Property taxes, in their broadest definition, contributed $1,902m to the 2016-17 State Budget, accounting for 42% of all South Australian state taxes. By far the largest contributors are conveyance duties on real estate sales and land taxes. Yet despite the importance of these taxes, there are elements of these taxes which are unfair or which could be better targeted to contribute to economic and social benefit. Conveyance duties are a volatile tax base, while the land tax base is arguably underutilised (or hidden through the Emergency Services Levy and Natural Resources Management levies) and not contributing to investment incentives.
Accordingly, SACOSS is advocating for two policies in relation to property taxes:
- A tax on dis-used property; and
- A reconsideration of the proposal to replace conveyance duties with an annual land tax.
It is an outrage that South Australia has homeless people and unaffordable house while there are housing properties sitting empty. Similarly, in some areas we have empty shops and commercial premises which undermine the wealth and development of local communities. The tax system can be part of addressing this issue, but the current tax arrangements are counter-productive.
In SACOSS’ submission to the State Tax Review we put forward the idea of an increased rate of land tax and council rates on land and buildings that were not being utlisied after a set period (perhaps two years). We acknowledged that the impacts needed to be modelled and details worked out, but the aim was to provide a disincentive to leave productive resources idle (as well as providing some extra revenue to government that would not need to be levied from more productive sources). But the current system is in fact worse than simply failing to provide a development incentive. Where a property is awaiting development the owners pay no land tax, but the moment they lodge a development application they are liable to pay land tax. This is a disincentive to investment and development, and is completely the wrong way around: there should be higher taxes for leaving property vacant and potentially a tax concession for the period of development.
Since SACOSS first raised the prospect of a disused property tax for South Australia, the Victorian government has announced its intention to apply a 1% property tax on residential properties left vacant for more than 6 months in a calendar year. This tax was part of a housing affordability strategy and is designed to get more houses onto the rental market. There are a number of exemptions (for instance, for people travelling overseas, or living outside of Melbourne and needing a city property) and the implementation details are still being worked through, but this move in Victoria should make the South Australian government take a second look at the disused property tax proposal.
SACOSS believes that there could also be also significant public support for a disused property tax. While there would be devil in the detail, when SACOSS tested the idea in a survey of 1,000 South Australians nearly half of all respondents liked the idea - twice as many as opposed it (with the remainder undecided).
In its State Tax Review in early 2015 the South Australian government floated the idea of replacing conveyance duties on real estate transactions with a broad-based land tax. Almost all economists view conveyance duties as being inefficient taxes and an impediment to economic activity, and the ACT government has moved to phase them out in favour of increased land taxes over the long term. While the SA proposal was welcomed by business and the housing industry, there was an immediate negative public reaction (most notably in the Advertiser the day the story broke and before any details could be considered). The state government has now backed away from the proposal, although SACOSS' 2016 polling suggested that the opposition was not nearly as large as was supposed: while 33% of respondents opposed the idea, 42% of people were undecided or wanted for information.
Either way, the current system of real property taxes remains grossly unfair. Land taxes can and should be a stable, progressive tax on accumulated wealth. However, currently land taxes are paid by investors who pass the costs on to renters (who are often less well-off than home owners who pay no land tax). Similarly, conveyances duties are based on transactions rather than capacity to pay. Thus, people who need to move house because of employment, family growth, relationship break-down or other reasons, pay more tax than sedentary households with potentially greater capacity to pay. The amount of tax collected from conveyance duties also varies greatly from year to year depending on the state of the property market, so it is an unstable base for government revenue.
SACOSS continues to believe that, if properly implemented, a broad based land tax would be more economically efficient, fairer and provide a more stable tax base for government than the current system. However, there are a number of protections that would need to be built into such a tax to protect the interests of vulnerable and disadvantaged people, namely:
- Ease of payment – monthly (or at least quarterly) billing to avoid a large annual “bill shock” which could cause hardship for those with tight household budgets;
- Protection for low income earners through:
- adequate concessions available for, at a minimum, Centrelink benefit recipients and Commonwealth Seniors Health Card holders (as per the current Emergency Services Levy concessions);
- provision for deferred payment until sale or death, and/or the establishment of reverse mortgage/caveat arrangements for those who cannot pay.
The bottom line must be that nobody is forced out of a home or put into hardship because of an annual land tax;
- Fair transition arrangements that do not leave householders out of pocket;
- Maintenance of progressive land tax rates as a flat tax would impact disproportionately on low-mid income/wealth residential property owners;
- Protection for community housing providers as the significant stocks of land held by these community organisations are held for the benefit of vulnerable and disadvantaged people who would in their own right qualify for concessions, but this is not available to the housing provider. (If community housing providers are not exempted or compensated for a broad based land tax, many will simply cease to operate which will increase the risk of homelessness for those who rely on those housing organisations).
If these conditions were met, SACOSS would support the replacement of conveyance duties with a broad based land tax. We note that this position accords with the national statement on housing affordability published by a range of community welfare organisations.