Land Tax Revaluation

November 27, 2017

Radio News Broadcast

 

John Darley, Former Valuer General   (5AA 9.35-9.48)   Land tax valuations

 

(Byner: If you run a business and you pay land tax you are likely to very soon say a very loud ‘ouch’. Let me tell you why: the Valuer General is undertaking a re-evaluation exercise where the valuation of every property of the state will be reviewed over a five year period, commencing with Adelaide City Council where the majority of land tax comes from. City of Charles Sturt, West Torrens, Norwood, Payneham, Saint Peters and Unley, during 2017 / 2018.  This is because it is thought there are inconsistent valuations across the state, with some valuations being very conservative. The Valuer General has given an indication that some properties may face increases in valuation from, listen to this, 50 to 100 per cent.  Concern about the impact this will have on land tax especially for commercial properties.  Increase in property values will see a dramatic increase in land tax and remember this state has some of the highest scale of rates for land tax, especially for holdings over two million.  Some may say that only the wealthy have holdings over two million however a dramatic increase in the land tax for these owners will only result in an increase in goods, services, for everybody else. Now the increase in land tax will not be absorbed; they have no choice but to pass it on. The cost of everything will go up. The Government will receive a windfall gain from this exercise, they need to change the scale of rates for land tax to prevent inflation from going through the roof, and by the way the system of this five year business was gotten rid of years ago because it was deemed by the then government as unfair, and unrealistic.  Where did I get this information from? I got it from a guy who isn’t known for bum steers, he’s a former Valuer General, I’m talking about Advance SA’s John Darley. … tell us about this.) … there seems to be some confusion about the place as to what the Valuer general is doing.  In the budget papers last year that’s 16-17 she was allocated $2.8 million to embark on this five year re-valuation program. Now as you’ve quite rightly said, five yearly re-valuations disappeared in South Australia in 1979 because at that stage one fifth of the state was valued each year and because of the escalation of the property values back in those days it was considered to be unfair that one fifth of the state would be [unclear] and others would be left.  And so the Government of the day initiated what they called a valuation equalisation system whereby one fifth of the state was valued and then the remaining four fifths were indexed up to relative levels to the fifth of the state that had been valued.  From 1982 that system was dispensed and replaced with an annual valuation system which is done mainly by computer systems techniques.  Now it would seem to me that in the last ten or fifteen years there’s been some slippage in that process, for one of two reasons: either the Valuer General didn’t keep up to speed with what was happening in the market place or possibly the Valuer General was starved of resources and was unable to do the job that they committed to do.  But I understand they weren’t prepared to prepare a work measurement exercise to demonstrate that they needed more staff.  Now, just to look at the individual rates the Valuer General’s valuations have really no impact on water and sewer rates, emergency services levy or council rates because those agencies set their own budget and then the Valuer General’s valuations are used to distribute the tax burden.  However when it comes to land tax any change in valuation made by the Valuer General has a direct impact on the level of land tax. Now if you look at the scale of rates that currently exist, the scale of rates for up to 323,000 dollars, that’s exempt and then 50 cents rate in every hundred dollars applies from that point. Well then the next jump … to 230%, then it jumps 45% on top of that, and finally 50% on top of that to a rate of $3.70 for every hundred dollars of property [unclear]. (Byner: So what’s that going to mean for businesses around the city and suburbs?) Well if what the Valuer General is saying, that there could be a 50 to 100 per cent increase in site values in the City of Adelaide that’s going to be an astronomical increase. You could have properties increasing, their land tax could increase, 500 or 1,000 per cent in one year, and that would be enough to kill business in the CBD. (Byner: I can see what the Government will do. I know the way they argue. Well Leon; this is just proof that we under taxed in the first place; that’s what they’ll say.) Well, well , that’s not correct because we have one of the highest tax rates in the country so it’s no good using that argument. But what the Valuer General is now talking about doing is this five year revaluation where she’s going to readjust valuations for a fifth of the state every year and unfortunately for the Adelaide City Council that’s going to be done over three years. Now there’s a section in the act that says, valuations have to be consistent or relative; in other words if you look at a property that’s worth x dollars in the City of Adelaide, that would command Y dollars land tax. If the same value property in the suburbs, that should command the same sort of land tax if the valuation’s the same. Well she’s going to have a differential in valuations for three years just on City of Adelaide values, without looking at other property values in the state. (Byner: So really what the Government is doing via this process is by stealth getting more money for land tax and again they don’t have to go to the Parliament to do it. It can be done by regulation.) … no, they would have to … what you said is correct: they don’t have to do anything to get that money but what will inevitably happen, there’ll be an outcry against land tax, and as previous governments have found they’ve had to adjust the rate in the dollar downwards. (Byenr: There’ll only be an outcry if people know, that’s why I’m doing this segment this morning.) And they won’t know until about November next year. (Byner: Stay on the line.)

