Rival state moves land tax the other way
By Lisa Pryor and Paola Totaro
April 21, 2004Print this article
Email to a friendVictoria is expected to lure property investors with a $1 billion tax reduction, just as NSW buyers have been hit with higher land taxes.
The real estate industry is predicting investment dollars could also move south as a result of the changes, which the Victorian Government claims will mean 96 per cent of Victorian property owners paying less land tax than they would in NSW.
South-east Queensland had been tipped as the main beneficiary of any exodus of property investors from NSW. Investors in the state face a softening property market and tax changes under which they will pay land tax, no matter how cheap their property, as well as a 2.25 per cent exit levy when they sell.
The Victorian Premier, Steve Bracks, said his Government hoped the new incentives, announced yesterday in a pre-budget economic statement, could attract $10 billion in new investment and generate 20,000 new jobs in the state.
The land tax threshold would be increased by $25,000 so that anyone with a second property with a land value of less than $175,000 would be exempt. The top land tax rate would be reduced from 5 per cent to 3 per cent over five years.
The NSW Treasurer, Michael Egan, said he had not had time to examine the detail of the Victorian move. But NSW land tax rates were still lower and remained competitive, he said.
“Even after five years and with no changes to our rates, Victoria’s rate of land tax will still be double ours,” he said. “Our top rate is 1.4 per cent and that is still under half their rate.”
The Property Council of Australia’s executive director for NSW policy, Ken Morrison, said the Victorian Government’s announcement would lure investors south.
“Victoria is cutting its taxes and NSW is taxing people out of the state. The contrast couldn’t be more stark,” he said. “Steve Bracks and [Queensland Premier] Peter Beattie are happy to have the jobs, happy to have the investments, happy to have the growth.”
The president of the Real Estate Institute of NSW, Rowen Kelly, said the tax changes would affect holiday homes and investment properties. “If you owned a holiday home up on the NSW North Coast or South Coast or you were you intending to buy one, wouldn’t you be better off buying one just over the border, north or south?”
The Victorian economic statement also pledges to reduce WorkCover insurance premiums by an estimated 10 per cent on average, which is seen as an incentive for business.
A spokesman for the NSW Special Minister of State, John Della Bosca, said Victoria’s WorkCover move emphasised the importance of changes in NSW since 2001. He said WorkCover deficits in both states were decreasing and NSW had introduced a premium discount scheme. Employers receive premium reductions of 15 per cent if they improve occupational health and safety.
The changes to the NSW WorkCover scheme in 2001 are estimated to have reduced the deficit by $1.8 billion, more than 90 per cent of it from legal costs.
[jerry]
“Dont be looking in your back yard for a four leaf clover when the opportunity of a lifetime could be knocking on your front door….” “Even though you may be on the right track, you can still get run over if you sit there long enough”
Whens the next NSW state election? [cap]
“The changes to the NSW WorkCover scheme in 2001 are estimated to have reduced the deficit by $1.8 billion, more than 90 per cent of it from legal costs.”
So how did they do that??? O’h thats right, make it harder to and recieve less compenation if you recieve an injury. Wow go Austrlain Labor Party (still representing the workers, ha???).
Good on Victoria. The NSW State Gov. has had more $$$ (Billions of $ that is) than it knows what to do with, yet it still hasn’t fixed health, public transport, over development, stretched to the limit services…
Good call SuperTed….
Rgds.
Lucifer_auI was wondering what people make of this
http://www.smh.com.au/articles/2004/04/20/1082395851780.html
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Outrage over Carr taxes is misplaced
April 21, 2004The highs and even the lows of property investment leave the punters well in front, writes Peter Martin.
For a moment there I thought that Bob Carr had done the wrong thing. I read that his new transaction tax on sale of investment properties was a “shocker”, a “major attack” that would erode retirement savings and consign the property market to “oblivion”. And those were just the reactions in the Herald.
