The Territory needs tax reform

Property pays more tax than any other industry in Canberra, and the sector underpins economic growth, jobs and salaries as well as the tax base.

It is a well-established fact that the property sector pays more than any other industry in Canberra. Property contributes more than half of all Territory taxes and pays 23 cents in every dollar generated in economic growth – compared to an average of 4 cents among other industries. The property sector underpins economic growth, jobs and salaries as well as the tax base in the ACT.

But a recent survey undertaken by Auspoll has found that most Canberrans believe the ACT Government is doing a poor job in terms of setting a fair level of taxation when people buy or sell properties. Simply put, Canberra property taxes are too high.

Recently there has been discussion about how the ACT Government could pay for the services it provides to the community if it reduced its reliance on property tax. That’s a fair question.

To start with, it’s important that we, as a community develop a vision for Canberra and the future of our city. This gives us a basis for deciding what’s most important and what has to wait. As a community we have to decide on priorities. And to realise those priorities we need to use existing resources wisely as well as finding alternative sources of income.

Right now, when it comes to putting existing resources to better use, the ACT Government does not do this well. Here are two examples.

Firstly, instead of concentrating on the broad public interest, government wastes money trying to satisfy the endless calls to support a multitude of different projects. Ultimately, this is unmanageable and is an important, but not the only, reason for the collapse in support for governments in NSW and Queensland.

Secondly, cutting expenditure by setting across-the-board efficiency targets for all government agencies might be an easy option but it fails to achieve the objective of devoting scarce resources to areas of higher priority. It fails because it perpetuates the status quo in terms of the balance of funding between agencies and therefore does not reflect the need for adding funds to high priority areas and reducing funding to programs whose usefulness has passed. There is no gain in efficiency and no dividend.

So, what’s the solution? What would be better is if Cabinet took charge of reducing expenditure on specific programs by formally ranking priorities according to how it perceives the public benefit, and require every agency to provide a detailed estimate of the cost of every function for which it is responsible. Armed with that information, Cabinet, not agencies, should decide which programs justify increased resources and which ones should be cut.

Turning to sources of income, the ACT Government’s budget continues to rely far too heavily on a very narrow tax base. More than 50 per cent of its revenue comes from taxes on property and that structural flaw is getting worse.

Will that proportion still be increasing in ten years’ time? The trend clearly cannot continue without eventually losing investment in property, reducing job opportunities, reducing the tax take and, inevitably, resulting in reduced publicly-funded services. None of us wants that.

Many of the taxes, such as stamp duties on property transactions and the Lease Variation Charge, are inefficient, drive up prices and decrease housing affordability in a market of controlled supply, reduce the amount and diversity of residential accommodation, undermine the Government’s own policy of revitalisation and greater housing density near shopping centres and transport routes and detract from economic growth. Removing those taxes would boost activity, growth and therefore government revenue.

The best, and possibly only, alternative source of government income is from accelerated private sector growth. Canberra must become a more attractive place for private investment. A less onerous taxation regime than NSW would be a good start. It would also help if the Government dropped its antagonistic rhetoric against property investors. There is no point in referring disparagingly to them as ‘developers’ and ‘capitalists’, accusing them of ‘rent seeking’ and making ‘mega profits’ at the expense of the community if you want them to invest in Canberra. Such attacks by the Government create one more risk factor when an investor is weighing up whether to invest in the ACT. An investor has to take into account the probability of antagonistic rhetoric ultimately finding expression in higher taxes and charges or increased regulation and compliance costs. Tax on the property sector some six times greater than the average is a reflection of the Government’s view which warns off investors.

If Canberra is going to be a preferred place to live, do business and provide gainful employment, the ACT Government must put aside the temptation to score political points against investors and instead adopt policies which are pro-business. That doesn’t mean subsidies or special programs; it simply means freeing up business from excessive rules and regulations and getting rid of punitive and inefficient taxes.