negotiated was good enough to win my support, I applaud the manner in which it approached the issue. With any decision, a position should be decided based on the facts and offer at the time. If what is laid on the table changes, it is imperative that consideration is given to see if the new proposal is good enough to support or if it is better to go back to the original position. To blindly refuse to consider any new proposal and continue to oppose it based on principle shows a stubbornness that could result in failure to support a better package.

Similarly, Business SA has received criticism for saying that it would support the package if there were further changes made to the scale of rates. I commend Business SA for the approach it has taken on this issue in considering what would be acceptable in order to offset the impact of aggregation for its members.

I would like to note at this point that these changes and negotiations should have been made prior to the budget announcement and introduction of the bill. The manner in which this has been handled has been perhaps the best demonstration I have seen in over a decade in this place of how not to do it. Time in which to consider complex changes has been very short, which has put an immense amount of pressure on any party, including stakeholders, their members, as well those who have to determine the effect of each iteration of the bill. I believe it is largely because of this that has led to the blind opposition to the proposal. The entire process has been mismanaged and the government should learn from this terrible experience.

I know there are some who have suggested that the package should be opposed based on this alone. However, it would be very obstinate of me to reject what could be something good for the state because I have issues with the procedure. The government wants to create a fairer, more competitive land tax system, but does this bill achieve this?

In considering this issue, I had to determine whether South Australia would be better with the government proposal, which is far from perfect but would help the majority of land tax payers, or go back to the status quo, which is equally flawed and has inequities. I wholeheartedly acknowledge that there are some mum-and-dad investors who will be worse off under this package, and it was on those that I focused my attention.

The government's current package will lower the rate for the second tier from 1.65 per cent to 1.25 per cent next year. This rate will be further reduced in the following years to 1 per cent. This will mean that those with total site values between $755,000 and $1.098 million will pay tax at a 1 per cent rate, a significant improvement from 1.65. This change not only assists those within this tax bracket but it will also help those who have more holdings as the effect of any tax rate at the bottom flows up and results in reductions for bigger holdings as well.

The new proposal will also increase the top threshold from $1.35 million in 2021 to $2 million the following year. I specifically asked for this because I acknowledge that it does not take much to have over $1.35 million in property holdings where you would be subject to the highest tax rate. It is important to note that the highest tax rate has also been reduced significantly from 3.7 per cent to 2.4 per cent which will help attract investment to South Australia.

But all of this was still not enough. As previously mentioned, the government offered a one-off transition package, which would give those affected by aggregation a one-off discount on their land tax of up to 50 per cent. Whilst this was a good start, it still was not enough to help those hardest hit. I went back to the government and am pleased that they have agreed to a bigger transition package which would step in the increase over the course of three years.

There are also other concessions the government has given but it is essentially the three mentioned above that have managed to secure my support for the bill. From when this started at the budget announcement, there has been a significant change to the original package. The rates and thresholds have changed so significantly that I believe it is a more equitable system. For those who will be affected and who are least likely to afford it, there is a transition package to assist them.

I do not for a second think that this system is perfect. There are still issues that need consideration. The Master Builders Association and the Housing Industry Association have raised the issue of being taxed on the tools of their business, which is land. They have called for a tax concession for trading stock; that is, land they need to hold in order for them to undertake their work. I am very sympathetic to this and urge the government to consider a scheme similar to Queensland's where a concession of 40 per cent is given to subdivisions.

In the end, I could not ignore the fact that the vast majority of land tax payers, consisting predominantly of mum-and-dad investors, would be better off under this plan. I am satisfied of this, based not solely on the information provided by the government, but rather from my own conversations with constituents whose land tax I compared to the existing scheme and the new scheme. In most cases, these calculations were done on constituents who had contacted me who were rigidly in opposition to the changes but changed their mind once it was demonstrated that they would be better off.

I know that there will be people who will be worse off. They have been very vocal in speaking to me and contacting my office. This has been a very difficult decision for me and I have listened openly to everyone who has contacted me. On balance, I believe these changes will be better overall, not only for the majority of individual land tax payers, who will pay less, but also for the state's economy overall. With that, I commend the bill to the house.

The Hon. F. PANGALLO (11:29): Thank you, Mr President, for indulging me and I thank the Hon. John Darley for speaking before me. It has enabled me to hear more of his conflicting and confusing views.

I believe the people of South Australia, in particular those affected, are fed up with how this mess has unfolded since it was announced by the Treasurer in his June budget. I can not ever recall a piece of complex fiscal legislation to be so badly managed by its proponents. The Treasurer and the Premier have been unable to sell it. Those directly impacted just will not buy it.

On Monday, our desperate Treasurer unfurled his fourth version of his proposed land tax reforms, making further concessions and reductions to the rates plus a few other sweeteners in a sweetheart deal constructed with the Hon. John Darley, one of the fiercest opponents of the reforms who has now totally caved in on the numerous threats and promises he has made publicly for the past five months, and now he reckons it is a great deal. This is the same Mr Darley who said, and I will use his words:

…it was rubbish; the Liberals had shot themselves in the head; Aggregation was aggravation; they wouldn't win Government again; they needed to scrap the whole thing; it would take a miracle to change my position; And I'm going to kill it.

His own words—and there are plenty on record and particularly at forums he attended—have come back to forever haunt him and his credibility. As builder Ben Fitzsimmons said on ABC radio on Tuesday, when asked what his message to Mr Darley was, and I will quote:

…to look in the mirror and see if he can find the man that’s been around for the last five months telling us he’s going to kill it, because he has told us hand on heart that he understands how destructive aggregation changes will be to the South Australian economy. And yet, miraculously after a meeting last Thursday he’s managed to change his mind…

Was this the miracle Mr Darley had been praying for? If it was, then we should all get down on our knees and praise the Lord Chancellor of the South Australian Exchequer, our Treasurer the Hon. Rob Lucas. The former Deputy Lord Mayor and prominent Liberal Party member, councillor Houssam Abiad, posted on Facebook yesterday, and again I will quote:

This is the worst kind of policy development I have ever seen, especially when we have a Liberal policy dictated and finalised by the Independents and Greens.

What we now have, Mr President, is, to use one of the Treasurer's often-used sayings, a dog's breakfast. It bears no resemblance to the first version. It is a fiscal version of Frankenstein's monster. It has been chopped up and changed so many times that everyone is confused, bewildered and bemused. It also comes with convoluted conditions of some kind of rebate for those who might suffer losses from the changes. This is an admission that people will be hurt by it. However, we have seen absolutely no detail on how this is going to work, if indeed it can work. It is couched with 'mays' and 'ifs'.

Mr Fitzsimmons, who, along with a group of other builders, met with Mr Darley on Monday to talk sense as well as dollars with him, says the new version will see his land tax go from around $7,000 to $46,000—almost seven times. There has been a $125 million turnaround in the Treasurer's forecasts. Remember, the budget originally allowed for $40 million a year to be returned to Treasury under the aggregation changes. That was then revised to $86 million a year after an external review of the government's modelling. Now, after the Darley miracle, we learn there is going to be a $39 million net hit to the budget over three years. So why is this government even considering a range of reforms that delivers absolutely nothing to Treasury's bottom line? It makes no sense.

