Presented by Robert Clark MP		www.robertclark.net

Land tax crisis is due to government policy

(An article published in edited form by The Age on 21 April 2005)

Not even the Bracks Government now seriously tries to deny Victoria has a land tax crisis.

The crisis is due to a deliberate government policy to increase revenue from property taxes, compounded by a failure by Treasurer John Brumby to grasp the effect of his policy on small to medium size taxpayers.

It's not by accident that Victorian land tax revenue has risen from $378 million in 1998-99 to $926 million this year. Nor is it accidental that stamp duty revenue has increased from $1,006 million in 1998-99 to $2,236 million this year.

John Brumby figured he could sit back and make no or minimal adjustments to the tax scales, and let rising property prices and bracket gallop push up the average tax rates.

As well, the government has pressured valuers to put the highest possible valuations on properties, bringing in yet more revenue.

Last year even the Bracks Government realised it might have gone too far. Ahead of the budget, it rushed out a claimed "$1 billion cut over 4 years". It wasn't a real cut, of course - land tax revenue has continued to soar. It was a "cut" only against the even bigger increases the government would otherwise have collected.

Anyone knowing the land tax system could see that the minimal changes made to the mid-range tax brackets meant huge further tax increases were still on the way for small to medium sized land owners - something the Opposition warned about within 48 hours of the announcement.

These increases were inevitable because land tax bills for 2005 are based on land valuations as at 2002, increased by an "indexation factor" for each municipality that raises valuations to 2003 levels.

John Brumby has admitted he expected there would be a State-wide average 15 per cent increase in valuations for 2005 land tax. Simply checking that level of valuation increase against his revised tax scale would have shown the Treasurer it meant a 55% tax increase this year for an $800,000 property.

It is all very well for John Brumby to cry crocodile tears now. If he had been doing his job properly, he would have seen the crisis coming and could have avoided it.

What can and should be done to end the crisis?

Firstly, the government must unwind the massive increases caused by last April's bungled measures. The government must cut 2005 land tax, as well as future land tax, and send out refund cheques to people who have already paid their bills.

It is not good enough just to promise some modest reductions, or a slowdown in increases, for next year's land tax, when this year's land tax is sending businesses to the wall.

Secondly, we must return to the past practice of making frequent adjustments to the land tax scale, to prevent properties being pushed rapidly into ever higher land tax brackets and huge increases in tax bills.

Thirdly, we should scrap the use of indexation factors, and instead base tax bills on individual property valuations. Some of this year's indexation factors have deemed extraordinarily large increases in values, eg 46 per cent in the City of Greater Geelong, producing tax increases of up to 223 per cent.

Privately, valuers and agents question whether the Valuer-General's indexation factors are accurate, but we could have avoided that argument if 2005 land tax were instead based on the mid-point between each property's 2002 and 2004 valuations.

Next, land valuations should be based on genuine assessments of the market value of sites, not on highly artificial assumptions about possible alternative uses.

Unfortunately, the government is moving in completely the opposite direction, proposing changes to valuation law that will give even greater weight to possible permits for more intensive development that could be granted over a property.

Finally, we should allow taxpayers to object to their land valuations at the time they get their tax bills. At present, taxpayers need to object months before they even receive their bill, when they get their Council rates notice.

This package of reforms will repair some of the damage the government has caused, and ensure Victoria is never again put through such a land tax crisis.

Robert Clark MP
Shadow Treasurer