Land Tax Management Amendment (Tax Threshold) Bill
The Hon. HENRY TSANG (Parliamentary Secretary) [5.55 p.m.], on behalf of the Hon. Eric Roozendaal: I move:
That this bill be now read a second time.
I seek leave to have the second reading speech incorporated in Hansard.
The purpose of this Bill is to implement the Government's announcement in January that the land tax threshold for the 2006 land tax year would be increased from 330,000 to 352,000 dollars.
This measure will make land tax fairer and simpler and exempt thousands of "mum and dad" property investors from paying land tax this year.
Increasing the threshold provides a $53 million tax cut for NSW taxpayers and means that an additional 12,700 investment property owners won't pay any land tax this year.
This brings the number of investment property owners who paid land tax last year, but won't pay anything this year, to three hundred and ninety thousand.
The increase in the tax-free threshold of 6.7% matches the average increase in the value of land subject to land tax as determined by the independent Valuer General.
The 330,000 dollar threshold, initially set for the 2006 land tax year, was based on no increases in land values.
Because values have been assessed to have increased by the Valuer General... the Government has responded quickly to adjust the threshold.
This Government believes in sensible taxation, along with providing essential services which, as we all know, would be slashed if the opposition was ever to win government in New South Wales.
State revenue is used to fund healthcare, social security and welfare services, transport, education, public order and security.
Over the last five years the growth in expenditure across these areas alone has exceeded $9 billion.
In the 2005-06 Budget the Government announced a fairer and simpler land tax system.
This system reinstated a single land tax rate of $100 plus 1.7 percent of the land value above the threshold.
For example, if a liable property has a land value of $400,000, the tax payable would be 1.7 percent on the $48,000 above the new $352,000 threshold plus $100.
In this instance the tax paid would be $916, a reduction of $684 on the previous system.
The new single rate replaces the previous three-tiered tax scale that applied in the 2005 land tax year.
As a result of the Government's actions New South Wales remains more than competitive compared to other jurisdictions.
New South Wales now has the second highest tax-free threshold in the country, dwarfing those of Victoria at $200,000, Western Australia at $130,000 and South Australia at $110,000.
New South Wales also has one of the lowest top marginal land tax rates in the country, well below states such as Western Australia and Tasmania at 2.5 percent, Victoria at 3.5 percent and South Australia at 3.7 percent.
Principal places of residence and land used for primary production will remain exempt from land tax.
These two exemptions are the most well known but it may interest the house to hear that many other groups are granted land tax exemptions in New South Wales, including the following:
• Boarding Houses for low-income persons
• Retirement Villages
• Child Care Centres
• Friendly Societies
• Sporting Clubs
• Community Land Development
• Non-profit societies... clubs and associations
• Charitable and educational institutions
• Public gardens... recreation grounds and reserves
In addition, property owners will still have the option of gaining a 1.5% concession on their land tax bill should they decide to pay the total amount owed by the due date rather than in three instalments over a longer period of time.
Reforming the land tax system, including the increase in the tax-free threshold, is another example of this Government's determination to keep the New South Wales economy strong.
Combined with the abolition of the vendor duty, the 5% cut in workers compensation premiums, and most recently a $90 million payroll tax package for businesses setting up in employment priority zones, the increase in the tax-free threshold is more evidence of this Government's commitment to a strong New South Wales economy that is open for business.
The payroll tax measure was only one of a range of measures announced by the Premier on Thursday 23rd February.
Other initiatives include:
• A four year, $2.5 billion public sector savings plan building on $395 million in savings in IT and property outlined in last December's budget review
• A $13 million boost to the Department of State and Regional Development to drive investment and job creation in NSW, and
• Major reforms that will streamline the state's planning system...ensuring the economy remains competitive. This will cut zoning bottlenecks and delays, slashing red tape for major developments.
This Bill is another sensible taxation initiative from a government committed to sound financial management and a strong New South Wales economy.
I commend the Bill to the House.