I will go back to what Mr Fitzsimmons said on the ABC's David Bevan and Ali Clark program, and I quote:

This has just been a ridiculously convoluted process that's going to see the government raise less money than it’s currently doing. So, we're making something more difficult, harder to understand, more challenging, more destructive to the economy, all so the government can collect less money. It’s confusing…

You're telling me! And everyone else who has followed this madness. The government still steadfastly refuses to release all the details of its reform package. We still do not know who is going to be impacted, how much they will pay and the types of properties to be impacted. How can anyone in this place vote on such a massive tax exercise without being given the detail to digest? Why is it being withheld?

Respected economist Darryl Gobbett, from the Centre for Economic Studies, reckons the new plans are a step in the right direction and a bit of a free kick to the big end of town, but he says he wants to see the numbers and how much is going to be raised from the lower end of town—the mum-and-dad investors who will be the ones hardest hit by the government's measures.

Mr Gobbett, too, agrees with Councillor Abiad that this has been bad policymaking with increased complexity and, with it, likely poor implementation that will create extra cost to the taxpayer. Trying to explain all this complexity to the layman is a real challenge. Craig Strawhan, who has been involved in the property industry for more than 40 years, provided this insightful overview.

In brief, the Treasurer wants to tighten the use of trusts in company structures to own investment property, where property owned by the same trustees and directors are pulled together and captured by the multiple holding land tax requirements of the legislation.

It is the actual rate of multiple holding land tax coupled with the aggregation of multiple interests that is the issue. The elephant in the room is the revaluation of site values currently being undertaken across the state by the Valuer-General.

Despite the Treasurer's proposed decrease of the current multiple holding land tax rate, investors are still slugged with an enormous land tax impost.

This land tax impost bears no relationship with the income or potential income generated from the investment, as market forces dictate rental income, not landlords.

Mr Strawhan says coupled with the ongoing revaluation of site values currently being undertaken by the Valuer-General and the proposed aggregation of ownership, the resulting increase in land taxes will be catastrophic for South Australia's investment and development community.

It is noted that properties with a land value of between zero and $450,000 pay zero land tax, pushing the burden of land taxes onto those with properties with land values of greater than $450,000.

To be more equitable, Mr Strawhan says the multiple holding land tax should be more in line with or the same as the single holding land tax, if it is to be charged at all.

As it stands, he believes the MHLT in South Australia acts as a huge disincentive for those wishing to invest in multiple residential properties in South Australia. He rightly asks: why are investors in real estate being targeted? If shareholders of companies were targeted with a tax on dividends as much as 35 per cent of their income, there would be blood in the streets. Why are we not looking to adopt world's best practice when it comes to land tax in this state? The MHLT in South Australia penalises a minority section of the South Australian community.

Here, I would like to take issue with the Hon. Mark Parnell over the remarks he made in his own second reading speech, and in the media, where he lumbers all property investors collectively on Millionaires' Row and asks why anyone should have any sympathy for them. It is the type of bolshy remark you would expect to come from the Greens, although I am still a little surprised that the Hon. Mr Parnell, a person I consider fair and reasonable on so many matters, would mock property investors.

Yes, there are those that are extremely wealthy. They are the same people responsible for cranes on our city and suburban skylines, who build towers, hospitals, shopping centres and houses. They create the jobs our economy relies on and provide opportunities in our communities. I know many who are philanthropic. They are generous with their time and money. They contribute to charitable causes. They also pay their considerable share of taxes.

And yes, they stand as beneficiaries of the land tax largesse at the top end, but these are not the investors I am concerned about. I did not see the Hon. Mr Parnell or any other Greens member attend any of the forums SA-Best and Labor held. If they were there, they would have met the law-abiding, hardworking mums and dads, grandmums and grandads, and retirees I am talking about and am worried about. They are not millionaires as such. They might have large portfolios in six-figure brackets, but they remain assets which still have debt and ongoing costs.

These properties are rented to small business or to low to medium-income families. Can I point out the figures released today showing that rental housing affordability in some parts of Adelaide is now higher than Sydney. Their returns are not huge in today's tough economic climate. They are reluctant to increase rents. These were properties accumulated when there were no super schemes and were intended to see these hardworking decent people through to their retirement years in order that they not be a burden on our welfare system.

As it stood, the land tax regime that was proposed would have severely damaged their plans and their investments, a future they counted on because what they did was perfectly legal. I had an elderly widowed grandmother literally cry on my shoulder because she faced hefty bills she would not be able to pay for. You might recall the Treasurer saying at one point, 'If you can't afford to pay, sell up.' He also accused them of being tax dodgers—easy for him to say. It is so easy to dismiss these people when you have not met them or heard their personal circumstances.

These are people the Urban Development Institute of Australia calls the bedrock or foundations on which the property investment chain is built. Take them out of the equation and the system starts to get very wobbly. They will all tell you that they are happy to pay taxes, and they have paid plenty just to get and keep their investments. They just want a fair and even playing field, not the one currently laid out. Instead, when those opposed to his proposal raised their ire we had a Treasurer prepared to shame their success and spark a class war, something you would not expect to come from blue-ribbon Liberals.

I will touch on one of those who was targeted, an Unley dentist by the name of Timothy Goh. He came to Australia, from Vietnam, with nothing and had a real go. He is successful, he is wealthy, and there is nothing wrong with that. From being a quiet member of the community who expressed his view on land tax on Facebook and elsewhere, he has since become one of the loudest hecklers of the Treasurer, and who can blame him?

Nobody knew that much about Dr Goh until a story suddenly materialised in a national newspaper, which essentially stood him up for ridicule because he owned lavish luxury cars, including a Bentley, and was complaining about his new tax burden. From my own extensive past experience, I have no doubt this was a hatchet job from a government source designed to quell the increasing outrage and unpopularity of their tax measures. This was a dirty trick to shame Dr Goh and blacken his good name and standing in the community, but it did not work out that way.

That brings me to the Property Council, the organisation that ignited an out of control land tax bushfire, only to abandon all its supporters, including various industry heavyweights, when its biggest members were happy to bank a reduction in their top rate of tax if that was as good as they were going to get. It was a classic act of selling out, Judas Iscariot style. Back in July, its very outspoken executive director, Daniel Gannon, was writing to everyone warning that changes to aggregation for investors with property in trusts could result in small property owners going broke and a fire sale of assets across the state. He wrote:

If this is not corrected:

Property owners may urgently shed their assets, therefore devaluing the property market

Many local 'mum and dad' investors could go broke and see their retirement plans crumble

Investors could flee South Australia or keep their interests interstate

Rents will increase for many South Australian businesses and residential tenants

Many small businesses will go under with some costs passed on from landlords

Low income residential tenants could be at risk as property owners sell or increase rent

From being the Treasurer's archenemy, these turncoats, including Mr Gannon, suddenly became the closest of bedfellows once again. Aggregation was no longer their main concern, neither were the local mum-and-dad investors they initially rallied to their cause. Greedy self-interest was now their priority—it probably was from the start—and bugger the rest of them.