 

Nigel McBride, CEO, Business SA   (5AA 9.43-9.44)   Impact of land tax revaluations

 

(Byner: Nigel McBride … what do you say to this?) … our members are already facing what they believe they’re caught in a cost spiral with energy prices, utility costs, Local government rates, penalty rates. You know, in one sense we understand that land needs to be revalued but John’s absolutely right, we’ve got the highest … land tax rates in the country as soon as you get above $2 million. Let me give you an example – in Western Australia a $1 million site will pay $2,730; the same site in South Australia today is going to cost $9,446. That’s a massive gap. Now … this is good old fashioned bracket creep … we hope the land values go up because it’s part of economic growth, but you can’t apply land tax rates when we had really probably in many ways flat … commercial property prices. Frankly at 3.7%, which is the highest in the country, they really now need to be adjusted to stop this kind of bracket creep because … it’s going to hurt ordinary consumers because it’s going to get passed on (Byner: Alright)

 

Daniel Gannon, Executive Director, Property Council of SA   (5AA 9.44-9.46)   Impact of land tax revaluations

 

(Byner: Let’s talk to … Daniel Gannon … what do you say …) Look, it must be said that the property sector is not against recalibrating valuations. If they need to rise then of course that’s the will of the market. But improving valuations without improving land tax is fixing half the problem. It’s like buying a bucket for the leak without fixing the roof. And … we do have the highest rates of land tax in the country; at the top end we are 85% higher than Sydney, 64% higher than Melbourne, 200% higher than Canberra, even Tasmania is more competitive than South Australia. And that’s before you even start considering things like council rates, utility bills and other types of taxes. Now what this means, what we’re talking about this morning, this means a tax on the places that we live and work, but of course it’s also a tax on jobs and investment. So wherever you live … and work the Government is trying to slap those taxes on top of you each and every single day. It’s a tax on business. And look, this isn’t just about the top end of town because the reality is we don’t have one. We’d love to have a top end of town that’s punctuated by headquarter companies but we don’t. But this will impact mum and dad investors across South Australia trying to build their own financial security. It also applies to the residential sector … in South Australia we have 130,000 residential landlords; 90,000 of those landlords use negative gearing. That means any wild increases to valuations without any reduction in land tax will have a direct result in South Australians either being forced to sell their investments or having to pass on costs to tenants and consumers. Now landlords don’t want to do that but when governments put in place high punitive taxes at times, in fact more often than not it’s the consumer that is hurt the most. Now last week we hosted an urgent meeting with 30 commercial property owners in Adelaide, they’ve told us that if land tax is not reformed it’ll make it very hard for those same owners to keep investing in South Australia. Now they’ve seen wild increases over the last five years and that’s even before this state-wide revaluation program is put in place.

 

Back to John Darley

 

(Byner: So John Darley where do we go to from here?) The situation quite clearly at the moment is that the Valuer has to be stopped from doing what she’s going to do because – (Byner: Whose idea is it?) Well I think it was the Valuer General’s idea, and Treasury adopted it, accepted it, and hence gave her the $2.8 million last year rising up to I think it’s $15.4 million over five years. But it’s quite – you cannot have – where the principal is, to value all properties in the state every year and that has been the case since 1982, you cannot then just start picking out one fifth of the state and doing something about those valuations without touching the others. Now, the other thing is that if a person is not happy about their valuation when they receive their account they can, one of the avenues, is to appeal to SACAT, the South Australian Administrative and Commercial Tribunal.  Now I notice that even those fees have risen this year to appeal to SACAT for a residential property is, it’s risen from $71.00 to $545.00. (Byner: That’s a huge wallop isn’t it?) Is it ever, and let me tell you even if you got a reduction in your valuation of $100,000 on a $400,000 property you’re still behind the eight ball in terms of the cost.  (Byner: Alright. We’ll have a good look at this and … this has got to be an election issue. I just make the point it is not true that only people with property pay land tax. When you go to your supermarket and you buy your Cornflakes, your butter, your margarine, your milk, do not think for one moment that the price of any article you purchase doesn’t factor in all of those costs.)

 

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