The government of South Australia’s property revaluation initiative could trigger a tax hike, leading to millions in extra taxation revenue, according to a report from Deloitte Access Economics.
The Property Council of Australia commissioned the firm to identify the implications of property increases and the corresponding effects on land tax.
“This exercise has the potential to bankrupt owners of commercial property and significantly increase land tax bills for ‘mum and dad’ landlords,” said SA Executive Director Daniel Gannon. “Under a scenario where property values increase by 10%, the state government could gouge $75 million in extra land tax revenue each year, the bulk of which would be delivered by the commercial sector.”
Specific details of the government’s revaluation program are not yet publicly available, but the South Australian Office of the Valuer-General started the program in mid-2018 and is expected to take five years to complete it. The program would likely involve “more rigorous valuation and data collection methods, more physical site inspections and less reliance on mass appraisal techniques currently used." It is widely anticipated that this process will raise official land values in South Australia in aggregate and, consequently, increase the land tax liabilities for property owners, according to the Deloitte report.
Gannon warned about the viability of the entire property industry, should the plan proceed— especially in a situation where valuations rise by 20%, 30% or even 40%.
“Given South Australia’s lower incidence of institutional investment, it is possible that significant increases could render family-owned or small private-property businesses bankrupt. Taxes and costs have to be passed on, which means tenants and renters could be slugged,” he said.
To counter the anticipated upswing in tax revenue, immediate adjustment to the state’s land tax rates must be done, according to Gannon. Otherwise, the government’s proposal might heighten the risk of bankruptcies, drive up costs for tenants, and put an end to investment funds.
Gannon said the following reforms would need to occur to attain a revenue neutral scenario following a 10% increase to site values: rates in the top marginal tax bracket would need to fall from 3.7 to 3.05%; rates in the bracket below would fall from 2.4 to 2.15%; rates in the next bracket down would fall from 1.65 to 1.42%; rates in the lowest bracket would fall from 0.5 to 0.43%
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