The Property Council has since tried to sway other groups to show support to the government. Business SA, a week or so after coming to see my colleague Connie Bonaros and I and urging us to hold our position for the sake of small business, quickly folded, too. At least the UDIA, MTA and MBA have kept faith with their membership base.

Mr Darley asked what we had to offer as an alternative to the detritus that we now have before us. There are many alternatives, some of which were put up to the Liberal government when it called for submissions recently as a token gesture in the consultation process it ignored. Predictably, it took no notice of them. Here is a perspective I received from one investor, David Bernardi, this week:

Investors purchase property for many reasons.

Some include, to increase wealth, as a source of income and for some security into the future so as not to have to rely on government handouts, pensions and the like in retirement.

They simply don't want to have to rely on Government handouts!

When purchasing an investment property, investors

pay Stamp Duty on the purchase (residential)

pay income tax on any income they derive from it

pay Land Tax along the way

and they pay Capital Gains tax after the sale

One has to argue they are certainly paying their share of taxes.

I think if Land Tax is kept very low and affordable and paid by a broader base:

one can then entertain reducing or abolishing Stamp Duty

Land tax becomes a somewhat acceptable tax paid by more taxpayers

investors no longer have to hide behind complex structures to minimise it

and

Governments can manage it easily and cost effectively!

Complex taxes are Complex to manage.

This one came in this morning from Chris Summers:

I am a self employed earth mover/landscape gardener that has spent my life providing for my family and building wealth to sustain me into the future as a self funded retiree.

I am increasingly angry at the direction that politicians are taking in regards to 'solving housing problems' and creating new taxes to be wasted on government spending that ends up not being for the public's good.

I have based my investment strategy over 30 years on the [land] tax rules that politicians created. I do not see that it is reasonable that because of a whim you wish to completely decimate everything that I have striven to accrue for my future.

If you want to change the rules from this day forward with no penalty being applied to those of us that have lived by your rules in the past till now then so be it, that would let us examine what the best strategy forward is.

To implement this accrued land tax will cripple me and force me to sell properties that were intended for my future because to hold them I would have to raise rents above where the market is at the moment hence causing tenants to move elsewhere and new tenants would not rent the premises because the cost compared to small time investor properties would not be comparable as they would be paying a smaller land tax bill.

The media says that it is too hard for people to break into the housing market and the government is looking at this tax as a way to 'fix' this problem. All I can see from this is rent increases making it even harder for the first home owners and hardship for current property owners when investors around the state are forced to dump their properties because they are no longer able to service their debt.

If you spent your life planning for your retirement and the government said to you that because you have been diligent and played the [land] tax game based on the rules that government has made that you will be penalized with more taxes…how would you feel?

Hoping for some common sense and decency

Chris Summers

The SA Centre of Economic Studies and the UDIA had a sensible reform involving a flat rate for property owners. We suggested to the Premier and the Treasurer that its newly created Productivity Commission could look at land tax reform. They rejected that. I proposed a parliamentary committee into tax reform. Again, it was flatly refused by this arrogant government, along with Mr Darley, who told me committee inquiries are talkfests and a waste of time that achieve nothing.

With proper consultation and engagement with all sectors, I am sure desirable and workable reforms in our state taxation system can be achieved. The lesson here is: do not leave it to a group of high paid public servants in Treasury and Finance, who have no idea about the real world or how people in the real world work and live, to tinker, tweak and twist to massively increase revenues, unless you want a train wreck. SA-Best opposes the bill.

The Hon. T.A. FRANKS (11:50): I rise not as the lead speaker for the Greens, because my colleague the Hon. Mark Parnell, I think, did an outstanding job in putting the Greens' position on our support of this package and the land tax bill at the second reading. I would like to just add some commentary from the perspective of the Greens, who have held firm from the beginning in our position that we support the fundamental changes to aggregation in this bill, as has been consistent all the way through and as is consistent with our policy.

I will also start by declaring that I have no personal pecuniary interest in this bill. I know that it was ruled by the President under our standing orders that members did not need to declare their interest in this bill. I note that the member for Hurtle Vale in the other place did, indeed, declare her interest in the bill when it was debated in that place. I heard very few other members do so, though I hope to be corrected that there was a flurry of them.

I heard a lot of debate in the other place about the title of the bill. I heard references to parliamentary counsel of the Senate of our federal parliament with regard to the use of the word 'miscellaneous' in the title of this bill. I have not, however, heard people speak to the substance or declare their particular pecuniary interest in this bill.

I will go further than that, though. When it comes to the development issues, Queensland and New South Wales have addressed that with prohibitions on the ability of developers to donate to politicians at state and local council level. That is something that I also think should be declared in this debate. We have seen, as other members have mentioned, forums held, conducted by the Property Council largely and other developer-heavy groups in this debate. Indeed, one, I remember, was held at the same time as the Greens AGM, and that is why we were unable to attend at the very late notice we were given to attend one of those very first forums.

I note that one wag on Facebook dubbed it the 'panel of men'. I note that there were no community or NGO sector community housing voices or social justice voices on that panel of men at that time. Where were the voices in those panels of those who are not part of the development lobby? We have listened to many voices, but what I would like to do is actually go straight to the heart of this and talk about aggregation. We have heard a lot of anecdotal claims about support or otherwise for the aggregation measures in this bill.

I draw members' attention to the Australia Institute, which has conducted a survey that has actually found strong support among South Australians for land tax aggregation, strong support being over 50 per cent, over 60 per cent, over 70 per cent—well, actually, four in five South Australians who were polled supported the land tax aggregation measures within this legislation: four in five. A very strong majority, 81 per cent, supported property portfolio aggregation for taxation purposes.

Just on that note, nine out of 10, 91 per cent, believe that politicians should be forced to declare and disclose whether they will personally benefit from these changes before they vote, something very out of kilter with the way that this parliament has then operated. Only 3 per cent thought that politicians should not be declaring any personal pecuniary interest before they voted on this bill. Indeed, 72 per cent of South Australians believe that property tax should be progressive and 78 per cent of South Australians believe that some or all of the money going to property investors should instead be used on affordable housing, so let's talk about affordable housing.

Today, on the news, we heard the terrible announcement that we are racing to the bottom on affordable housing in this state: the state of Playford, the state of the Housing Trust, the state where housing was affordable, was accessible, because of our state policy direction, deliberate and decisive, to ensure that all South Australians had access to affordable housing.

I note that there will be a lot of talk about attendance at panels and so on, but when I attended the Shelter AGM at the height of this debate—I must say well before any bill was tabled in this parliament—everyone in the room at that Shelter AGM who came and spoke to me, and there were dozens, expressed their strong support for the principles behind these changes and their strong support particularly for the aggregation treatment proposed in this particular bill.

Shelter SA stakeholders include those who represent the most vulnerable, the homeless and those struggling to access housing, renters who get a raw deal and do not get the rights that they deserve in this state, and those who really do live with the reality of that news we heard today that we are the second least affordable for housing provision in mainland Australia.

