AUSTRALIA – June 2020

CONTENTS SHOULD LAND TAX REPLACE STAMP DUTY IN AUSTRALIA? ...... 1 LAND TAX AMENDMENT BILL 2020 ...... 5 WHERE PROPERTY PRICES HAVE CRASHED SINCE COVID-19 ...... 7 RETAIL VALUES TAKE A HIT...... 8 NO RISE IN GENERAL RATES AS MACKAY REGIONAL COUNCIL HANDS DOWN 'MOST DIFFICULT' BUDGET ...... 9 QUEENSLAND SUPREME COURT CONFIRMS LOCAL GOVERNMENT POWER TO DETERMINE DIFFERENTIAL RATES ...... 10 RATES RELIEF FOR PROPERTY OWNERS ...... 12 PROPOSAL TO CHARGE EXPENSIVE PROPERTY OWNERS HIGHER RATES SHELVED ...... 13 CORONAVIRUS LAND TAX RELIEF EXTENDED TO LICENSED PUBS, CLUBS AND RESTAURANTS ...... 15 SYDNEY LOCAL COUNCIL RATES: NEW FINANCIAL YEAR TO BRING PRICE HIKES, REBATES AND REPRIEVES ...... 16 VALUE CAPTURE: ADORED BY ACADEMICS AND DESPISED BY DEVELOPERS, ITS TIME MAY HAVE FINALLY COME ...... 18 WHY MELBOURNE NEEDS ITS OWN VERSION OF THE GREATER SYDNEY COMMISSION ...... 19 NSW MISSING OUT ON $8 BILLION A YEAR FROM FAILURE TO TAX LAND-REZONING, INQUIRY TOLD ...... 21 THE AUSTRALIAN STATES WHERE HOUSE PRICES COULD FALL BY UP TO $50,000 – AS GOVERNMENTS CONSIDER ONE SIMPLE CHANGE . 22

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AUSTRALIA

Should land tax replace stamp duty in Australia? Property stamp duties are entirely pegged to market conditions, and therefore are an inherently unstable revenue source for the states and territories.

Its critics say stamp duty is an unstable revenue source that creates inefficiencies in the housing market, because it is substantial and can influence people's decisions to sell and buy property. What is the alternative?

At a glance

 Stamp duties are a lucrative source of government income, particularly in populous states.  However, as stamp duties are pegged to market conditions, they can be an unstable revenue source, especially in difficult times, when sale prices fall.  Economists see a case for tax reform in the governments’ approach to revenue generation from property.

Last financial year, across Australia, state and territory governments collectively reaped about A$19 billion in property transfer tax revenues, otherwise known as stamp duties.

Charged to the buyer whenever a property transaction is settled, and calculated on the sale price, stamp duties remain a lucrative source of government income, especially for the country’s most populous states.

International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles. P a g e | 2

For New South Wales, property stamp duties generated A$7.4 billion in 2018-2019, while they brought in A$6 billion for Victoria, and A$3 billion for Queensland over the same period. Other state/territory governments took in an additional A$2.6 billion between them.

However, as large as these revenue numbers were, they also highlighted an underlying problem with transaction based revenue streams.

The figures were all lower than those that had been recorded from the previous financial year, simply because of a softening in property values from 2017-2018, and reduced market turnover.

Property stamp duties are entirely pegged to market conditions, and therefore are an inherently unstable revenue source for the states and territories.

With the economic fallout from the COVID-19 pandemic in 2019-2020 placing both the residential and commercial property sectors under severe strain, it is highly likely that government stamp duty revenues will fall once again as sale prices slip in some regions and overall transaction volumes drop.

Inefficiencies and inequities

At present, every Australian state and territory has a different stamp duty calculation method, although each uses some form of sliding scale based on the transaction price.

For example, New South Wales, Victoria and the Northern Territory all apply fixed percentage rates in a tiered structure, depending on a property’s sale price.

Queensland, South Australia and the ACT charge set dollar amounts based on the sale price, plus additional fees for every A$100 over certain price brackets. Tasmania and Western Australia also charge flat stamp duty dollar rates based on the sale price, and then additional fees are levied on a percentage basis for amounts over certain transaction values.

Dr Gareth Bryant, senior lecturer in political economy at the University of Sydney, believes there is a strong case for tax reform in the way state and territory governments approach revenue generation from property.

He points out that, as well as being an unstable revenue source for governments, stamp duty creates inefficiencies in the housing market, because it is substantial and can influence people’s decisions to sell and buy property.

“It’s especially acutely felt by first home buyers, because it massively adds to the kind of deposit that’s required for people buying their first homes,” Bryant says.