The Hon. GREG PEARCE [5.56 p.m.]: The Opposition will not oppose the Land Tax Management Amendment (Tax Threshold) Bill. We are in favour of cutting taxes in this State and we are appalled at the Iemma Labor Government's record. As everyone knows, New South Wales is the highest taxing State in Australia, and that addiction to taxation has led to a steady decline in our economy. This bill raises the land tax threshold from $330,000 to $352,000 with effect from the beginning of the 2006 land tax year. The Government claims that this measure will give taxpayers $53 million in tax relief. As most of us are aware, this is one of those corrections that the Government has been forced to make as a result of its addiction to any type of tax increase it can grab. Of course, we can trace the need for this change back to the 2004 mini-budget when the then Treasurer, Michael Egan, introduced the vendor tax and made some other tax grabs.
The result was that he drove the New South Wales property market to its knees. That then resulted in the unceremonious backdown that was forced on Morris Iemma in his first act as Premier last year. The Carr Government removed the land tax threshold in the 2004-05 budget and created 400,000 new land taxpayers. That is how callous this Government is and how little concern it has for the State's economy. In one grab it imposed a tax on 400,000 people. At the same time, it increased the tax rate to 1.7 per cent. It is good to see that it is following last year's removal of the tax on many of those taxpayers by raising the threshold again.
One issue that concerns the Opposition is that the Government has not attempted to deal with land tax problems in that it has not adopted the recommendations in the Ombudsman's October 2005 report. Among other things, the Ombudsman slammed the valuation system and made a number of recommendations about the valuation process that have not been implemented by this Government, and it does not seem to be very keen to do so. Although the Iemma premiership is based on the proposition that it is somehow a new government, the fact is that it has continued the same policies and approaches taken by the Carr Labor Government—it is imposing every possible extra fee, charge and tax that it can.
In January my colleague the honourable member for Southern Highlands in the other place summarised the new taxes and fees that have been introduced by Mr Iemma since he became Premier. They total about $700 million. They include increasing the stamp duty rate on insurance products from 5 to 9 per cent, costing families about $50 extra and businesses about $100 extra; increasing the waste and environmental levy by about $425 million; extending payroll tax from $1 million to $2 million; imposing new mining charges of $13 million to pay for government regulation; extending land tax disguised as tax minimisation measures costing about $5 million; imposing new mortgage duty totalling about $6 million; and imposing a $60 hike in water charges to pay for the desalination plant. We know that the Government is spending $120 million of taxpayers' money on that plant even though it says it is not proceeding with it.
Some 11 charges were also increased ahead of time, including Sydney Water rates by as much as 73 per cent, Heritage Office fees by 400 per cent and Hunter Water fees by 36 per cent. Department of Lands fees were also increased. In fact, everywhere one looks this Government takes the opportunity to increase taxes and fees. It is estimated that $60 million was gouged in vendor tax between the time former Premier Carr decided he was going and Mr Iemma's announcement when he assumed the premiership last year.
As I indicated, the Opposition does not oppose the bill. We are in favour of lowering taxation and increasing economic activity in this State. That brings into stark relief the difference between the Opposition and the Morris Iemma Labor Government. Mr Iemma's refrain that New South Wales is open for business is pitiful—not only because he does not mean it, but because he leads a government of Labor political hacks dictated to by the union movement. They have no idea about economic prosperity and low taxes. We offer a real opportunity for an alternative.
Ms LEE RHIANNON [6.00 p.m.]: The Greens do not oppose the Land Tax Management Amendment (Tax Threshold) Bill, which is a very straightforward bill to raise the land tax threshold from $330,000 to $352,000. The increase is in line with a claimed 6.7 per cent rise in land values. But we want to take this opportunity to make some general comments about land tax policy. Labor has made a ghastly mess of land tax over the past three years—a political mess and a policy mess. As a result, the opportunity for sensible debate about progressive tax reform has been lost. Michael Egan's mini-budget—which overhauled land tax rules—was a disaster. He brought forward two key changes: the abolition of the threshold and the abolition of the premium property tax. The removal of the premium property tax was appalling, and particularly galling from a Labor government. The premium property tax was a highly progressive tax.
