Land Tax (Miscellaneous) Amendment Bill

Mr PEDERICK (Hammond) (16:06): I want to talk about reform and something that the previous government did not want to go near for 16 years: reform to how we fund this state but giving equity to people from across this state. What we saw in the 16 years before our government was just the profligate raising of taxes across the board—whether it was the emergency services levy or whether it was a whole fleet of taxes. There were attempts to tax the banks. The car park tax went beautifully.

We saw how unfairly South Australians were treated, because the simple fact is that governments have to raise taxes. They have to do it equitably because somewhere down the line there is always someone with their hand out, but we also have to be able to fund all the needs. Whether it is in education, whether it is in health, whether it is in police or community services, whether it is in agriculture—something dear to my heart—whether it is in every portfolio right across the board, whether it is in justice and law reform in the Attorney-General's department, everything needs funding.

There is a novel view that people sometimes have out there in the community, that is, they say, 'We'll just get the government to pay.' Governments do not have their own money. They only have taxpayers' money, and you have to deal with it wisely. I take my hat off to what our government is trying to do here with some massive tax reform to bring land tax more into line with something that is not just more equitable here in South Australia but comparable to other states in this commonwealth.

What we are trying to do with this land tax reform as a Marshall Liberal government is to reduce total revenue collected from land tax and to implement a fairer, more competitive land tax system. We have put this package together, we have consulted and it has now been amended quite significantly. It includes increases in the tax-free threshold, cuts to the top land tax rate and amendments to the aggregation rules to ensure a fairer system.

In regard to the land tax package, there will be an immediate reduction from 1 July 2020 in the top tax rate from 3.7 per cent to 2.4 per cent, which will be equal to the average rate for all mainland states. Increasing the tax-free threshold from $391,000 to $450,000—this is one of our reforms before we made some more slight adjustments—from 1 July 2020 will provide relief to all taxpayers. In fact, 9,300 current taxpayers will no longer pay any land tax. We will reduce the amount of revenue collected in land tax by $70 million over three years.

As I indicated in regard to aggregation, we will have rules in place similar to New South Wales and Victoria to ensure that we have a fairer system. This will stop the possibility of investors who own multimillion dollar property portfolios not paying a single dollar in land tax. Yes, some people have said, 'We don't want to do that,' and, yes, they have operated within the law now, but what we are trying to do on this side of the house is make it equitable across the board. We are also ensuring that self-managed superannuation funds are not impacted by the reforms. So 92 per cent of individuals will be pay less land tax, which is 47,800 people.

The Hon. D.C. van Holst Pellekaan: More now.

Mr PEDERICK: It is more now with these other reforms that we are bringing in place and I will talk more on them in a moment. Yes, there will be some people who will pay more land tax. Seventy-five per cent of company groups will pay less land tax and some will pay more land tax. In regard to trusts, some will pay more and some will pay less. It is difficult to work through the exact numbers, but people will have the option to nominate beneficiaries so they can work through that with their accountants.

Since the June budget, the government has consulted widely and listened to concerns expressed about aspects of the proposed reform. The fact that the government has significantly amended its reforms demonstrates the good sense of consulting widely. In regard to issues around tax rates, there is a very consistent message coming from the consultation that, if we are intent on adjusting the aggregation rules, the top land tax rate had to be reduced more quickly and closer to the national average land tax rate.

In regard to the rate, the proposed top rate will be 2.4 per cent, compared with Queensland, where it is 2.75 per cent; Western Australia, 2.67 per cent; Victoria, 2.25 per cent; and New South Wales, 2 per cent. We have come to the conclusion that we will work on the average, and the average of the mainland states is 2.4 per cent. In Western Australia, there is also a 0.14 per cent Metropolitan Region Improvement Tax payable on site values. The threshold in South Australia for the top tax rate will still be the lowest for all mainland states.

Certainly, aggregation is not new. Aggregation rules already exist. It is about getting equity between some people paying tax and some people who do not pay tax. Yes, it is change and there will be some people who will pay a little bit more tax, but the vast majority of people across South Australia will pay less.

Something we have listened to and flagged in our most recent amendments is in regard to the so-called mum-and-dad investors who own multiple properties, either by themselves or jointly with another individual, and clearly receive a sufficient return from rental income to justify continued investment in multiple properties. In regard to that, we have some amendments to help secure this legislation and make sure that we can get it through if people have a good look at it. This could be a once in a generation opportunity for land tax reform in this state.

The new amendments in regard to this reform increase the threshold where the top land tax rate of 2.4 per cent commences. The threshold for the top land tax rate will be increased by $250,000 in 2020-21, from around $1.1 million to $1.35 million. The threshold will then be increased by a further $250,000 to $1.6 million from 2022-23. The top rate will be indexed annually by site value growth post 2022-23, consistent with existing practice.

