Broken promises shake our economy’s bedrock

When governments break their word the community pays. We all suffer in one way or another.

A broken promise means there is less trust, less confidence and an erosion of public faith in political leaders. Respect for politicians seems to be at an all-time low because what they say can’t be believed. Their discussion of what should be serious policy issues degenerates into party-political ‘spin’ and the long term public interest is swamped by short term political advantage.

Broken promises make people wary of ever relying on the person who let them down. From the point of view of business, a broken promise means greater risk, which leads to less investment and therefore fewer jobs and reduced living standards.

The ACT Government broke a promise last Thursday. After making an announcement to the property industry in June this year that:

… the Government will waive commence and complete fees for commercial, mixed use and multi-unit residential developments. Commence and complete provisions will now only apply to the construction of single dwellings on standard residential blocks.

They have now ditched that promise. Without consultation, and just before the commencement of the caretaker period, ACT Treasurer, Andrew Barr, and Planning Minister Simon Corbell jointly signed a statutory instrument in direct contradiction of the undertaking made in June.

Under the new regulation signed off on Thursday evening there will be (i) no fee relief for extensions sought for periods arising before 22 June 2012 and (ii) a penalty of 1 per cent of rates for the first four years after 22 June 2012 and a penalty of 500 per cent of rates for extensions after that.

The Government promised no fee and but have now imposed one.

Commence and complete fees on commercial and mixed-use developments were never justified in the first place. The Government alleged, but never showed, that commercial property investors were ‘land banking’ properties instead of developing them. However, the Government failed to understand the business imperative for cash flow and return on investment. The fact is that property investors do not buy non-residential land simply to hold it, incur holding costs and other fees and charges and then leave it undeveloped.

The current situation is that delays in commencing and completing developments may occur because of the difficulties in obtaining finance and inability to secure tenants in a market of high office vacancy rates. In a period of downturn in the property market investment is now further threatened by the imposition of fees which the Government promised to abolish.

Since the Government’s June promise, several developmental blocks have been sold by the Government with industry arguably making investment decisions based on the Government’s policy commitment. This broken promise has sadly further eroded confidence to invest in our city, which will adversely affect the ACT economy more generally.

Furthermore, since the penalties are an incentive to build quickly they discourage high quality, innovative and exemplary developments. There are many reasons why better quality developments take longer to build, such as incorporation of new technologies, innovations, seeking input from world-class consultants and so on, not to mention navigating through our planning process and engaging in proper public consultation.

What politicians don’t seem to understand is that in contrast to the vagaries of the public sector the property industry underpins the health and growth of the ACT economy.

To illustrate this, in 2009-10, the industry:

  • generated more than 23,900 jobs across the Territory – the third largest employer in the ACT;
  • contributed $2.6 billion to the economy – 9.4% of the Territory’s total wealth;
  • paid more tax than any other industry, totalling $603 million – over half of all Territory taxes. The property sector pays 23 cents in tax for every dollar generated in economic growth – compared to an average of 4 cents among other industries in the ACT; and
  • provided $1.2 billion in wages to ACT workers – and activated another $1.5 billion in flow-on salaries.

The ACT needs to continue to promote policy solutions that foster and sustain the prosperity generated by the property sector. This includes:

  • a clear agenda for reforming and reducing the tax burden on property – there must be alternative revenue streams;
  • efficient development assessment with less red tape and more depoliticised decision-making to drive investment;
  • smarter financing of urban infrastructure and a pipeline of major projects – backed with guaranteed funding; and
  • strategic growth plans for Canberra, backed by efficient and serviced land supply for housing.

Hitting the property sector with increasing and new taxes does not solve the Government’s revenue problems because it has the effect of reducing investment and, as a consequence, business activity, employment and the tax base.

Now is the time for all political parties to commit to taxation reform which spreads the tax burden as widely as possible, which provides certainty to industry that the structure and rates will be maintained, enhances horizontal equity so that households with similar income pay similar amounts of tax (best achieved with a flat rate of tax), and improves vertical equity so that those with greater economic capacity pay correspondingly more tax (also best achieved with a flat rate of tax).

In the lead-up to the forthcoming election the Property Council calls on all politicians to be firm and trustworthy in the commitments they make and to promote the public interest instead of seeking party-political advantage, and to foster a future for our city without taxing the property sector into oblivion.