Retirees also can be reluctant to move from their homes, knowing they will likely need to pay out tens of thousands of dollars in stamp duty when they make another purchase, even though some states have introduced concessional rates for pensioners.

However, there are already changes taking place on the stamp duty front. In 2012, the ACT government began a 20-year tax reform program that will ultimately result in transfer duties on property being abolished in favour of higher annual property rates. In end-May this year, the New South Wales government announced a potential phasing out of stamp duty as part of a broad taxation review.

Residential stamp duty rates have been progressively reduced every year, and from 1 July 2018, duty was completely abolished for all commercial property transactions of A$1.5 million or less.

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First home buyers in the ACT also no longer have to pay stamp duty on property transactions, as long as their household income is less than A$160,000.

However, progressive reductions in residential stamp duty in the ACT have led to sharp increases in property rates to compensate, with Canberra homeowners facing average fee hikes of 7 per cent in each of the next three financial years.

Comparing property tax systems

Australian governments considering property tax reform may be able to take something away from the systems in place in other jurisdictions.

In Hong Kong, where a high percentage of property is rented, owners are levied with a 15 per cent flat property tax on the gross annual rental income.

Similar to Australia, stamp duty is levied on purchases on a sliding scale. For residential, it ranges from 1.5 per cent for transactions up to HK$2 million, to a mix of set dollar amounts and additional percentage fees for higher amounts. The maximum rate is 8.5 per cent for transactions above HK$21.74 million. Commercial transactions are assessed on a different cost and percentage scale.

Danny Kwan, a tax partner with PwC in Hong Kong, says there are a lot of sensitivities in the market when it comes to property taxes.

“Hong Kong is in a very strange situation. There are a lot of retired people, and there are a lot of tycoons who are holding most of the land resources,” Kwan notes.

“The tax is very low, and there’s no capital gains tax. Hong Kong attracted a lot of investors, and people became rich when they bought more and more properties.”

Kwan says this includes the “indigenous people” living in Hong Kong villages, who hold a lot of the agricultural land.

“These people have a vested interest already with the Hong Kong property market. A lot of the time, when the government needs to increase the land supply, it’s actually quite difficult to move, because it’s not easy to find a piece of land. That’s why the prices keep going up.”

In a bid to keep a lid on property prices, rather than imposing higher taxes on citizens, the Hong Kong Government has focused its attention on deterring foreign investors.

In 2010, the Hong Kong Government introduced a 30 per cent transactional tax for foreign buyers (known as Buyer’s Stamp Duty), as well as further taxes ranging from 10 to 20 per cent if a property is sold within three years (known as Special Stamp Duty).

This was largely aimed at curbing the significant amount of offshore money pouring into the country.

“Using tax, the government is already affecting the property market, but it only helps in deterring money from the mainland,” Kwan says.

“Whether the government can use another tax mechanism to change the current situation will be very difficult, because we are kind of at a crossroads on whether we should maintain the capitalist market driven by supply and demand.”

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In Singapore, about 80 per cent of the S$4 billion (A$4.3 billion) in property taxes received by the government annually is from commercial properties.

Property tax rates on residential properties are applied on a progressive tax scale, with owner-occupiers taxed between 4 per cent and 16 per cent, depending on the assessed annual rental value (ARV). No tax is payable on the first S$8000 (A$8700).

That’s the situation for most of the Singaporean population, who live in subsidised public housing. Although they receive an annual property tax bill from the government, there is rarely anything to pay.

Residential property investors also pay tax on a sliding scale, ranging from 10 per cent to 20 per cent, depending on the ARV.

Stamp duty is payable on residential transactions under a tiered system that caps out at 4 per cent of the purchase price for properties valued in excess of S$1 million (A$1.1 million). All commercial properties are taxed 10 per cent of the ARV.

“In so far as property tax is concerned, the impact is not so great because most people see property tax as a kind of municipal charge,” says Leung Yew Kwong, principal consultant at KPMG in Singapore. “Because the amount is not a lot, they’re not concerned by property tax when they buy a property.

“Generally speaking, people are quite prepared in their mind to pay the stamp duty up to 4 per cent. The only problem comes when you buy a second property.”

For second properties, the duty rate is far higher, at 25 per cent, under what is known as Additional Buyer Stamp Duty.

A possible roadmap for Australia

Bryant advocates that Australian states and territories move away from transactional stamp duties towards land- based taxation systems.

He explains that the first big advantage of a land tax is that it is usually levied on the unimproved, underlying value of land, which does not discourage the development of land.

“The second main reason in favour of land tax is that it is progressive, so it is a way of shifting our tax system towards one that is taxing wealth, and therefore addressing wealth inequalities.

