Reform of State property taxes

The Real Estate Institute of Australia proposes that the States review their commitment to Commonwealth/State funding arrangements to reduce State property taxes in order to provide a consistent tax system, which helps to promote State, and national, economic development.

Strong property markets have benefits for associated industries and the wider Australian economy. REIA believes that governments should be actively looking at ways to encourage home ownership and attract investors for providing rental properties. There is no doubt that property remains an outstanding investment for the long term for homeowners and investors alike, and is a fundamental assumption of self-funded retirement.

However, disincentives which mitigate against property investment for many Australians include the discriminatory and inequitable property taxes imposed by State and Territory Governments including high rates of land tax and stamp duty on residential and non-residential properties. These are inefficient taxes. The priority for reduction in property taxes should be commercial stamp duty because this is specifically covered under the Intergovernmental Agreement between the Commonwealth and States for review in 2005. The process for this review is yet to be established by Government.

There are major concerns for national economic development:

• Home ownership in Australia has decreased from 69% in 1986 to 67 % in 2001 and, in particular, in the age bracket from 25 to 34 years of age with a drop of 10%. Home ownership helps support individual responsibility, stable family relationships, and community principles. A decrease in house ownership is contrary to the Federal Government commitment towards self-funded retirement because most potential retirees will not have sufficient superannuation funds for living expenses and rental costs if they do not own their own home upon retirement. This is a potential tax and welfare burden for the Commonwealth Government.
• There is also a potential uncertainty in State Government budgets because they rely heavily on State property taxes, which are subject to the cyclical nature of the property market. A decrease in the property market will immediately affect government budget commitments. For example, Victoria relies on property taxes for 29 per cent of their revenue from State taxation. A reduction in government expenditure would result in increased unemployment, and decreased expenditure on education and health. The Federal Government will be held responsible for the national economy and well being of Australians.
• State Governments are demonstrably not maintaining the spirit of Commonwealth/State financial arrangements. For example, the Victorian Government in May 2002 declared a reduction in payroll taxes, which has placed greater reliance on State property taxes, regardless of their commitment and the national level expectation that these taxes would be reviewed (and reduced) about 2005. In May 2003, the WA Government announced an increase of 15% in property taxes. An Access Economics Report commissioned by REIA in 2000 concluded that a reduction in property taxes would provide far greater benefits for economic welfare, GDP, and investment than a similar reduction in payroll tax.

Click here for a copy of the Access Economics Report, The Economic Impact of Reducing State Taxes on Property.

For further information contact the REIA Secretariat at reia@reiaustralia.com.au

May 2003