In The Australian Financial Review an industry analyst explained that for an investor who bought a property for $600,000 and then sold it for an extra $200,000, the tax take would be $22,000 on the way in, $18,000 on the way out and $39,000 in capital gains tax – a take he described as “outrageous”.
And then the spell broke. The taxes in the analyst’s example add up to just 39 per cent. Australia’s top marginal rate of tax is 48.5 per cent. The rate below that is 43.5 per cent. About half of us pay those rates on every additional dollar we earn at work, as well as on every single dollar we earn in interest on our savings.
Looked at that way, the real question isn’t “how did the taxes on trading in property ever get to be so high?” but “how did they ever get to be so low?”
Most of the blame (or credit) belongs to two people: the Treasurer, Peter Costello, and John Ralph, the doyen of Australian company directors, at present chairman of both Telstra and the Commonwealth Bank.
In 1998 Costello asked Ralph to inquire into business taxation. One of the terms of reference was odd, and extremely specific. It dealt with individual, rather than business taxation. Costello wanted Ralph to examine “the scope for capping the rate of tax applying to capital gains for individuals to 30 per cent”. Until that point capital gains had been taxed at the individual’s marginal tax rate, minus inflation.
Ralph went further than Costello had suggested. In September 1999 he recommended that only half of each capital gain be taxed, which as he pointed out would effectively cut the top rate to 24 per cent.
What followed was an avalanche of funds pouring into investment real estate, and a change in our financial psyche. One in every eight Australian taxpayers now owns an investment property, firming to one in every three where annual income exceeds $100,000.
Ralph didn’t see it coming. His report contained not a word about real estate. He said instead he expected the cut to bring about a surge in sharemarket investment, “particularly in innovative, high-growth companies”.
Mark Latham saw it more clearly than most. In an extraordinarily prescient speech he said the cut would add “to the great Australian disease of asset and property speculation, particularly in our big cities. It will take away resources from the knowledge economy and put them into the least productive, least honourable aspects of Australian economic activity.”
It was already legal to negatively gear. That is, to borrow so much to buy a property that your interest payments ensured you made a loss each year, which you could use to cut your income for tax purposes. It was also legal to claim a depreciation deduction after buying a new house or unit, regardless of whether or not the investment actually declined in value.
But as attractive as these benefits were, they did little more than defer the payment of tax. It would be paid on the day the property was sold. Or that was the theory, until September 1999. From that date, as Melbourne University’s Professor Cameron Rider puts it, only half of the deductions were recouped – the other half were converted from a deferral of tax to a permanent exemption from tax.
The changes gave property an advantage over competing forms of investment. Shares could match it when it came to negative gearing and capital gains tax, but couldn’t match the associated depreciation deduction, as scores of mesmerised Australians were being told in investment seminars each weekend.
Borrowing to buy property became the “smart” thing to do, even for Australians who had never borrowed before except to buy their home. As Macquarie Bank’s Rory Robertson told his clients: “It is almost as though the Australian tax system has been screaming at taxpayers to gear up to earn increased capital gains rather than to work harder to earn increased wages or salaries.”
Or to make money renting out the properties they bought. The Tax Office says six out of every 10 of Australia’s landlords actually lose money on an operating basis.
This tax-driven diversion of money and effort away from work, away from small businesses, away from productive investments, is without recent precedent. It has helped push property prices into uncharted territory and may have brought on our last two interest rate increases.
All this from a change that Ralph recommended in order to “achieve a better allocation of the nation’s capital resources”.
When Latham tried to have Labor oppose it in September 1999 he was overruled by his leader, Kim Beazley. Shortly after becoming shadow treasurer last July he explored with Access Economics a plan to restore full tax to capital gains and use the billions of dollars liberated to cut the top tax rate for all forms of income. Access believed it could sell the plan as being fairer for both high and low income earners.