“The third reason is that it is a more stable source of revenue for the state governments around Australia. That’s because underlying land values tend to be much more stable than housing prices and the turnover of the housing market.”

However, he adds, there should be a distinction between owner-occupiers and investors.

“I think there is a much stronger case for removing stamp duty for owner-occupiers than there is for investors. Stamp duty can have a useful counter-cyclical effect on the investment property market.”

Bryant says that land tax is an untapped source of revenue waiting for state governments to draw upon, but politics is the thing stopping them.

“That’s because the idea that there could be a tax on the family home is something that would leave state governments exposed to serious political opposition,” he says. International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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“What would need to be done there is a range of options to mitigate those problems, to make it fairer and politically acceptable.”

This would include having higher land tax for more expensive properties, having value thresholds for when land tax comes into play, and making sure there are arrangements for people to defer their land tax if required.

“Ideally, coordination between state governments would be crucial to the politics of implementing this type of reform.”

Land Tax Amendment Bill 2020 Ms O'CONNOR (Clark - Leader of the Greens) - Madam Speaker, we will be supporting the Land Tax Amendment Bill 2020. We recognise that it amends Division 2 of the Land Tax Act to include an extra exemption for commercial land in next financial year.

We also acknowledge that this amendment bill gives the Commissioner for State Revenue significant discretion in assessing applications for land tax relief. While there are provisions in this amendment that the commissioner has to be satisfied the land is commercial land and that the commercial landowner has been adversely impacted, as Mr O'Byrne pointed out and as the legislation and the second reading speech make clear, there is broad discretion on the part of the Commissioner for State Revenue to administer the exemption. I think it is unlikely that of the 8000 individuals or entities that now pay commercial land tax in Tasmania all of them will apply or be eligible but I believe the parliament should be given an indicative cost of this to the budget bottom line. I listened to Mr O'Byrne's headline figure of $35 million potentially but is that not if they max out the entire commercial land tax budget?

I wanted to ask a question about the provision in the bill under commencement. Clause 2 - Commencement - says the act commences on the day on which this act receives Royal Assent but, if it does not receive Royal Assent by 1 July 2020 this act is taken to have commenced on 1 July 2020.

I have a clarification question because when you go to the Acts Interpretation Act 1931, section 5(1) says, 'The word Act used in relation to a legislative enactment, shall include all Acts and ordinances which have been duly made and passed by the Parliament of Tasmania or by any council or authority empowered to make and pass laws in Tasmania, and to which assent has been duly given by or on behalf of the Sovereign.'.

When you go to section 9(2) of the Acts Interpretation Act it says, 'every Act to which the Royal Assent has been given by the Governor for or on behalf of the Sovereign before the commencement of section 8 of the Acts Interpretation Amendment Act 1981 shall, unless the contrary intention appears in the first-mentioned Act, be deemed to have come into operation on the day on which that Act received the Royal Assent.'.

Then in section 9(3A) it says, 'Despite subsection (3), if the provision of an Act provides that the Act or a portion of the Act commences on a day, or a day or days, to be proclaimed, that provision and the provision providing for the short title of the Act come into operation on the day on which the Act receives the Royal Assent unless the Act expressly provides otherwise.'.

Can the minister confirm that the Acts Interpretation Act has been applied here and that the commencement date conforms with section 9(3A) of the Acts Interpretation Act? Given that the minister is not listening I hope his advisers are.

Mr Ferguson - I am listening. International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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Ms O'CONNOR - What did I just ask you? It is all fine, minister. I am curious about the commencement day which makes it clear that if this amendment bill has not received the Royal Assent by 1 July it is taken to have come into effect by 1 July but it will not have received Royal Assent, so by the usual measure of when an act becomes law this act potentially does not. I just did a shallow dive into the Acts Interpretation Act and would like some clarity on that commencement date.

Over the past three months this parliament has been called on to do things that it has never had to consider, let alone undertake before, and despite some of the politics that sat over this place in more recent days I think this parliament should be quite satisfied with the work we have done collaboratively to try to reach as many Tasmanians who have been hurting as a result of the pandemic response. I know we are dealing with a conservative government but there has been a distinct overlay of sound socialist principles to the decisions that have been made about policy adjustments and the allocation of public funding in order to minimise or mitigate harm caused by events outside the control of every Tasmanian business, every Tasmanian in the tourism or hospitality sector or small business sector who lost their jobs.

I acknowledge that the Premier has been adaptive to changing circumstances and needs and there have been moves that have the support of this parliament. In fact it was a Greens amendment to the first COVID bill that helped us make sure there was a freeze on rent increases and there was subsequently a freeze placed on evictions. The Premier has made sure there is extra relief funding there for the homelessness sector and a rent relief fund has been established which was advocated for by the Tenants' Union of Tasmania and the Greens. We are seeing that this parliament has been called on to try to identify those areas that are hurting and clearly, businesses and the commercial sector are hurting, and they are the businesses that have had to let people go.