I also received much of the correspondence that has been mentioned by other members but one that I did receive that possibly other members are not privy to was just this morning, Wednesday 27 November, from Maria Palumbo, CEO of Junction, and Michael Lennon, Managing Director of Housing Choices South Australia. They wrote to my colleague the Hon. Mark Parnell and to the Treasurer:

…to provide clarity of position from the perspective of Tier 1 Community Housing Providers in South Australia, who collectively manage more than 80% of social and affordable community housing in SA.

They have also included in this email and cc'd in their other tier 1 community housing colleagues. The email reads:

The community housing sector in South Australia has, at its core, a mission to provide high quality housing for those who are vulnerable and/or on low incomes. We are an exceptionally collaborative sector who works hard to deliver solutions to increase the supply of low cost housing as well as improve the quality of social housing for those who are in most need.

Critical to our core mission is constructive partnerships with the building and development sector, who are very supportive and often, incredibly generous in enabling our cause. A stable and predictable investment climate is critical for the sector. Agreed rules, regulation and tax are crucial factors for all investors. In the near future, sector expansion is dependent on key partnerships and alliances with [not for profit]…providers; government; the development and construction industries and financiers.

South Australia must be stable and competitive with other States and Territories. In this context, the sector's key relationships are commercial. We support the stability and fairness in the land tax package, which the most recent draft appears to provide. Our experience with builders and developers is very important to our collective social purpose and we, as the 5 Tier 1 providers, depend on the ongoing collaboration with this sector to continue to deliver successful solutions for low cost housing.

The email ended with the line, 'We urge support for passing the Land Tax (Miscellaneous) Amendment Bill 2019.' It is based on the review of the latest draft and dated this morning. I draw that correspondence to members' attention.

I also note that there has been a lot of hyped debate not in the chambers of this parliament. Many anecdotes have been used as evidence without the scrutiny that they deserve. Some of these changes were feared by those who made plans before the era of compulsory superannuation. There has been a softening, with the transition package that the Hon. John Darley negotiated with the government. There is some easing and there is a longer time frame for those people to establish that their affairs are in order.

This has not been the dog's breakfast that the Hon. Frank Pangallo claims, in terms of other efforts at taxation reform in this place. The Greens well remember the banking tax and the car park tax, and I will tell you, if you think this is a dog's breakfast, that was the cat's pyjamas of substance being sacrificed to spin. The Greens supported the banking tax, the Greens supported the car park tax and the Greens support the aggregation measures within this land tax reform, because we do support a fair and progressive taxation system.

We are concerned that many of the gains have been eroded. Indeed, you cannot have your cake and eat it too. If you are going to the media saying that this land tax will whack everybody and hit people hard but then also go out and claim that now it is not collecting enough revenue so it is not worth supporting, you really cannot have it both ways is what I say to the opposition benches. One of those things does not fit with the other, as they used to say. One of those kids is not like the other, as they used to say on Sesame Street.

It is back to basics at this point, where this parliament considers the proposal before us. The Greens will put access to housing, affordable housing and support for those who will not be paying this tax, but will be affected if we do not have a fair taxation system, at the forefront of our minds, as we progress through this debate. With that, I support the second reading of the bill.

The Hon. R.I. LUCAS (Treasurer) (12:02): I thank honourable members for their contributions on this important bill. At the outset, I want to briefly highlight the hypocrisy of the Labor Party in relation to this whole issue. I will not be as strong as the Hon. Mr Parnell, who said, and I quote, 'the Labor Party's moral bankruptcy never surprises me', amongst other things, in relation to their attitude to this land tax bill.

If I can briefly summarise their position, the mere fact that in the debate in the House of Assembly they spent four hours of parliamentary time filibustering and debating the short title of the bill was extraordinary in and of itself. An issue of critical importance like this and the best that the Leader of the Opposition, the shadow treasurer and the shadow infrastructure minister could do was to debate, filibuster and delay in a discussion about the short title of the bill, rather than debate the important issues of principle, which are to be discussed in this chamber. I acknowledge that, in this chamber, members with varying views on this have at least addressed the fundamental issues that need to be addressed, albeit with different perspectives.

What I will say about the Labor Party—and I am in furious agreement with the Hon. Mr Parnell and indeed others—is that for 16 years, the former Labor government had the opportunity to tackle the difficult issues in relation to tax reform and did nothing. The 3.7 per cent—the investment-killing, job-killing, uncompetitive 3.7 per cent top land tax rate—remained and they were unwilling to tackle that. They were unwilling to tackle the clear unfairness of the aggregation provisions, which have been demonstrated and I will refer to again later. The Hon. Mr Parnell and other members have referred to the unfairness of the existing arrangements in relation to land tax.

If I could just summarise the hypocrisy of the Australian Labor Party on this issue, it is that for the last five months they have attacked the government because the government was proposing a tax increase. Now in the last week they attacked the government because the government, in their view, is proposing a tax cut. There is nothing like being infinitely flexible in terms of the Labor Party's position, depending on which particular stakeholder group or audience they happen to be addressing at any particular point in time.

I will not address the individual contributions of most members. I do just want to correct the record, albeit briefly. Much of the Hon. Mr Pangallo's contribution I obviously do not agree with, but it is his right obviously to disagree with the government's position and, indeed, my right to disagree with his position. He did make a number of claims which just have no basis in fact. One is that he claims, as others have—and I suspect he is just repeating what others have told him—that I told various stakeholders, 'If you can't afford it, just sell up.' I never, ever said that. I never would say that. I have denied that on a number of occasions. It is unfortunate that that has been repeated in this chamber by the Hon. Mr Pangallo. I want to correct that record.

The Hon. Mr Pangallo also said that I had referred to some individuals as 'tax dodgers'. Those two words have never passed my lips. They never have and never will. It is unfortunate, again, that the claims on social media from some of the social media warriors have found their way into the Hon. Mr Pangallo speech. I do not profess to be an expert on Mr Timothy Goh, but I think the claims from Mr Pangallo about his country of origin might not be quite accurate, but I will leave that for Mr Pangallo to establish with Mr Goh in relation to that. As I said, I am not going to spend too much time, because the Hon. Mr Pangallo's position and the government's position is obviously implacably opposed.

As the government has announced in the last week, the government has now made further changes to its land tax reform package to provide even greater assistance to smaller, mum-and-dad property investors. The government is retaining the key elements of the package announced thus far, including reduction in the top tax rate to that investment-attracting, job-creating 2.4 per cent; the increase in the tax-free threshold to $450,000, which is being opposed by many commentators in relation to the government's position on tax reform; and changes to aggregation rules to create a fairer, more equitable system in line with the law in Victoria and in New South Wales.

The government has always had the view that the 3.7 per cent top land tax rate was uncompetitive in South Australia. Long before we were elected to government in March 2018, we had a long line of property investors and others saying that it was uncompetitive and that they were already investing in the western suburbs of Sydney and latterly in the western suburbs of Melbourne because the top land tax rate in both of those capital cities was significantly lower than the uncompetitive 3.7 per cent. It was 2 per cent and 2.5 per cent.

