The Territory’s property industry continues to carry an unreasonable taxation burden, with conveyancing duty increases on properties valued over $1 million.
ACT Treasurer Andrew Barr handed down his first Budget on Tuesday, 5 June, introducing the first steps in an ambitious tax reform program which will see major changes intended to lead to a fairer, simpler and more efficient tax system for the Territory.
The Property Council supports the direction of the tax reform program, agreeing with government that major own source taxes in the ACT are volatile, unfair and inefficient, and therefore unsustainable in the long term.
We have been particularly supportive of the Government’s agreement in principle to the abolition of duty on conveyances, and to the Government’s agreement to adopt a broad-based land tax as a base for revenue replacement.
However, we have been sharply critical about reform in year one which sees a slug to the commercial property sector with conveyancing duties increasing from 6.75 per cent to 7.25 per cent on properties valued at over $1 million. Discussions with the Government continue over this issue.
The ‘headline’ operating loss for 2012-13 is forecast to be $318 million. The key figures are:
Expenses $4,347 m
UPF Net Operating Balance -$396m
Capital gain on super. investments $77 m
HEADLINE OPERATING BALANCE -$318m
Spending will exceed revenue for each of the out years to 2015-16.
|Net operating loss ($m)
The most serious problem revealed in the Budget is the ongoing slide into negative fiscal balance of the General Government Sector which has accumulated to $1,172 million by the 30 June 2012 and is expected to blow out to $2,763 million by 30 June 2015.
Unfortunately, there can be little confidence in the Government’s estimates given that past budgets of revenue errors in the order of $200 million on average. One year ago, for example, the estimate of the fiscal balance for 2012-13 was -$425 million which has now blown out to -$1,016 million.
The Government is seeking savings of $180.5 million in agency expenses through a mixture of reductions in administrative costs, improving the efficiency of back office functions and cutting employee expense – although that commitment is negated by the 6 per cent increase in employee expenses in the budget.
Those savings should be seen in the context of a $220 million, or 5 per cent, increase in total expenditure.
Estimated total revenue is down $42 million, or -1 per cent on 2011-12 although, in the past, Treasury’s revenue estimates have been notoriously inaccurate.
Overall, the Commonwealth contributes about 40 per cent of ACT budget revenue and ACT taxation brings in about 31 per cent of the total.
The property industry continues to carry an unreasonable taxation burden in the ACT. 54 per cent of the Government’s taxation revenue will come from property in 2012-13. That contribution will increase to 56 per cent by 2015-16.
Taxation reform phases out conveyancing duty over 20 years, abolishes commercial land tax and combines it with general rates, making general rates and residential land tax more progressive.
However, taxation reform also means slugging the commercial property sector with conveyancing duties increasing from 6.75 per cent to 7.25 per cent on properties valued at over $1 million, but phasing down to 7.0 per cent in the out years. Similarly, commercial general rates are targeted at properties valued at $275,000 and greater with a marginal tax rate of 2.6 per cent. This rate compares with 1.9 per cent on properties valued from $0 to $150,000, reflecting the government’s preference for progressive tax scales.
Total ACT tax revenue (own sourced) in 2012-13 is expected to increase by 4 per cent to $1278 million. The major categories are:
General rates up 41 per cent $297 million;
Land tax down 43 per cent to $66 million;
Stamp duty on land transfers up 2 per cent to $273 million;
Lease Variation Charge up 6 per cent to $23 million; and
Fire and Emergencies Service Levy up 5 per cent to $30 million.
Total expenditure in 2012-13 is budgeted to increase by 5 per cent to $4347 million. Some 47 per cent of expenditure is due to employees’ wages and superannuation. Of the total expenditure on functions of the government, 51 per cent is spent on health and education. `The major items affecting the property industry are:
5,000 residential sites to be released;
102,110 m2 of industrial sites to be released at Hume;
100,036 m2 of commercial sites to be released, mainly in Gungahlin, Belconnen and Central Canberra.
The more significant infrastructure investment commitments in 2012-13 are:
$20 million for the Mugga Lane landfill extension;
$17 million for the Molonglo 2 Uriarra Road upgrade;
$16 million for the Molonglo 2 sewer and stormwater infrastructure;
$11.5 million for the Horse Park Drive extension from Burrumarra Avenue to Mirrabel Drive; and
$10.5 million on the North Weston Road intersection reconstruction
The Government will again increase funds for ACTION. In 2012-13 ACTION will receive $91 million in subsidies – an increase of $8 million or 11 per cent over the previous year – to supplement its $23 million from bus fares. With a cost of $6.66 per passenger boarding and inability to meet most of its performance targets it is difficult to see how ACTION could ever become ‘sustainable’.
The capital works performance of the ACT Government has gone from woeful to getting better, but there is still plenty of scope for improvement. Over the six years from 2004-05 to 2010-11 total expenditure on capital works increased over four fold and actual expenditure as a percentage of planned expenditure improved from 52 per cent to 75 per cent. The following table shows the improving trend:
CAPITAL WORKS PERFORMANCE SUMMARY
||Revised Budget ($m)
||Actual Expenditure ($m)
||Expenditure/ Amended budget (%) |
Source: 2010-11 Capital Works Program, June Outcome Report, Appendix D.
Planned capital works expenditure in 2012-13 is $814 million, which is an increase of only 1.6 per cent over last year. Of that amount, $184 million is provided for new works and $630 million for works in progress.
Catherine Carter, ACT Executive Director, Property Council of Australia
T: 02 6248 6902 M: 0412 330 079 E: email@example.com