Victoria has joined Queensland in flagging land tax cuts, yesterday announcing relief in the forthcoming May Budget.
The state's chamber of commerce (VECCI) says the move is timely, but the reforms will need to be meaningful.
"Property prices in Melbourne have increased by 61% since 1999. While there have been no increases in land tax rates over this period, these higher property prices have pushed many land owners into higher land tax brackets, causing hardship for many small to medium sized businesses," VECCI CEO Neil Coulson says.
"Thus, while average property prices have approximately doubled over this period, the corresponding land tax liabilities - because of progressive rates and bracket creep - are likely to have increased by a greater proportion.
"This has particularly affected landowners in the middle land tax brackets. For example, a business whose land increased in value from $570,000 to $1.2 million between 1999 and 2005, an increase of approximately 100, would have seen their land tax liabilities increase from $1,000 to $10,000, a 900% increase.
"Increases in property prices are only realised by landowners upon the sale of property. However, land tax is payable annually and many businesses do not have sufficient cashflow to pay the steep tax increases.
"The current cashflow squeeze on businesses attributable to land tax must be addressed with significant relief in the May Budget. Failure to deliver meaningful cuts will put at risk jobs and investment."
In the short term, VECCI considers that government should assist by:
- Increasing the tax-free threshold to $250,000, at a minimal cost to revenue.
- Reducing the steep increases in marginal tax rates on medium-value properties (those in the $850,000-$2.699 million brackets), by reducing their marginal tax rates by 0.25% per annum respectively until at least 2008-09, in line with already-announced cuts in the top tax rate.
- Index brackets concurrently with revaluations, in order to eliminate the effects of bracket creep.
"These steps will help address the short term cashflow squeeze on many businesses – however, in the longer term, the Victorian land tax system needs to be comprehensively reviewed and improved to provide a system that is significantly fairer, simpler and competitive against other states," he says.
"On a related matter, we understand that the government is considering changes to the
Valuation of Land Act that would mean land value would be assessed on highest and best use principles rather than the current rating system of unimproved land value.
"Such a measure, if adopted, would mean Victoria could be out of step with all the other states and impose an even-higher burden on business land taxpayers."