Lucas did the media rounds today after last night confirming his long-flagged compromise to dramatically reduce the top land tax rate from 3.7 per cent, while retaining a controversial plan to apply aggregation laws to all property owners.
The proposed new top rate – subject to consultation and parliamentary assent – will be 2.4 per cent, lower than the previously mooted 2.9. However, Lucas today confirmed to InDaily that a surcharge of 0.5 per cent will be applied to trusts under the $1.1 million cap.
While some prominent investors and backbench discontents cautiously welcomed the revised plan, the broader angst from longtime opponents showed no sign of abating this morning.
Lawyer and longtime Liberal Party member Richard Solomon, who has registered the business name “True Liberals” with a view to forming a breakaway party, told InDaily: “I think the battle’s about to start.”
The anger is even greater
“What Marshall and Lucas have put forward is mutton dressed up as lamb,” he said.
While Lucas has made a virtue of his revised policy for ‘mum and dad’ investors, Solomon insists many of those have been “completely overlooked”.
“A lot of them have far more than one property and will face near to financial ruin if this all goes through, even with the reduced single holding rate,” he said.
“From what I’ve been hearing, the anger is even greater.”
That was echoed by the property sector, with Property Council president Steve Maras insisting “many ‘mum and dad’ investors are going to be worse off”, arguing with the surcharge on trusts and looming expected valuation increases from an ongoing review by the Valuer General, many affected investors will still be paying “something equivalent to 3.7 per cent”.
Maras argues the Government should “park the whole aggregation and wait to see what the impact of the revaluations is”.
“The emails and calls that are coming through show me this is going to go on and on and on,” he said.
“People are going to be greatly affected.”
Others who had formerly voiced their displeasure, however, were more buoyant, with property mogul Harry Perks telling InDaily: “To me, it’s a lot better than I thought it would be, and more in line with other states, which is what we needed.”
However, he added that “obviously there are still people affected by this”.
While some on the Liberal backbench believe the compromise is as good as they could have hoped for, there is still a mood of volatility, with others unhappy with both the Government’s abrasive rhetoric towards some property holders, and the fact that a relatively small number of individuals and businesses will be hit by a tax reform that is now budgeted to raise an extra $86 million in revenue – more than double the $40 million forecast in the June budget.
Former state Liberal president Steve Murray, the sole MP who has publicly voiced opposition to the land tax reform, did not comment today. Fellow right-winger Sam Duluk, who has previously acknowledged industry disquiet about the aggregation impost, told ABC radio the 2.4 per cent rate was “a fantastic outcome”, enthusing: “I think we have something that industry can work with and we can all get behind.”
However, Lucas concedes Treasury significantly underestimated the extent of the aggregation impost, admitting the budgeted proposal would have actually reaped closer to $118 million – three times the forecast revenue, consistent with what the property sector claimed at the time.
Lucas says that the $86 million hit will leave 4300 individual investors and 2600 company groups worse off, but was unapologetic about the impost today – and unwilling to significantly reform the legislation further, despite a looming consultation process.
I wouldn’t characterise it as a debacle
“We’re not going to bend over for the Property Council,” he said.
“If [executive director and former Lucas staffer] Daniel Gannon and the Property Council want us to bend over, well that’s not going to happen – they can keep on bellyaching for as long as they wish to… they’ve not been able to defend a position where someone owns $3 or $4 million in property and doesn’t pay a dollar in land tax.”
Gannon responded, saying “it’s got nothing to do with bending over, it’s about the State Government delivering on its promises of lowering land tax bills for South Australians – not increasing them”.
“If the State Government isn’t for turning, then they’ll need to front up and explain why they’re so keen to diminish the state’s investment environment and trash nest eggs and business prosperity,” he said in a statement.
Despite the magnitude of the budget windfall from aggregation reform – which is now almost on par with the revenue grab from the former Labor government’s doomed Bank Tax – Lucas today insisted he was “not concerned about the flow-down effect [on the economy] because the overwhelming majority of investors in SA will be better off”.
He defended the Government’s handling of the debate, saying: “I wouldn’t characterise it as a debacle.”
“The normal process for a tax bill is we just plonk the tax bill on the table that’s it, but because this was so complicated and complex, because we hadn’t made final decisions, because we knew we wanted to stop the circumstances in terms of some people paying no land tax at all… we did it differently and that left us open to the scare campaigns,” he said.
“Because we couldn’t answer the detail of those questions we left ourselves exposed… we didn’t have the time prior to the budget and were not able to consult the wide range of groups that we’ve been able to consult since… it’s a much better package now than it would have been.”
Despite the new top land tax rate remaining above the national average, Lucas insists it is “nationally competitive”.
He conceded some of the policy’s losers “may make the decision to sell off their properties” but denied this would lead to “a mass sell-off… or gargantuan increases in rentals”.
“Clearly one of the options for some investors might be to reduce the extent of their land holdings [but] we don’t believe that will be a significant response to the policy package,” he said.
Master Builders SA was another stakeholder unconvinced, with spokesman Will Frogley – like Gannon, another former Lucas staffer – saying: “If the Marshall Government was only increasing the threshold and reducing the rate, the building industry would be cheering them to the rafters [but] we continue to strongly oppose changes to aggregation because they are an attack on a major job creating sector.”
“The Government might claim that only 25 per cent of companies will pay more tax, however a large portion of those companies would generate significant – if not most – investment in the state,” he said in a statement.
“Of particular concern is greenfields developers in the north and south… the land they own is particularly attractive to first homebuyers, but if there is a hike in land tax it would be passed on. It’s becoming extremely hard for the average young South Australian to get into their own home and it’s hard to see how this will help.”
He also warned of a “multiplier effect” on the industry, echoing the Property Council’s warning that “the elephant in the room is the looming revaluation which might negate any benefits of the increase in the threshold to ‘mum and dad’ investors”.
Parliamentary opposition to the proposal remains, with SA Best forging ahead with plans to establish an inquiry into the possible effects – a push backed by the Labor Opposition.
Labor leader Peter Malinauskas is also set to hold a series of public forums “to gauge the views of South Australians impacted by the changes”.
“We won’t vote for legislation if we genuinely take the view it’s going to be bad for people and small businesses,” he told InDaily.
“If the Government proposes legislation that’s bad for people and bad for small business, we’re not going to support it… we’re going to go and find out what the real truth is, and hear from the people directly affected.”
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