At a time when public services in New South Wales are not up to scratch and the budget is under pressure, the abolition of the premium property tax was both regressive and financially irresponsible. With CountryLink services being cut, public schools and hospitals under pressure, and Sydney's public transport in dire straits, the revenue from the premium property tax could have been put to great use. We really need to reconsider land tax from scratch, and design a fair, progressive and efficient system. I spoke in more detail on this topic with regard to the State Revenue Legislation Amendment Bill in 2004. But, sadly, Labor's mismanagement and poor judgment has set back sensible land tax reform debate by about a decade. Now it is policy on the run in the lead-up to the election. Once again, the people of New South Wales and the environment will be the losers.
The Hon. Dr ARTHUR CHESTERFIELD-EVANS [6.02 p.m.]: I support the Land Tax Management Amendment (Tax Threshold) Bill. I believe that if there is to be land tax, the threshold must change with the increased value of the land so that it reflects inflation. Otherwise, of course, there would be an immense creep in the amount of tax paid because property values are increasing much faster than people's wages or the consumer price index. This worries me a little. I believe the preferential treatment of real estate for investment in Australia has been a mistake on the part of the Howard Government. As I have said on other occasions in this House during debate about land tax, it is not wise for Australia to spend so much of its money on property speculation, as opposed to industrial wealth creation. Indeed, I quoted a series of articles from the Australian Financial Review on the subject. However, given that that happens, clearly the land tax threshold must change for the benefit of people who have small investments.
I was contacted by one of my constituents who is concerned about an anomaly in the legislation. With regard to mum and dad investors, if the mum owns a property valued at $352,000 and the dad owns a property valued at $352,000, they would both be just below the land tax threshold. However, if the mum and dad investors together purchase property valued at the sum of those two properties—in other words, $704,000—they would be liable to $6,084 in land tax. In other words, the threshold does not apply to each individual. This seems to be an anomaly, in the sense that it changes the nature of the investment even though the same amount of money is invested by the couple. My constituents have asked for clarification of the matter. I recognise that the Parliamentary Secretary will not have sufficient time to investigate the apparent anomaly and provide such clarification in his reply, but I ask him to give an undertaking to look into the matter. It appears that a couple who jointly own two properties, rather than individually owning them, will be required to pay far more land tax than they otherwise would.
The Hon. RICK COLLESS [6.05 p.m.]: I wish to make a brief contribution to debate on the Land Tax Management Amendment (Tax Threshold) Bill, which proposes to raise the tax-free threshold for land tax from $330,000 to $352,000 from for the start of the 2006 tax year, a saving of an estimated $53 million to the investors and taxpayers of New South Wales. While this may sound like a very generous offer to the people of New South Wales, it must be kept in perspective. As the member for Southern Highlands in another place pointed out in her address, the new Premier has introduced 14 new taxes since his appointment, which raise an extra $700 million from New South Wales taxpayers. So the $53 million he is giving back pales into insignificance when measured against increases of $700 million.
The Carr Government removed the threshold in the 2004-05 budget and 400,000 small investors suddenly became land taxpayers for the first time. At the same time the vendor duty was introduced, so we had a situation where New South Wales investors were being hit with a triple dipping tax: you were taxed when bought land, you were taxed while you owned land, and you were taxed when you sold land. The fact that the Government was collecting tax on both the sale and the purchase of the same transaction is moral highway robbery, and investors left New South Wales in droves and headed to Victoria and Queensland. It applied to all land, unless you used it for agriculture or you slept on it.
The whole issue of land tax must be considered in concert with the process in place for valuing land in New South Wales. A recent Ombudsman's report slammed the land valuation process in New South Wales as having a systemic and chronic problem of undervaluation. The Government has now used this situation as the justification for applying unchecked and unvalidated increases in land valuation across the State, in many cases completely unrepresentative of actual market land values. This increase in land values is way in excess of the increase in the threshold that the Government is proposing, delivering to the Government yet another tax windfall on top of the windfalls it has received every year during the property boom from stamp duties.