The Liberal Party's view when in opposition, and the view we still maintain in government, is that if we are a government that wants to see economic growth, if we are government that wants to see investment, if we are a government that wants to see jobs growth, which indeed we are, then we believe that something needs to be done in terms of driving down the top tax rate from 3.7 per cent.

The 2.4 per cent rate, as I have alluded to publicly on many occasions, the government strongly believes is an investment-attracting, job creating major policy change in South Australia. It is consistent with the government's overall economic strategy and economic growth policy package. That is, if we want to export more goods and services from South Australia, if we want to be nationally and internationally competitive, if we want to grow jobs in South Australia, the cost of doing business in South Australia has to be nationally and internationally competitive. We cannot expect businesses in South Australia to compete with national and international businesses in terms of goods and services sales if their cost of doing business in this state are uncompetitive.

The changes we have made to payroll tax, ESL, land tax, workers compensation—credit to the former government which we supported in terms of the costs of workers compensation in South Australia—the changes we will be making from July next year in relation to water pricing and the ongoing policy changes to try to drive down the costs of electricity in South Australia are all part of an overall economic strategy of being nationally and internationally competitive in terms of our cost base for businesses to operate in South Australia. So these changes, the government strongly believes, are consistent with its overall economic growth strategy. The amendments that are now being moved to the bill are as follows:

a reduction in the existing marginal tax rate for the taxable value of land between around $755,000 and $1.1 million from 1.65 per cent to 1.25 per cent in 2021, and then a further reduction to 1.0 per cent from 2022-23;

an increase in the threshold for the top 2.4 per cent marginal tax rate to $2.0 million subject to indexation from 2022-23;

an extension to the company degrouping provisions contained in the bill to all companies holding land for the purposes of a residential development of 10 or more allotments or lots; and

an extension to the beneficiary nomination period for discretionary tasks to 30 June 2021.

There are also two proposed ex-gratia schemes which will be established should the bill be enacted. The government will introduce a $25 million three-year land tax transition fund for individual and company group taxpayers impacted by changes in the bill, including the changes to aggregation provisions. The government will also set up a 12-month land tax concession for developers of affordable housing, with eligible developers receiving ex-gratia relief equivalent to the affordable housing land not being aggregated with other landholdings.

I will now explain each of the amendments and other changes in turn. There are two proposed changes to the rate structure to reduce the tax rate for the $755,000 to $1.1 million bracket and to further increase the top tax threshold. It is proposed to reduce the existing 1.65 per cent marginal tax rate for the taxable value of land between around $755,000 and $1.1 million to 1.25 per cent in 2020-21 and 2021-22. It will then be reduced further to 1.0 per cent from 2022-23 onwards. The threshold for the top marginal tax rate of 2.4 per cent under the current bill before the parliament is set at $1.35 million in 2020-21 and 2021-22, increasing to $1.6 million from 2022-23. It is now proposed that the top threshold will now be increased to $2.0 million from 2022-23.

The current bill includes provisions for the Commissioner of State Taxation to degroup property developers from the company grouping provisions where land is being held in a fixed or unit trust and treated as a related corporation subject to certain criteria. The scope of the existing company degrouping provisions will be changed to include all companies holding land for the purposes of a residential development of 10 or more allotments or lots. It will not apply to commercial or industrial developments. Extending this degrouping provision to all companies, and not just land held in trusts subject to the company grouping provisions, will allow developers who have not structured their affairs using trusts to also be eligible for the exemption.

Existing criteria for the degrouping provision will continue to apply, including the exemption being available for an initial maximum period of up to five years and development commencing within two years of application unless the commissioner considers an alternative period is required. The current bill provides for transitional measures in relation to discretionary trusts. Trustees have until 30 June 2020 to nominate a designated beneficiary such that they can avoid paying the higher surcharge rates of land tax.

Where a nomination is in place, the land will be taxed at the general rates instead of the trust rates and aggregated with any other land the designated beneficiary also owns as an individual. This is an optional measure only and trustees are not required to nominate a designated beneficiary. The date to nominate a beneficiary will be extended from 30 June 2020 to 30 June 2021. This will allow trustees, taxpayers, a longer period to consider their options under the new arrangements.

If a nomination is made during 2020-21, a trustee can elect if nomination will take effect from 2020-21 or the following year. In addition to those amendments to the bill, the government also proposes to establish two ex gratia funds to provide additional relief to taxpayers. Firstly, a three-year, $25 million land tax transition fund will be introduced to assist taxpayers who face an increase in their land tax liability due to the proposed changes.

Relief will be available for individuals and company groups who have an increase in their land tax bill as a result of the changes in aggregation of properties owned at the time of introduction of the bill into parliament subject to the criteria outlined as follows: relief will not be provided on higher surcharge rates of land tax and may be payable by trusts, as relief is only provided for land tax bills that have increased as a result of the changes in aggregation of different ownerships.

The value of the relief will be calculated on the difference in land tax payable on the relevant properties in the current land tax year compared with the land tax that would have been payable on the properties owned by the taxpayers at the time of the introduction of the bill under the proposed aggregation approach tax rates and thresholds that applied in the 2019-20 land tax year.

The following broad criteria will apply: the taxpayers' increase in the land tax bill, subject to the criteria, must be above $2,500 to be eligible for relief. Relief equivalent to 50 per cent of the increase in the land tax bill in 2020-21, 30 per cent of the increase in 2021-22 and 15 per cent of the increase in 2022-23 will be provided on the increase in land tax above $2,500. The maximum level of relief provided will be $50,000 in 2020-21, $30,000 in 2021-22 and $15,000 in 2022-23.

Any taxpayer with an increase in their land tax bill above $102,500, as that is the point where the percentage of relief would be above the maximum level, is not eligible for any relief. The relief will be administered as an ex gratia scheme, with eligible taxpayers required to apply by 31 March in the relevant year. Taxpayers will also need to be up to date with their land tax payment instalments.

Based on the scheme parameters, it is estimated that transitional relief will be provided to around 1,600 company groups and 1,000 individuals, representing approximately 63 per cent of company groups and 23 per cent of individuals that are estimated to have an overall increase in their land tax bills as a result of the total land tax changes introduced by the government.

Secondly, to assist in incentivising the provision of affordable housing, a 12-month land tax concession for developers of affordable housing will be introduced. A developer will be able to apply for ex gratia relief equivalent to their affordable housing land not being aggregated with other land that they hold, with each affordable land parcel taxed individually within the 12-month ex gratia period.

The 12-month ex gratia period will provide time for the developer to develop the land and sell as affordable housing. The developer of affordable housing would need to enter into a land management agreement with the South Australian Housing Authority, agreeing to the affordable housing requirements to qualify for ex gratia relief. This measure will complement other affordable housing measures being considered separately by the government as part of its affordable housing strategy. I will have further comment about that later on in my contribution.

In summary, this amended package will provide further relief to thousands of smaller mum-and-dad property investors whilst achieving a fairer and much more competitive land tax system. If this amended package is approved by the parliament, the government will have achieved a number of key objectives it set for its comprehensive land tax reform. The government has refused to compromise on its objective to massively slash the top land tax rate in South Australia.

