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Inquiry call as bank boss warns land tax reform will reap "well north" of $40 million

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A prominent member of the Premier’s hand-picked economic advisory council believes the Marshall Government’s land tax aggregation windfall will be “well north” of its budgeted $40 million, as an outgoing member of the Renewal SA board warns the cash grab will “devastate” the local property market.

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Bank SA boss Nick Reade, who led the charge against the former Labor Government’s failed bank tax in 2017, said the “short-term impact” of the proposed aggregation reform was “worrying a few people”.

“We’ve got a number of property customers in SA, and a number of them are quite concerned,” he told InDaily.

He said uncertainty over the exact form of the legislation fed into that concern, adding that “the speculation of how much it’s worth is obviously a significant one”.

Rob Lucas’s budget allocates $40 million a year in extra revenue from when the changes are imposed from next July, although he now calls the budgeted figure a Treasury “guesstimate”, and has stated if it reaps more than budgeted the Government will consider reducing the top land tax rate and increasing the threshold earlier than currently planned.

Reade said he would “fully support” fast-tracking broader land tax reductions, saying the bank had conducted “a very quick assessment from some of our customers [and] we’re pretty confident it’s going to be above $40 million”.

“If I take a few of our customers and extrapolate it across – this is not a perfect science, but I would certainly think it will be well north of $40 million… and probably a reasonable amount more,” he said.

He said he expected the Government’s revenue boost to be more likely around $90 million a year.

Reade is a member of Premier Steven Marshall’s Economic Advisory Council – comprised of business leaders who “provide strategic advice to the Premier on the State Government’s range of bold ideas and policy initiatives”.

However, he declined to say whether land tax aggregation had been referred to the council for input, or even discussed, saying: “To be frank, it’s one of those things I can’t talk about.”

“All our conversations are private… we don’t talk about anything we discuss there,” he said.

However, he added that “as a general rule higher taxes aren’t much good for business and confidence”.

“As a general rule, I’m not a big fan of increased taxes – particularly as it relates to the cost of doing business,” he said.

His comments came as property lawyer and former Labor MP Terry Groom, who finished his tenure on the Renewal SA board this week, told InDaily he believed the Government’s “land tax grouping proposals will have a devastating effect on the SA property market” – and called for an independent inquiry into the land tax system more broadly.

Speaking in his “private capacity”, he echoed Reade’s sentiment on the expected revenue, saying: “The $40 million projected extra revenue is very much underestimated – it is more likely to be three times that or more.”

“Residential rents will most certainly rise – many residential tenancies are six months or 12 months, and landowners will therefore, within a short time frame, seek to raise rents to try to pass on the extra land tax burden,” he said.

“But with stagnant wage growth, where are renters going to get the extra money from?”

He said the issue would “immediately hit” commercial property owners, many of whom operated on longer leases.

“Landowners of commercial properties might find their only option is to sell [and] some might also find themselves paying more land tax than they are getting in rents for some properties,” he said.

Groom said the practice of setting up trusts was not a loophole but “a safety valve against otherwise excessive land tax without governments having to reform the system”.

“There are many empty commercial buildings – some wholly and some in part – in the CBD and elsewhere… yet with grouping of properties for land tax some will face an extraordinary increased land tax burden with little or no means of recouping through rental income,” he said.

“Before the State Liberal Government embarks on grouping and becomes dependent on the greatly increased extra land tax revenue, it needs an inquiry into land tax – and [whether] a single land tax rate should be looked at for each property.”

The Labor Party has not yet articulated a position on whether it would support or block the land tax proposals, saying it was awaiting the legislation.

But Groom said the Opposition “has every justification for opposing the Liberals’ land tax measures”, citing the former Liberal Opposition’s move to block budget measures with the 2014 carpark tax and later bank tax.

Reade, however, said: “I think the point is we all know, and I think even the Government has stated, that we’ve got the highest [land tax]  in the country, and we need to get that down… the angst I’m hearing the most is the retrospective nature of it.”

The bank boss suggested a grandfather clause could be introduced to ensure existing property investors aren’t stung by huge increases.

“If it’s grandfathered, I think there’d be less concern… or we could have opportunities to structure it a bit differently,” he said.

“I assume the Premier and Treasurer are thinking through a pathway forward [and] that would be a good thing.”

His fellow Premier’s Economic Advisory Council member, IT entrepreneur Geoff Rohrsheim, was less fazed.

He likened the changes to recent payroll tax reform which saw commonly-owned businesses grouped for payroll tax purposes.

“That happened – we all move on… because everyone’s in the same boat,” he said.

“For me, as long as everyone’s in the same boat, that’s ok.

“With the land tax, it’s in a similar vein… we need to fix it, there’s obviously a problem there. The previous government recognised that, and had a report done for them, and other states have addressed it.

“I don’t think there’s anyone who could argue people who own millions and millions net worth of property shouldn’t be paying their way, in the same way as people like me who employ a lot of people pay a lot of payroll tax every month… that’s the way it works – that’s our contribution to the state.

“It’s our licence to operate in the state.”

He said SA “can’t have loopholes like that” but “the problem is in the transition”.

“The real discussion the Premier’s hoping to get some input from the industry itself on is how do we move to that without some unintended consequences, which changes can often do… that’s the difficulty of change. We don’t like change. But I’d like to see the input from the industry, not just the complaints.”

Treasurer Rob Lucas rejected an inquiry into broader reforms, and reiterated that he’d be willing to reduce the top land tax rate to 2.9 per cent sooner if he was convinced the aggregation changes would reap more than the budgeted amount.

“If at the end of the day we find there’s more money that’s coming in, we’d reduce the rate even further,” he said.

The top rate is budgeted to drop from 3.7 to 2.9 per cent within seven years, but Lucas said he’s exploring bringing that to three years “or even one”.

“This is a very reasonable Government – we’re prepared to negotiate on it,” he said.

He said Treasury forecasts were hazy because there was “no line of sight” of properties currently valued below the top rate that would be captured under a reaggregation.

“It’s always been the best guesstimate Treasury can put together,” he said.

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