The February 2006 round of valuations saw land values across the State rise by 4 per cent, during which period the sale prices for land were actually decreasing. The situation was even more serious for investors, as valuations on land that was subject to land tax actually increased by 6.7 per cent, and that created a lot of anger throughout the investment community. Land tax revenues were $188 million higher than forecast during 2004-05, yet this bill proposes to hand back just $53 million of that—hardly something the Government should be publicly back slapping itself for, although no doubt the Treasurer would be gleefully rubbing his hands together, saying behind closed doors, "Ha ha, they didn't see that one coming." In a time when the Government is talking about shedding some of its public service excess, it appoints an additional 400 land tax collectors! It does not seem to care about providing services that help people with the day-to-day issues they face, but it sure has time to find the money for an extra 400 tax collectors.
I referred earlier to unvalidated and unchecked increases in valuations. National and Liberal members in another place gave many examples of this, with valuations increasing by up to 100 per cent without any justification. On the Northern Tablelands, non-urban land property values are almost solely dependent on soil type, with basalt soils being more valuable than trap soils or granite soils. Soil types are typically extremely variable, with all soil types in close proximity and in many cases the three soil types present on individual properties. The valuation procedures involve taking the highest value property in the vicinity, being a basalt soil property, and applying that value to the granite soil property next door, with the result that the granite soil property is allocated a value far in excess of what that property would achieve in the marketplace. This has happened in many cases around Inverell, and it is a practical reality of the problems the Ombudsman recognised—insufficient checks and balances in the system, inaccurate assessments, and little understanding of the local variations and conditions.
Some concern has been expressed to me that local rates will escalate because of increased land values, but this is not entirely correct because of the rate pegging legislation. However, in the case I just mentioned concerning the granite property increasing in value when compared with the basalt soil property, it will have an effect on local council rates as a result of the comparative value between the two properties—a problem further exacerbated for the granite property as the basalt property is far more productive than the granite property. However, the major issue is not council rates, it is land tax rates. The way the tax is administered means it is a State-levied capital gains tax_as the value of the land goes up, the landowner pays more land tax after each valuation.
Australian Labor Party members in another place made it clear that investors are reaping the benefits of capital gain as the value of their land increases. Members opposite should remember that increasing land values does not mean that people have more money to spend; it is not liquid cash until such time as the land is sold. We hear reports of elderly people having a home on two blocks of land and they suddenly get a land tax bill for an extra $6,000 or $7,000 a year but they do not have any additional cash. It is simply a case of a Robin Hood government again—only Robin Hood robbed the rich to pay the poor and this Government robs the poor to pay its tax collectors.
The honourable member for Ballina in the other place noted that Australia's social security bill is $63 billion, 30 per cent of the entire Federal Government's budget. He said that we must make people financially independent. Investing in land and property is a good way of investing in one's future financial means and achieving financial independence. However, during the process of establishing that independence small investors may find their asset value improving but their cash flow reduced as they attempt to improve the equity in their assets_they are asset rich and cash poor. It is the same scenario as the elderly couple who owned their home on two blocks for many years but are caught by the inequity of a land tax system that is inflexible and non-responsive to the individual needs of people.
The other group of people who are expected to pay land tax are those who rent their business premises or their home residence. Businesspeople who rent their premises from the private commercial industry will, of course, pay land tax indirectly. However, we heard only last week that business owners who rent premises on Crown land are now being hit with land tax, with accounts for up to five years in arrears being sent to some business operators. This is an extraordinary situation. Private landowners have to pay their land tax and try to recoup it through increased rents; public landowners do not pay land tax, but the leaseholders are expected to pay it directly.
Home renters are not necessarily investors_many of them are attempting to save enough money to buy their own home_yet they are indirectly paying land tax through increased rents. Of course, that slows their saving ability and keeps them in rental accommodation for longer. This is a discriminatory tax on people who need to rent their homes. People who own their home or who are paying a home mortgage do not pay land tax on their principal place of residence, but those who rent a home pay land tax through increased rents. Again, the Government is robbing the poor to pay the tax collectors.
