Sorry for my absence over the past couple of weeks.
I called in ‘well’.
And that break was enough time to let the inevitable happen – the shelving of the proposed changes to Queensland’s land value tax.
The idea was to use the land value of interstate investment properties to determine the rate a property owner should be charged for their portfolio in the state – a move that raised the ire of the property industry in particular.
The issue – which was slow to gather momentum – in the end became so politically contentious that some state governments publicly opposed helping Queensland get the ownership information they needed.
Well, this particular attempt to grab more cash was never going to fly if you ask me.
Its compliance had more holes in it than a colander. And it was – by the Queensland Treasury’s own analysis – unlikely to raise very little extra moolah.
Some estimates even suggested that it would have cost more to implement than the extra tax received.
Yet it must be stressed that it hasn’t been canned – just deferred – leaving the door open for its revival at some stage in the future.
I can’t help but think that what has happened here was a set play. If this turns out to be true, then congratulations will be in order.
Because land value tax is good property policy, and it can raise a lot of money if correctly implemented. And there doesn’t even need to be a short fall in government revenues during its initial implementation.
More importantly it can help fix an ailing housing market.
The key to such a change is that any alteration in land value tax must be accompanied by a dramatic reduction in stamp duties.
Let me explain
Stamp duties contributed some $6.028 billion to the Queensland state government coffers last financial year. This was 31% of all state taxation revenue raised during fiscal 2022. On average, each home buyer in Queensland, was slugged $32,750 last year.
Land value tax attracted $1.603 billion worth of income or 8% of the total Queensland tax receipts last year. On average landowners paid just $740 per land parcel during 2022.
Of course, investors sitting on land valued under $650,000 were exempt, as were companies and absentee (overseas) owners with land valued less than $350,000.
Owner residents on expensive land could apply for a discharge.
Looking forward, the Queensland government expects to bring in – in total over the next four years (2023 to 2026 fiscal years) – some $19.2 billion in stamp duties and $8.5 billion in land tax, totalling $27.7 billion.
I propose that Queensland stamp duties are reduced to $2,500 per owner resident transaction; to $5,000 per domestic investor sale and to $20,000 per transaction for absentee/overseas buyers without an Australian passport.
Based on 160,000 residential transactions per year – being the annual average over the past decade – and including my estimates on sale type, these lower stamp duties will add around $3 billion to the Queensland state coffers between 2023 and 2026.
In addition, I propose an annual land value tax set between $250 and $5,000 for all owner resident properties depending on value.
Yes, every Queensland owner resident will pay an annual land tax levy. Most would pay under $500 per year. But to help with its implementation the base rate of this tax would not change over the next four years.
However, after fiscal 2026, the increase in land tax for owner residents would be capped at a maximum of 5% per annum.
The annual land value tax charged for investment property would range from $1,000 to $10,000 and the tariff rate charged for absentee owners would range for $10,000 to $100,000 (even higher in some cases) per year.
In both cases these annual rates would increase by a minimum of 5% per year. A higher yearly escalation rate could apply according to valuation evidence.
Assuming a 1.6% annual increase in the number of residential homes across Queensland (again based on the last ten-year average) this land value tax change – based on my back of the envelope calculations – could generate some $28 billion in revenue between 2023 and 2026.
Overall, these changes would see the Queensland government pocket about $31 billion in revenue, around $3.3 billion or 12% more than their current budget estimates.
There is little doubt that the housing market – in its current form – it starting to break.
There aren’t enough homes to go around.
And affordability is a growing problem, with the cost of buying a home rising faster than wages in recent decades, pricing too many people out of the market.
Now we have weekly rents on the rise, due to a shortage of rental properties.
So, could land value tax be a solution?
What is land value tax?
Without being too patronising land value tax is a tax on a piece of land, rather than the property sitting on top of it.
Location is what gives the land its value. This includes roads, railways and public services like schools and parks.
Tax-paying communities fund these services rather than landowners. Land tax is a fair way for communities to recoup some of these costs when land values rise.
Land tax is also much more stable than taxes on transactions, which fluctuate in volume according to the property cycle.
Wealthy people who typically own more property and/or property in better locations will tend to pay more land value tax. They often benefit the most from infrastructural improvements, so they should pay accordingly for such betterment.
Moreover, the owner of a vacant allotment would pay the same amount of taxes as a neighbouring owner with dwellings on their land.
Land value tax incentivises landowners with unoccupied, underutilised or underdeveloped properties to get them back into maximum use in order to increase returns from their land.
As a result, locations which have correctly implemented land value taxation have seen the supply of housing in their area increase.
Taxing land is a much better property levy than stamp duties. High stamps stops people from buying.
This will help many older residents downsize, trading their large and often underutilised home for smaller digs. Also, it will help residents move closer to where they work, especially in regional situations.
Also, high stamp duties hits many home buyers when they can least afford it – at the time of purchase – stopping many first home buyers from entering the market or seeing them have to take out a larger mortgage, causing a potential future problem with repayments when interest rates rise.
Land value tax can be factored into household and investor budgets and yes in the case of investors factored into the rent, helping them cover their land tax bill.
Overseas absentee owners – for mine – will pay the increase in freight as many are really securing their future Australian passport. It will also force some absentee owners to develop their property rather than land banking.
The Henry Tax Review of 2010 commissioned by the federal government recommended that state governments replace stamp duty with land taxation.
So far only the Australian Capital Territory has made some moves to adopt this system.
So maybe Queensland’s parked land tax fiasco could be transformed into something more meaningful.
Even better would be the nationwide decision to implement the Henry Tax Review recommendations.
Maybe Premier Palaszczuk could turn a sow’s ear into a silk purse at the next National Cabinet meeting.
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