When news of the plan leaked last month, Latham ruled it out. He did so again this week.In election mode neither Latham, Howard nor Costello is likely to propose what an increasing body of expert opinion believes has to be done.
The Productivity Commission is said to have recommended some sort of action on property taxation to Costello. He is yet to release its report.
By rushing in and taxing where our federal leaders are scared to tread, Bob Carr and his Treasurer, Michael Egan, may have done the nation a favour.
And they get to keep the money as well.
Peter Martin is the economics correspondent for SBS Television
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I know I can, I know I can
I think it’s important to try and figure out the motivations of governments tax policy. For example – why do governments always prepared to lessen PAYE/Personal Income tax rates rather than ANY other tax rate?? Bracket creep – so they hit you with the new tax (CGT, GST, etc) reduce your PAYE tax and everyone thinks – “fantastic!”, untill 3 yrs. latter your income has risen, but so has your income tax rate (e.g. say from 30%->38%) and your paying more tax (along with the ‘new’ tax that was introduced 3 years ago). The old saying – ‘you work from January to June for the government’, should start to read ‘you work from January to August for the government’.
There are so many taxes takeing up such a large % of our income – GST, CGT, PAYE, Company tax, land tax, payroll, stamp duty, rego of anything, council rates and surcharges… No wonder Robert Kiyosaki (author of Rich Dad, Poor Dad) says about Australia “I love your country and want to live here, but your tax laws are soooo bad!!!”. I am starting to believe him…
And isn’t this typical – “the least honourable aspects of Australian economic activity” – What? were talking about the top execs super sized incomes aren’t we??? Well no, where talking about people like you and me who save (rather than pissing it aginst a wall, by spending it like a druken salior) and want to invest to better our future, and heres a politican telling us it’s the least honourable aspect of Australias economy! Well Latham you tell me what were ment to do??? Super isn’t going to save us – I promise you that. In fact if you are relying on Super like the vast majority – your dead in the water.
The author of the Ralph Report says that cutting of CGT was for investment in “particularly in innovative, high-growth companies”, well we tried this and failed (read: tech boom). And I know which I would rather invest in… A house that provded me with an income for life or a tech company that was backed by Rodney Adler and run by Jodiee Rich.
The only laws I would change would be lessen negative gearing (i.e. reduce the tax benefits somewhat), mainly to make property avalible to first home buyers (Fed. Gov.). O’h and of course reduce stamp and land duty/taxes to levels which wouldn’t impeed on property investors.
It seems like the State Gov. (and to a smaller extent Federal – hay at least their changes have been more equalising) want to gouge anyone who looks to make a dollar so they can pump more money into failing systems (in NSW – the health system, public transport systme and degrading and overstreched infrastructure). Instead we see more ineffinceies, weve got something like 20 top level public servants, some who haven’t worked since 99′ on $100K a year, and who do nothing fpor us. Absolutely nothing. And all the state gov. can say is redundancies are our last resort…. What they’ve got jobs for them??? Well it’s only taken 5 years….
As soon as it is possible I am out of Australia and going to invest in another country that wants investment, not one that say it wants it, and then trys to stick it to us.
Rgds.
Lucifer_auLets buy in Canada Luc!
“Dont be looking in your back yard for a four leaf clover when the opportunity of a lifetime could be knocking on your front door….” “Even though you may be on the right track, you can still get run over if you sit there long enough”
“Lets buy in Canada Luc!”
I’m with you (or NZ – it’s closer and we don’t have to walk as far [
]).Rgds.
Lucifer_auJust think, in a few years time, all states may have followed NSW’s lead…then people like me, who are still in school are going to have little if any chance of making decent profits with capitail gains….
Going to have to find lots of CF+ properties then [thumbsupanim]
The weak will feed off of the strong until they are strong enough to be fed off of…
And how many IPs does the reporting journo own…..
He should own heaps because it’s tax-effective!
Bet he doesn’t.
Cheers,
Aceyducey
]).
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