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Land tax payers worse off under new changes, Lucas concedes

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Treasurer Rob Lucas has admitted land tax payers will be worse off under the Marshall Government’s proposed new legislation, conceding the changes were forced by a projected $2.1 billion write-down in GST revenues.

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Mooted changes to the way property taxes are aggregated have put the Government under fierce pressure since Lucas’s June budget, but the Treasurer calmed some of the dissent with a draft Bill this month, which was sold as compromise that would “save South Australians $70 million over three years”.

The Bill retains the aggregation clampdown but also sees the top marginal tax rate reduced from 3.7 per cent to 2.4 from next year, when the changes come into effect.

It follows an earlier change introduced in the previous 2018-19 budget – also coming into effect from next July – that would see the tax-free threshold increased from $391,000 to $450,000.

“We’re saying our total reform package now is a saving of $70 million over three years,” Lucas told media after the draft legislation passed cabinet this month.

Is there as much of a saving to land tax payers as a result of the total reform package as there was in last year’s budget? The answer is: no, there isn’t

But he raised eyebrows last week at a land tax forum organised by Adelaide MP Rachel Sanderson, when he warned attendees he could be forced to introduce “other revenue measures or other expenditure reductions” if the legislation is defeated in parliament.

Asked to clarify, Lucas told InDaily the draft Bill would see a net increase in Government revenue, with the mooted $70 million saving the result of his earlier changes to the threshold – which already passed parliament last year as part of the Budget Measures Bill.

“The existing first tranche of land tax reform is already legislated,” Lucas said.

“Is [the saving to taxpayers] as big as we were hoping to do last year? The answer’s no.

“Is there as much of a saving to land tax payers as a result of the total reform package as there was in last year’s budget? The answer is: no, there isn’t… but it’s still a $70 million reduction in land tax.”

The 2018-19 budget papers show land tax revenue increasing despite the mooted reductions, reflecting “the impact of expected property revaluations arising from the Valuer-General’s comprehensive review of site values”.

Above, land tax revenue is detailed in the 2018-19 budget, and below, in this year’s document.

Lucas denied the Government had been less than candid in the way it had sold the new Bill as a net saving to investors, arguing that it was part of a broader “land tax reform package [which] doesn’t start till July 1 next year”.

“The Government’s not being disingenuous, we’re saying our total reform package now is a saving of $70 million over three years,” he said.

But he conceded the original reforms – honouring an earlier election commitment – had been introduced before a shock GST hit, which would see expected revenues slump by $517 million in 2019-20, growing to $760 million by 2021-22.

“We did last year’s budget without the knowledge we were going to lose $2.1 billion in GST [over four years],” Lucas said.

“Last year’s budget was predicated on a set of circumstances which didn’t include a GST write-down.

“In last year’s budget estimates [the cost of the reforms] was going to be over $100 million over three years – the net cost now is 70 million… it’s not as big a reduction in revenue as had already been factored in.”

The 2018-19 budget statement shows that year’s threshold and proposed rates reforms were budgeted to cost the Government less than $100 million over the forward estimates.

Source: 2018-19 Budget

This year’s budget originally allowed for $40 million a year to be returned to Treasury under the aggregation changes, however that has now been revised to $86 million a year after an external review of the Government’s modelling.

If the top tax rate had remained at 3.6 per cent, the annual impost would have been $118 million.

Lucas this week moved to clarify his comments to the land tax forum, when he warned “if the legislation is defeated, the Government will need to look at how it will address the budget issue – whether it be by other revenue measures or other expenditure reductions”.

He told parliament on Tuesday: “I never at any stage have threatened new taxes of any particular form or another.”

Asked by InDaily to clarify what he meant by “other revenue measures”, Lucas said: “Anything that’s not a new tax.”

“If you look at this year’s budget, there’s a whole variety of revenue measures, including fees and charges,” he said.

“I said ‘revenue measures or expenditure reductions’ [but] we’ve promised not to introduce new taxes… it would be completely inconsistent with reducing ESL and reducing payroll tax if we did that.”

But he declined to suggest any options, saying “I’m not going to be flagging for you what some of those things are [but] there are a number of ways where ultimately there’s an increase in revenue in the [current] budget papers, either by a policy decision, fees such as increased penalties for speeding or fines for mobile phone use – all of those are revenue measures”.

“There are a whole lot of other things,” he said.

“Some things ultimately we’re considering because of the write-down in GST revenue, we’re having to respond to that in a variety of ways to do with the budget.”

The latest rhetoric is at stark odds with that used when the draft legislation was announced earlier this month, when Lucas hailed it as a “bold and comprehensive reform package” that would see a vast majority of ‘mum and dad’ investors better off “as a result of the increase in the threshold and reduction of the top rate”.

Asked at the time whether the aggregation changes had shifted the goal posts for investors, he said: “The difference in this case is that 92 per cent of ‘mum and dad’ investors… will be better off as a result of these reforms, and 75 per cent of company groups will be better off.”

“We’re not concerned about the flowdown effect, because the overwhelming majority of investors will be better off.”

At the time, he also defended the aggregation changes by arguing it was manifestly unfair that some investors should be able to use trusts to ensure they paid no land tax at all.

InDaily today sought clarification about how many people fell into this category, with Lucas’s office conceding they have no relevant data.

“As the Treasurer has said, people who have established themselves into trusts, with each trust having a property valued underneath the threshold, don’t currently have to pay land tax and therefore Revenue SA currently don’t have record of them,” his office responded.

The latest revelations come as Premier Steven Marshall raised eyebrows in parliament yesterday, by appearing to equivocate when asked by Labor if Lucas would remain Treasurer “until the next election”.

“I’m not in the habit of speculating regarding what will happen in the cabinet,” said Marshall, who earlier this year firmly ruled out any ministerial reshuffle before 2020.

“In the fullness of time, we will make it clear exactly and precisely what we will be doing.

“Obviously, Mr Lucas is doing an outstanding job as the Treasurer of South Australia. It’s a tough set of circumstances at the moment, with the slowing Australian national economy…

“As I’ve said, these are matters that will be considered in the fullness of time.”

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