This rate will now be slashed from 3.7 per cent to 2.4 per cent and will help create an investment-attracting and job-creating land tax system. At 2.4 per cent, the top rate will equal the average top rate of all mainland states in Australia, and the increase in the threshold to $2 million, at which the top rate applies, also makes our system more competitive, although the government acknowledges other states do have higher thresholds.

The government has also been resolute in refusing to compromise on its objective to introduce changes to aggregation rules in South Australia. The amended package represents a fair and more equitable system as it introduces changes to aggregation rules similar to most other states. The changes will mean it will no longer be possible for an investor to own $3 million in property in seven separate companies and not pay a single dollar in land tax.

Throughout the debate, the opponents of the reforms, and I refer in particular to the Labor Party and others, have completely and utterly failed to defend the inequity of the current law which allows that to happen. They have continued to fail to defend their position. The inequity of the current law will not be allowed to continue under the government's land tax reforms. To that end, I was pleased to note the comments from the Hon. Mr Parnell in his second reading contribution. He supported and quoted comments from the CEO of SACOSS, Mr Ross Womersley, when he said:

The proposed changes to the legislation to stop tax avoidance are good, sensible policy—both for fairness and to limit existing incentives that encourage investors to 'crowd out' low income and first-home buyers in the housing market.

I repeat that as an important aspect of this because I will be addressing some further commentary in relation to an affordable housing policy. Mr Womersley has addressed that issue, not only in those comments but in discussions I know he has had with other members, and certainly with myself and the Premier, as well. The Hon. Mr Parnell also quoted Mr Womersley as follows:

Changes to the land tax aggregation will be good for the housing industry, good for the economy and good for South Australia—we just need the political good will.

The Hon. Mr Parnell, in making his own statement on the second reading, then said, and I quote:

However, some landowners have been avoiding paying their share of land tax by using multiple legal entities, such as private companies and trusts, to split the legal ownership of property to get around rules that require tax to be paid on the total value of an owner's property holdings. So the Greens will support closing these legal loopholes. Other states have done this already, and it is time for South Australia to do the same. We will be supporting the aggregation provisions of this bill.

The Hon. Mr Parnell and, today, the Hon. Ms Franks, on behalf of the Greens, have again strongly indicated evidently longstanding Greens' policy, repeating it again today in this debate in relation to this particular measure.

I make the obvious point that the only way that policy imperative can be achieved is that this bill, in an amended form, has to pass the parliament. Should it be defeated, the inequity of the aggregation provisions will remain for another 20 or 30 years before some other government or, indeed, treasurer takes it on the particular—

An honourable member: No, never.

The Hon. R.I. LUCAS: It will not be for 20 or 30 years, I can assure you. Over many months now, many requests have been made of the government and of me as the Treasurer in relation to the government's position on a variety of issues. Before I address those requests, I do want to make some further comments in relation to the aggregation issue but also affordable housing as well.

Just in concluding the summary of the government's proposed package, I have said often, and I repeat it again in the closing debate today, that the government analysis demonstrates that of individual taxpayers who own property, 92 per cent of those individuals will be better off as a result of these reforms and 8 per cent will be worse off. For company groups, 75 per cent will be better off and 25 per cent will be worse off.

During the passage of this debate, as has been noted by other members, previous opponents of the reform, such as Business SA and the Property Council, have now come out and supported it. In addition, some other business stakeholders—but not all; I acknowledge that a number of business groups are still opposed to the measures—and an increasing number of individual businesspeople who had been vocal opponents of the government's package, whether on social media, in the public arena or otherwise, are now supporters of the amended package.

They have been urging their industry stakeholder groups to now support the amended package. They have indicated that to me and I know to other members, such as the Hon. Mr Darley, in terms of their changed position. I will not go through the long list of those individuals, but I acknowledge that there are still many within the business community who oppose the government's changes and make their opposition well known on social media and otherwise.

In the last week, there has been a most important new development in relation to this public debate, which has thus far been dominated mainly by those involved in the property investor market, in that we have seen an increasing number of community-based organisations urging support for the bill. Last evening, I spoke to Mr Peter Sandeman, the CEO of Anglicare. This is hot off the press, so I do not know that I have a hard copy of it. At 11.53am, I received a copy of a view from Mr Peter Sandeman, addressed to the Hon. Mr Parnell but also addressed to me, which I place on the record.

Mr Peter Sandeman is well known to members as a passionate advocate of social reform and social issues right across the board over many years. On some occasions he has agreed with the government and on other occasions he has disagreed, so he is certainly not a toadie to the Liberal government. He is a person well prepared to speak his mind on behalf of not only himself but also, more particularly, his respected organisation, Anglicare. The email goes as follows:

Dear Mark,

I write to express my support for Land Tax (Miscellaneous) Bill 2019.

As the Chief Executive Officer of a Tier 1 community housing provider, as well as a major community services agency, I believe that, while not perfect, these measures are a step in the right direction when it comes to crucial housing reform in South Australia.

In particular, I applaud the inclusion of a concession for eligible developers for affordable housing, which is based on land for affordable housing not being aggregated with other land holdings.

I believe this is a great incentive for development of more affordable housing, which will help support those in our community doing it tough.

Further, I believe the provision for a transition fund is a fair mechanism to allow for current investors to restructure their holdings ahead of this reform. As you would be aware, restructuring land is much more complex than other finances.

This measure would allow adequate timeframes for investors to navigate the reform.

It is clear that South Australia needs progressive tax policies. While there are clear short-term budget implications in this iteration of the reform, I believe it will serve our state well in the long term.

It is vital that South Australia has a revenue base for the provision of services. It is my understanding that this reform, along with other measures from the State Government, will provide for this into the future.

I urge you to support this Bill.

Once again, thank you for the opportunity to speak with you this morning. Please do not hesitate to contact me should you have any further questions in relation to this correspondence.

Yours sincerely,

Peter Sandeman

Chief Executive Officer

AnglicareSA

The Hon. Ms Franks has placed most, if not all, of an email from Maria Palumbo from Junction Australia and Mr Michael Lennon, the Managing Director of Housing Choices South Australia, on the record. However, given that I suspect my contribution, on behalf of the government, might be transcribed and circulated, I, too, wish to place on the record a copy of this email. It looks like the email was sent at 12.33am on Wednesday 27 November.

The Hon. M.C. Parnell: Yes, they are working late.

The Hon. R.I. LUCAS: Okay. It says:

Dear Mark and Rob

Firstly, thank you Mark for our conversation yesterday about the most recent amendments to the Land Tax (Misc) Bill 2019.

I write to you, and to the Treasurer, Rob Lucas MLC, as CEO of Junction, and on behalf of Michael Lennon as MD of Housing Choices South Australia, to provide clarity of position from the perspective of Tier 1 Community Housing Providers in South Australia, who collectively manage more than 80% of social and affordable community housing in SA. I have also included my Tier 1 CHP [community housing provider] colleagues in this email, from whom you can seek confirmation on specific views from the perspective of these organisations also.