The amendments also introduce a new marginal tax rate of 2 per cent between the previous top threshold of around $1.1 million and the revised top threshold. We will also introduce a requirement for an independent review of the impact of the total land tax reform package in 2023. I think that a review of the legislation is a good outcome. This will include the amendments introduced in the 2018-19 and 2019-20 budgets.

The draft Land Tax (Miscellaneous) Amendment Bill 2019 was introduced in the parliament on 16 October 2019. The legislation included the introduction of a new approach to aggregation and a reduction in the top land tax rate to 2.4 per cent for the taxable site value of land above a top threshold of around $1.1 million from 2020-21. As I have indicated concerning the amendments to the bill, under the existing provisions of the Land Tax Act 1936, thresholds are indexed annually by growth in the average site value of land subject to land tax as determined by the Valuer-General.

The top threshold in 2020-21 is estimated to be around $1.1 million under the bill introduced into parliament. It is proposed that the threshold for the 2.4 per cent top tax rate will be increased by $250,000 to $1.35 million in 2020-21 and 2021-22. The threshold will be further increased by $250,000 to $1.6 million from 2022-23 and then indexed annually in line with average site value growth as per existing legislative provisions.

In conjunction with the increase in the top threshold, the bill proposes to introduce a new marginal tax rate of 2 per cent on the taxable site value of land between the existing top threshold of around $1.1 million in 2020-21 and the proposed new top threshold, rather than 1.65 per cent. This reduces the budget impact of the increase to the top threshold while still delivering further tax relief for taxpayers.

In regard to general land tax rates, the higher trust surcharge land tax rate incorporates an effective surcharge of 0.5 per cent for certain trust-held land, capped at a maximum tax rate of 2.5 per cent. Under the new proposed structure, the trust surcharge will be a maximum of $7,565 in 2022-23 compared with $5,825 under the current proposed structure. The increase in the maximum trust surcharge under the revised rate structure reflects the increased maximum threshold.

In regard to having an independent review of the legislation, it is proposed to include a provision in legislation for an independent review of the overall impact of the land tax reform package in 2023. The review will consider whether the estimated value of relief has been delivered to taxpayers. It will include all the land tax reforms introduced by the government since coming to office, including those legislated following the 2018-19 budget.

Reform is not easy: it is difficult. We have trodden a path to get to where we are today debating this legislation. We are a reformist government. We have already given businesses massive relief by lifting the payroll tax threshold to $1.5 million, and also to taxpayers right across the state in giving $90 million relief annually with respect to the emergency services levy. I commend the work we have done in working through this process. In an imaginary world where everything just happened, you would not pay any tax, but it just does not work like that.

The Hon. D.C. van Holst Pellekaan: We wouldn't have any roads or hospitals or schools.

Mr PEDERICK: Exactly right. As the Minister for Mineral Resources rightly says: you would not have any roads, you would not have any hospitals, you would not have any education. You would not have a functioning police service; you would have anarchy on the streets. The simple fact is that, as a government, you have to find a way, as equitably as you can, to raise taxes but also to deliver those vital services right across the board to the people of this great state.

I own some properties. I have my principal place of residence, I have a farm at Coomandook, I have an investor block in Murray Bridge and—

The Hon. S.C. Mullighan: Is this a confession?

Mr PEDERICK: Just a declaration.

Members interjecting:

Mr PEDERICK: Well, you can look up my register of interests. I am sure some people take more interest in it than others. It is not a long list. I am only a humble person from Coomandook. So, I have an investor in Murray Bridge and I have one up here in the city. There may be some changes to how I pay land tax, and I will look at that when the time comes. I will work through it if there are any changes in regard to this legislation going through.

We see that members on the other side hate reform. They hate the thought of reducing the top tax rate from 3.7 per cent to 2.4 per cent. They hate the idea of actually saving money, because the Labor Party has only one thing that runs through its veins, and that is to tax people—to tax them out of existence.

Mr Brown interjecting:

Mr PEDERICK: You can contribute later.

Mr Brown interjecting:

Mr PEDERICK: No, that's great. What we need to do is to get this legislation through this place, get it into the other place and get it enacted so that we can get fairness and equity for investors in this state, and also to have a land tax regime that is closer to what is happening in other states. We hear people say, 'People will just move,' and do this and that. Well, I have already read out that most of the top tax rates are higher across the board and aggregation rules exist in other states, so where are people going to go?

I will be interested in the debate on this bill. There has been a lot of conversation out in the community and in media circles, but as far as I am concerned we need to seek equity for the South Australian taxpayer. We need to give them the opportunity to pay less tax, because what this proposal does is that over time it actually reduces the overall land tax burden to the constituents in South Australia, and that is something that the Labor Party hates. I commend the bill.