It's Raining Taxes in Victoria But There's No Hallelujah
When it rains, it pours. And when it comes to property taxation in Victoria, many would argue it is bucketing. Land tax is up. Fire services property levy is up. And earlier this week, taxes on foreign property investors went up too.
It seems that whenever a State Government needs more revenue, the property industry is option number one.
Paying Property’s Fair Share
The problem the property industry has with this approach is that it is already paying its fair share. According to Property Council research, the property industry pays 54.7 per cent of Victoria’s overall tax burden.
This means that for every dollar spent on services or infrastructure, the property industry is paying more than half the bill. Such an approach is not sustainable. Nor is it sensible. The only governments which rely on one industry for half their revenue are third world ones. In Australia, we call them State Governments!
It will come as no surprise that the Property Council is opposed to property tax increases. We have long argued that they discourage investment, erode business confidence and undermine job creation. But what also concerns us with these recent increases is their timing. Victoria hosts Australia’s most attractive property market. And investment in property has long been a powerful driver of our prosperity. Yet at a time when nations are falling over each other to attract increased business investment, our State Government is sending it away.
Rather than imposing investment discouraging taxes on the business community, the Government should instead be focused on providing job creating tax relief. There are two reforms that they should actively consider.
Abolish Foreign Investment Taxes
The first involves winding back the State’s foreign investment taxes. The smartest move here is to abolish them in their entirety. They are a handbrake on jobs, growth and investment. Moreover, they will make housing more expensive for all Victorians seeking to break into the property market.
But in the absence of any such move, the painful edges of these taxes must be fixed up as a priority. This involves equalising the exemption regime to include trusts so that Australian businesses are not ensnared, and resourcing the State Revenue Office to reduce their excessive exemption processing times.
Both changes will make a material difference to Victorian business activity and certainty. Their implementation should be a top level priority.
Land Tax Reform
The second reform is the gradually reduction of Victoria’s upper land tax threshold from 2.25 per cent. Compared to our major competitor north of the Murray, Victoria’s maximum land tax rate requires property owners to pay $2,500 more for every million dollars of land they own.
This disparity acts as a disincentive for medium and large scale property investors and undermines the Government’s pledge to be open and attractive for business. With a record budget surplus currently on the table, a long term plan to boost tax competitiveness should be on the table too.
Maintaining Victoria’s world class living standards will require a tax base which is underpinned by a vibrant and growing economy. For much of the past two decades, the property industry has been the engine room powering our economy’s ongoing success.
As we run out the rest of this decade, the Government must understand that our property boom will not last forever; there are rain clouds gathering above and on the horizon. Plenty of them are tax related. And the last thing our industry needs is an unwanted deluge.
Published in The Urban Developer on 7 July 2016