The community housing sector in South Australia has, at its core, a mission to provide high quality housing for those who are vulnerable and/or on low incomes. We are an exceptionally collaborative sector who works hard to deliver solutions to increase the supply of low cost housing as well as improve the quality of social housing for those who are in most need.

Critical to our core mission is constructive partnerships with the building and development sector, who are very supportive and often, incredibly generous in enabling our cause. A stable and predictable investment climate is critical for the sector. Agreed rules, regulation and tax are crucial factors for all investors. In the near future, sector expansion is dependent on key partnerships and alliances with NFP providers; government; the development and construction industries and financiers.

South Australia must be stable and competitive with other States and Territories. In this context, the sector's key relationships are commercial. We support the stability and fairness in the land tax package, which the most recent draft appears to provide. Our experience with builders and developers is very important to our collective social purpose and we, as the 5 Tier 1 providers, depend on the ongoing collaboration with this sector to continue to deliver successful solutions for low cost housing.

To this end, may I reiterate that the most recent views expressed by SACOSS are not in alignment with the community housing sector's interests, and that we collectively, urge support for passing the Land Tax (Misc) Bill 2019.

Sincerely,

Maria Palumbo and Michael Lennon

I have a much shorter email from Mr Wayne Gibbings, who represents Community Housing Ltd:

Dear Mr Parnell and Treasurer,

I refer to the email from Maria Palumbo, CEO of Junction Australia outlining the views of the Tier 1 community housing providers to the current Land Tax legislation before Parliament. Community Housing Limited, the largest nationwide community housing provider in the nation providing over 11,000 homes for the disadvantaged, supports the views expressed by Maria. It is vitally important for us to continue to develop further housing for those in need that there be a competitive regime in South Australia given the importance of our relationship with the development industry, and I would urge you to support the passage of the Land Tax (Miscellaneous) Bill 2019.

The Hon. Ms Franks placed on the record the views that she picked up at a recent meeting of Shelter SA. They are on the public record in relation to that. I have had conversations and notifications of views expressed by a number of other community service organisations that are expressing similar views to the ones that I have just placed on the public record.

It may well be that, in the next 24 hours as this debate continues, both the government and other members will receive other expressions of views in relation to these issues. Importantly, there will be views on the other side of the equation, I am sure. As I indicated earlier, in the business industry there are now differing views on it, and I am sure that within the community services sector there will be differing views. I think it is important, in particular when we talk about affordable housing and its importance, that the views of the community housing provider sector and other related sectors are placed on the public record as well.

As with other members, over recent months the Premier and I have had a series of discussions with SACOSS and The Australia Institute on a number of issues but particularly this issue. I thank both those organisations for their ongoing contribution to this important debate. I know that an important issue for SACOSS, in terms of the discussions I had with Ross Womersley and Greg Ogle, has been the issue of fairness and equity. I have quoted their views on that, as has the Hon. Mr Parnell.

Also, one of the critical issues for SACOSS in particular has been their request to government that land tax reform would be in some way a mechanism for the new government, the Marshall Liberal government, to be able to announce new initiatives, directions and policy on affordable housing options in South Australia. I know that this has also been an important issue for the Greens. It is an issue that the Hon. Mr Parnell and the Hon. Ms Franks have raised in discussions.

But can I also say that there are other stakeholders who, maybe for slightly different reasons, also share the views as well. The HIA and the MBA are mightily interested in this and have been raising with me and with government ministers for many months now the important need for stimulation of the building industry in South Australia. Whether that is stimulation of the affordable housing sector or the housing sector generally or a combination of both, what is driving them is that they do want to see, for obvious reasons—it is important for the state's growth as well in terms of jobs—a healthy building sector in South Australia. So together with SACOSS and others, there are another a number of groups within the business sector, such as the HIA and MBA, who have a similar interest in the government announcing new initiatives in this space.

So on behalf of the government and with the agreement of the Premier I do want to announce, a little earlier than we were going to announce, that in the coming weeks the government will be releasing a major new initiative in a state housing, homelessness and support strategy. Can I at the outset indicate that over many months the Minister for Human Services, my colleague Michelle Lensink, together with the support of some other ministers and together with the support of key government agencies such as the South Australian Housing Authority, Mr Michael Buchan, and HomeStart, Mr Storkey, has led government consideration of a considered strategy.

I am advised that the first meeting of that task force, which did involve some other non-government representatives at varying stages, was held in February of this year, so this is not an issue that has generated in the last days or weeks. The first task force meeting was held in February of this year, and it has been a strategy of—what is that—10 months in terms of its development.

This strategy has now been approved by the Premier, most importantly, and the Budget Cabinet Committee of the government. Whilst the final details are still being undertaken, the essential components I will now outline. The essential components will be funded from about $450 million of the South Australian Housing Trust existing cash reserves and the existing budget resources of the South Australian Housing Authority. About $400 million of those cash reserves will be targeted for affordable housing initiatives to deliver about 1,000 new affordable houses in South Australia.

In the first instance the strategy will use existing government owned land; that will be utilised for this initiative. I note that in previous governments, some of the major initiatives—development of new affordable housing options—were predicated on the basis of knocking down significant numbers, equal numbers, of existing housing stock. So in the first instance the government will be utilising the existing land being held within government agencies for this particular initiative.

Secondly, any profit generated from the development activity for these 1,000 homes will not be returned to the budget and will not be returned to Treasury—the Hon. Mr Parnell has a smile on his face, and I say that with a smile as well. There will be a guarantee that any profit generated from the activity will be ploughed back into essential maintenance for existing public housing stock within the Housing Authority. As members will know, there has been a critical demand for additional maintenance and upgrade of existing public housing stock, and the profitability of this particular activity will be regenerated into that activity.

There will also be announced a major expansion of the HomeStart Starter Loan scheme, which covers the up-front costs of buying or building a home for low income earners. It is predicated on those who are eligible for a low income loan from HomeStart. These five-year loans cover the up-front costs of buying and building a home. This expansion will involve 500 new loans at a cost of $5 million.

Again, it may well require an increased borrowing capacity for HomeStart, for which I have the authority to give. If that is the case, that will be generated through a decision that I will take as the Treasurer. There are some other smaller elements of the strategy for which members will have to stay tuned in the coming weeks when it is finally released, but the other elements will be released when that final strategy document is released.

I do need to note that the $400 million of cash reserves that are going to be utilised for the new affordable homes initiative has no impact on the net operating balance of the general government sector, as the cash reserves of the South Australian Housing Trust are in the public non-financial corporation sector, which is outside the general government sector, and it is using their balance sheet to generate extra building activity within that particular sector. There will also be no increase in general government sector net debt but there will be an increase in the non-financial public sector net debt, and the details of that will be outlined when the final strategy is released.

