The State Budget recently handed down has highlighted once again the reliance of government coffers on property taxes.
The Table (below) tells the story: (Figures are in $’m).
The Table displays:
- State taxation as a percentage of total revenue;
- Property taxes as a percentage of state taxation; and
- A breakdown of property taxation: for the past year, the coming year, and in 3 years’ time
The budget estimates for the coming financial year predict total revenue of $7257.5m of which $1448.3m (or 20%) comes from State Taxation, and 42% of state taxation will come from property taxes. This percentage is predicted to rise to 44.9% by 2024-25, while other state taxes are predicted to fall in percentage terms.
It is obvious that the rapid increase in property prices is fueling the increased take, but it is also obvious that the costs are being borne by the transaction of property, rather than the inherent value of property.
In ACTUAL terms though, the budget predicts a 24.3% rise in property taxes over the next 3 years, from $608.8m to $756.5m, fueled by a 28.1% increase in stamp duty. And that is some hike.
We have raised previously in this column that the government needs to seriously consider a root and branch reform of its taxation system. Such a review needs to consider the policy position of whether it is appropriate for a property not a residence to pay land tax, whereas income-producing properties are required to do so. Obviously, such a cost will be passed on to the tenant, either directly or as part of the general rental arrangement.
At the same time, the conveyancing duty, which is in place on the sale of a property, simply increases the cost of the property on the purchaser. At a time when property is at a premium, the added impost of this duty is forcing many people to abandon hope of owning their own home. The policy paradox here is that at the same time as an impost is being imposed, incentives are also being offered so that people can purchase their own home. Such incentives do little to resolve the housing issue – they simply increase the price of the property by artificially stimulating demand.
The critical issue is housing supply, and government needs to reflect on the fact that much of the planning law restricts the supply of land for new housing.
Tradespeople are also saying that gaining access to building materials is a critical issue for them, and there needs to be a way whereby building materials can be brought into the state to meet this surging demand.
We are as concerned as anyone to ensure a rapid recovery in economic activity. With many businesses having suffered a downturn in trade, it is incumbent on government to ensure the workforce is skilled, and that when opportunities do arise that there are no encumbrances in the way of generating more activity.
For example, continuing to levy a tax on payrolls in excess of a certain value is essentially a tax on employment, and is an active disincentive, particularly for medium-size firms, to engage more staff. Certain exemptions were afforded during COVID but are not set to continue.
In summary, the figures do tell a story, and should inform government as to where stimulus can and should be applied to ensure that the economy can continue to grow.
Additionally, the continuing increasing reliance on one industry sector “property” to underpin the state taxation revenue base is unhealthy. This is further exaggerated when considering only a percentage of property owners contribute to the tax take. This is not sustainable and needs reform.