The honourable member for Murrumbidgee in another place pointed out that when we drive people away from investing in residential property the pool of available residential rental accommodation diminishes. The well-documented rules of supply and demand then force residential rents to increase. The Government seems to have a view that land tax affects only rich landlords and the investors. However, it affects small mum and dad investors, elderly people and people on fixed incomes, people who are attempting to provide for their retirement and home renters. Many people are indirectly impacted upon by land tax. As has already been stated, The Nationals and the Liberals will not oppose this bill but we believe it does not go far enough in raising the threshold because of the increased land values. It does not remove the discriminatory aspects of the tax on those less fortunate than those it is supposed to tax.
The Hon. HENRY TSANG (Parliamentary Secretary) [6.13 p.m.], in reply: I thank honourable members for their contributions to the debate. I acknowledge the query of the Hon. Dr Arthur Chesterfield-Evans. Because of the short notice I shall arrange for the Office of State Revenue to take details of his representation and advise him directly. The Land Tax Management Amendment (Tax Threshold) Bill implements the Government's announcement in January that the threshold for exemption from land tax would be increased from $330,000 to $352,000. The 6.7 per cent rise in the tax-free threshold matches the average statewide increase in the value of land subject to land tax. It means that thousands of property investors at the lower end of the scale become exempt from paying land tax this year. Approximately 12,700 additional investment property owners will not pay any land tax this year. This brings the number of investment property owners who paid land tax last year, but who will not pay anything this year, to 390,000.
By raising the threshold the Government is providing a $53 million tax cut. The measure is one of four tax cuts delivered by the Government in the past eight months. In addition to the threshold change, the Government abolished vendor duty in August 2005—saving New South Wales taxpayers $358 million in 2005-06_reduced workers compensation premiums by 5 per cent and introduced a new payroll tax concession in February targeting areas of above average unemployment. This measure is expected to boost business in New South Wales to the tune of $90 million over the next five years. That is what the Government has been doing to strengthen the New South Wales economy. It begs the question: What has the Opposition been doing in the meantime? Disturbingly for the people of New South Wales, the Opposition has been doing what it normally does best—talking New South Wales down, failing to produce any sensible policies and wildly launching a reckless $22 billion spending spree. Be under no illusions: the greatest risk faced by the New South Wales economy is the Leader of the Opposition, the honourable member for Vaucluse, and his big spending frontbench colleagues.
The Hon. Greg Pearce: Point of order: Madam Deputy-President, the Hon. Henry Tsang is supposed to be speaking in reply to the bill. None of these matters was raised in the debate and they are totally irrelevant to a speech in reply. I ask you to direct the honourable member to speak in reply and to not deal with irrelevancies.
The Hon. HENRY TSANG: To the point of order: The Hon. Greg Pearce brutally attacked the Government on various issues in his contribution. This is a direct response to what the Opposition is doing. The Opposition is talking New South Wales down and spending big. Therefore there is no point of order.
The DEPUTY-PRESIDENT (The Hon. Penny Sharpe): Order! The contribution of the Hon. Henry Tsang should remain relevant to the question before the Chair.
The Hon. HENRY TSANG: While the Premier is outlining a series of sound economic measures—sensible and deliverable measures—the Opposition is spending like Paris Hilton on Rodeo Drive.
The Hon. Greg Pearce: Point of order: Madam Deputy-President, the Parliamentary Secretary, acting as the Minister, is exhibiting not only his inexperience but also his arrogance. He is flouting your ruling, and I ask you to warn him that he should not flout your rulings.
The DEPUTY-PRESIDENT (The Hon. Penny Sharpe): Order! The Hon. Henry Tsang is making some concluding, and relevant, comments. He may continue.
The Hon. HENRY TSANG: The Opposition is fiscally dangerous. Its crazy spending proposals would rip New South Wales' triple-A credit rating to pieces, sending the State bankrupt. People in New South Wales ask the question: Where is all this money going to come from? While this fiscally irresponsible gaggle from the other side continues on its dangerous path, the New South Wales Government is making sound and responsible policy decisions. This bill is an example of the Government's commitment to sound financial management and continuing economic growth. I commend this wonderful bill to the House.
Motion agreed to.
Bill read a second time and passed through remaining stages.