Steve Greenwood |
Thursday, 19 February 2009 11:28 AM |
5 Comments
Despite recent announcements by the Queensland Government that it is very concerned about land tax and the implications for property owners, the fact is that the 2009 land tax bills issued in July 2009 will RISE – and they will rise very significantly.
The last 8 years has seen land tax in Queensland rise from $225 million in 00/01 to a forecast 08/09 of $797 million in the 08/09 budget. In the December 2008 mini-budget, the Government announced another land tax surcharge that will net it another $93 million in the 09/10 year.
Queensland land tax has increased on average over $70 million each year, for the last 8 years – and even more is planned for 09/10.
In the growth times of recent years, the impact of these increases have been absorbed and consumed by the overall increase in property values across Queensland. However the growth times are well and truly over.
Let’s get down to some basic facts on the impacts of land tax. On an 8% yield, every dollar increase in land tax equates to $12.50 decrease in capital value. In other words, every time the Government elects to collect another $1.00 via land tax, it effectively wipes $12.50 of value off Queensland property values.
The surcharge in the mini-budget of $93 million when it takes effect later this year will reduce the value of the Queensland property market by over $1.1 billion.
However, the story gets worse. Due to the failure by the Government to revalue most properties in Queensland in 2008 and the impact of the 3 year averaging process upon which land tax is calculated, land values for taxation purposes in 2009 will be based on the values of properties in 2006, 2007 and 2007 again.
The peak of the property market was, you guessed it, close to the end of 2007/ early 2008. By not revaluing in 2008, the Government has effectively ensured that the peak property values have been locked in for another year.
The decision taken by the Government in not revaluing in 2008 and putting in place a surcharge means that land tax bills issued in 2009 will go up and they will go up significantly – this is a FACT.
However, while property owners should be extremely alarmed, it is the Government itself that should be a near panic. And this is the reason.
Anyone with a property loan at the moment will be very familiar with the fact that the banks are very, very keen to get their money back. They are very concerned at the impact that falling property prices is having on loan to value ratios.
We have a scenario of reducing property values and banks which are aggressively clawing back loans as soon as LVR’s are compromised. The situation would be a very concerning one on its own if that was all that was happening.
However, we now have a State Government that is pushing and pulling its policy levers to make the situation worse. By increasing land tax at a time of decreasing property values, it is effectively throwing petrol onto the fire.
What could this mean in the future if the Government continues down this path?
Well, it is quite possible that we will see a significant increase in the number of properties for sale across the State – further depressing property values – and further delaying a recovery by the property sector.
The Government should be very concerned at this. The Queensland property industry employs over 300,000 people; generates 14% of gross state product and pays around 43% of the State’s taxes. To put it simply, a failing property industry means a failing Queensland.
Perhaps it is time to put water on the fire, not petrol. A reduction in land tax rates would be a great start.
Steve Greenwood |
Thursday, 19 February 2009 11:28 AM |
5 Comments