The government accepts that the Labor Party will be critical of this strategy, as they have been roundly criticising the government for increasing debt levels in South Australia. That has been a constant focus the Labor Party has addressed, and this will further increase non-financial public sector debt, so we fully expect that the Labor Party will further criticise the government for having the courage to further increase debt in the non-financial public sector to generate much-needed housing activity but, more importantly, to try to address the critical issue, as the Hon. Tammy Franks addressed today, that our current system, which many people argue is so perfect, is leading to such bad outcomes in terms of housing affordability.

Some of the affordability figures released today in terms of rental have us as second highest on some of the measures, and that is under the existing system that opponents of the government's reforms have been trenchantly defending for such a long period of time. We accept that the Labor Party and others may well attack us on this but we believe the issue of affordable housing initiatives is something on which we are prepared to absorb the criticism, the ongoing criticism, from the Labor Party about increase in debt levels in the non-financial public sector.

I have provided the details of these initiatives because I know the views of SACOSS are important in relation to this particular debate, and the views of members in this chamber for which affordable housing is such a key priority. As I said, with the agreement of the Premier and other ministers, I have taken the unusual course of putting it on the public record a couple of weeks prior to the public release of all the final details of the strategy that has been worked on since February this year, so that when we debate this issue finally tomorrow all members will be fully aware of the fact that, as SACOSS wanted—they wanted to get rid of aggregation, they wanted a fairer land tax system, but they also wanted major initiatives from affordable housing, and what I am saying to SACOSS is, and what I say to those who share the views of SACOSS, the government is putting both on the table.

The government is putting on the table a fairer land tax system, which you have fought for for nearly 20 years and you have not got, but we are also for the first time in a long period of time putting what we believe is a very attractive, affordable housing package which we are very hopeful that you will support. We also believe that industry groups such as the Housing Industry Association and the Master Builders Association are likely to be strongly supportive once these details are made clear to them as well.

In leading to a conclusion as we get nearer to lunch, another issue is that over many months the government has received many requests, from many industry groups in particular, in terms of further concessions. I want to place on the public record that one of the most common demands or requests that we got from industry groups was that they wanted the government to commit whatever additional revenue comes to the government from land tax from the revaluation to further land tax reductions in the future on the basis of that. I place on the record today that the government has not agreed to those submissions from industry stakeholder groups to commit to further reduce land tax as a direct result of extra land tax collected through the revaluation exercise.

In the former Labor government, former treasurer Mr Koutsantonis already budgeted for an extra $19 million per year to be collected from the revaluation exercise in 2020-21 when he first approved the revaluation exercise. Some industry stakeholders believe that that estimate will be an underestimate. The reality is that no-one knows. The government does not know. Industry stakeholders do not know. We will not know until the Valuer-General and her officers complete the revaluation exercise.

Because the Valuer-General has now delayed by a further 12 months the revaluation exercise for the CBD, which I believe her office and most industry groups believe may well, potentially, be the most significantly impacted from the revaluation because for some reason over many years there is a view that property values in the CBD have been significantly undervalued, we will not know until 2021-22 what the uplift in revenue will be. Whatever that is, as I said, many industry groups have requested or sought from us a commitment that the government would further reduce land tax as a result of that. We have not agreed to that particular request.

What I do want to say to those many constituents who have contacted me and others about their concerns about the revaluation is that the Valuer-General has indicated to me that three-quarters of local government council areas in the state will not be subject to this revaluation exercise. All regional council areas will not be subject to the revaluation exercise and some of the metropolitan councils in the far north and the far south of the metropolitan area will not be subject to the revaluation exercise. Only one-quarter of councils will be subject to the revaluation exercise.

The reason the Valuer-General has given me for that is that she is confident that the current system of valuation in those three-quarters of council areas—that is, using algorithms and computer models and looking at past sales in the particular area—accurately reflects the true valuation of those properties in those 75 per cent of council areas. So they are confident that the values are fair and therefore should continue.

There is the issue of the remaining one-quarter. As I said, until we see the end result of the CBD revaluation we are not going to know what the end result of the revaluation exercise will be. That will be an important issue in 2021-22, as the government is legislating for a review of all of the land tax changes in this bill, should it pass, in 2023. I am sure that during that particular review and discussion the issue of the whole land tax system and, clearly, some of the implications of the revaluation will be raised in submissions to that particular independent review.

Let me conclude by saying that the government believes that the investment-attracting and job-creating 2.4 per cent top rate will lead to increased investment activity in commercial industrial property in South Australia. We believe passionately that that increased activity will also lead to increased valuations of commercial industrial property in South Australia over future years and will lead to future increases in land tax as a natural result of increased investment activity.

Lots of numbers have been thrown around in recent days in relation to this land tax debate, based on the history of this particular debate, but the point that I want to make in concluding is we are where we are now. This chamber has a pretty simple decision in terms of the end result of the implications of the land tax debate. It is a pretty simple choice in terms of the numbers. If this bill is defeated, then the state will be left with a budget cost of $150 million over three years because of the already legislated changes in last year's budget.

We will have a budget cost of $150 million over three years, we will still have the most unfair system in the nation with aggregation, with all its inequity and unfairness, and we will still have a 3.7 per cent investment-killing, job-killing, top land tax rate in South Australia. That is the one choice. If this bill is defeated, that is what we are left with. We are left with the situation where no government, Labor or Liberal, for the next 20 years will take on land tax reform in South Australia, given the complexity of this particular debate.

In the alternative, what this parliament and this chamber confront and what members confront is a much better alternative, from the government's viewpoint. For a net cost additional of $39 million over three years—that is, a budget cost of $189 million dollars over the three-year period instead of the $150 million—we will have an investment attracting, job creating, economic growth supporting 2.4 per cent top land tax rate instead of 3.7 per cent.

But we will also have got rid of the most unfair, inequitable land tax system that exists in the nation. Aggregation rules will have been changed. There will be a transition arrangement. As some community service providers indicated—I think it was Mr Sandeman—it gives people three years to manage their affairs and to restructure, should they so wish, in terms of moving to the future.

That is the stark choice that is left to this chamber. You can talk about all the other sorts of numbers that you want to, but the stark reality is, if this bill is killed, we are left with a cost of $150 million, we are left with 3.7 per cent and we are left with the unfair aggregation system. If this amended bill is passed, we actually have a $189 million cost, which is $39 million extra over three years, but we have got rid of the unfair aggregation provisions and we have a 2.4 per cent top rate rather than 3.7 per cent.

We think the choice is stark; it is clear. We would urge members at the second reading and, we hope, also at the third reading after the committee stage tomorrow, to support the passage of this amended bill.

The council divided on the second reading:

Ayes 10

Noes 9

Majority 1

AYES
Darley, J.A. Dawkins, J.S.L. Franks, T.A.
Hood, D.G.E. Lee, J.S. Lensink, J.M.A.
Lucas, R.I. (teller) Parnell, M.C. Stephens, T.J.
Wade, S.G.
NOES
Bonaros, C. Bourke, E.S. Hanson, J.E.
Hunter, I.K. Ngo, T.T. Pangallo, F.
Pnevmatikos, I. Scriven, C.M. (teller) Wortley, R.P.
PAIRS
Ridgway, D.W. Maher, K.J.

Second reading thus carried; bill read a second time.

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