Government numbers don't add up

The ACT Government has announced a proposal to spend $22 million on maintaining and upgrading the urban amenity of Canberra, as one of its 2012-13 Budget initiatives.

The idea is that the money for this will come from money raised via the new Lease Variation Charge (LVC). The new LVC tax, which came into effect on 1 July 2011, brought into effect a massive new tax on residential housing, through the introduction of excessive charges for lease variations.

For too long the ACT Government has failed to provide adequate funding for the maintenance of roads, footpaths, public car parks and other public areas. Now, suddenly, they appear to have found their pot of gold through the LVC scheme.

Should we now ask the ACT Government to hypothecate other charges and taxes to other spending goals? Why not rates to roads and suburbs, land tax to health and stamp duty to education? Provision of municipal services and maintenance of the public realm is what rates and land tax are supposed to cover, as everyone who benefits from it pays for it. Under this system, government is punishing people who are trying to enter the market and rewarding those who have already entered the property market.

There are so many problems and deficiencies with the LVC, it’s hard to know where to begin. But start with the fact that the new tax on redevelopment completely stymies the Government’s own policy priorities of delivering affordable housing and increased urban infill.

In bringing in the new LVC regime, the Government not only introduced a massive new tax but a complicated new system as well, creating considerable uncertainty and ambiguity, as well as a scheme which will result in less housing choice. After the new scheme came into effect, the Government promised exemptions and reductions to the charges in certain areas and under certain conditions. But, to date, the regulations to bring this into effect have never been seen.

Now the Government is attempting to spin a bad tax into something that looks like a community benefit, when in fact the community is the one carrying the cost for the new tax through less affordable housing.

With this new announcement, the Government is also playing wedge politics of the worst kind. By attempting to directly link the LVC to a fund they will try to sell to the community as a “must have”, anyone who is seen to attack the LVC will be linked with attacking this new fund.

This is crass politics used to justify the new tax, also means they did not have a need before to change the LVC regime! The first rule of being government is never to hypothecate.

In making the announcement, the Government also inferred that industry had been profiteering with ACT Treasurer, Andrew Barr, saying that “it is only right that the money received from developers – who are profiting from Canberra’s livability – is put directly back into the community”.

Mr Barr seems to have conveniently forgotten that the Canberra property sector is already the ACT Government’s cash cow, with more than 50 percent of ACT Government tax revenue coming from property. Political spin again.

One of the myths that the ACT Government continue to perpetuate to justify these of massive cost increases on redevelopment, is that developers have been making mega-profits at the expense of the community, and that the community have consequently been missing out.

Without question, developers expect to make a reasonable profit on transactions, having regard to the cost and risk involved in development. However, the LVC does not affect developer’s profits, because banks and financiers won’t allow this to happen. In reality, where lease variations are higher, the amount a developer can pay to landowners goes down, so the community are in fact the losers.

This announcement is a particularly regrettable thought-bubble from the ACT Government.

They need to go back to the drawing board.