I want to acknowledge at this point that a very significant amount of the harm caused by the pandemic has been felt by young people who are in casual and part-time work and by women. Particularly for young people right now, most of them have lost their part-time employment, many are not eligible for Commonwealth support, most were not working long enough to be eligible for JobKeeper and those who are studying are having to do so online without contact with teachers, lecturers and other students as part of a learning community.

This parliament needs to pause for a moment and think about how hard young Tasmanians are having it right now. I know this is being felt right across the community but I have not spoken to a young person in months who has worked, and while they are sitting at home worrying about their future, they also have their eyes on the Arctic, which hit 38 degrees Celsius this week. For our young people, I hope every member of this parliament every single day we are in here always has them front of mind, because they have quite understandably formed the view that they have been shafted.

This legislation provides emergency relief to businesses. I know there is a set of tests that the Commissioner for State Revenue will apply when assessing an application for land tax relief next financial year, but would, for example, the owners of short-stay accommodation properties potentially be eligible?

Mr Ferguson - They're not expected to be, no.

Ms O'CONNOR - What about primary producers, particularly potentially foreign companies?

Mr Ferguson - I'll come back to you on that, but it will be on the basis of what is commercial land and not residential.

Ms O'CONNOR - The Farrell family?

Mr Ferguson - I'll come back to you but I won't be going into individual instances; that wouldn't be appropriate.

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Ms O'CONNOR - Okay, well, casino owners?

Mr Ferguson - I'll come back to you.

Ms O'CONNOR - Okay, thank you. As we know, Madam Speaker, it is a matter of great regret that the pokies venues will be open again on Friday and that opportunity that too many low-income Tasmanian families had to put the money they received into food, clothing, their children's education will evaporate. I read somewhere that over the course of the three-month period while those pokies dens have been closed, Tasmanians have saved in the vicinity of $40 million. That is $40 million that was going back into the community, children's education and recreational opportunities, and on Friday it is all over. That is a social tragedy and an economic tragedy too, because that is $40 million that will not be going to small businesses or circulating the economy - it will go straight into the Farrell family's Sydney bank account.

With those few words I will park and look forward to other contributions and the minister's reply.

Where property prices have crashed since Covid-19 Inner city Melbourne and Sydney homeowners are reeling, with suburbs in these areas posting the largest declines in property prices over the last two months.

While property values have declined just 0.4 per cent overall across the month of May, according to data from CoreLogic, the performance of individual states paint a different picture.

Perhaps unsurprisingly, the most expensive parts of Sydney and Melbourne seem to be leading the current downswing.

“Over the month of May, dwelling values in the top quartile of the Melbourne market had fallen by 1.3 per cent, compared with a 0.6 per cent decline across the middle of the market and a 0.3 per cent decline in the lowest value quartile,” CoreLogic stated.

Across Sydney, the highest market segment also saw the biggest decline: 0.6 per cent, compared to a 0.4 per cent decline across the middle of the market and a 0.1 per cent increase in the lowest value segment.

Which areas have been hit the hardest?

The Perth district of Mandurah has fared the worst, posting the largest decline in dwelling market value over the past two months. In fact, its May dwelling values were a whopping 38 per cent below their 2006 peak.

“International border closures in response to COVID-19 may have created a significant demand shock which had interrupted a recovery in the Perth south-east region,” CoreLogic stated.

“Prior to this, dwelling values in the area had seen four consecutive months of growth between December 2019 and March 2020.”

Malvern East in Melbourne has been the worst suburb-level performer between the end of March and the end of May across the capital cities, with total dwelling values down 4.8 per cent.

The Melbourne suburbs of Glen Iris, Northcote, Port Melbourne and Brunswick East also suffered relatively steep value falls.

In Sydney, the biggest suburb-level falls in dwelling values occurred in Mosman (-2.5 per cent), Lane Cove North (- 2.4 per cent), Manly (-2.3 per cent), Leichhardt (-1.7 per cent) and Wentworth Point (-1.4 per cent). International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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This table reveals the change in dwelling values since coronavirus:

The change in dwelling values between March 31 and May 31. Source: CoreLogic

CoreLogic expects continued declines in inner-city markets that had previously relied on international migration for new housing demand, but notes declines will become more broad-based.

“As the wider economic downturn drags on housing demand, mild price declines are likely to spread, resulting in a more broad-bases downturn in the next 12 months.”

Which areas will bounce back?

Areas that aren’t so reliant on international students and tourism, and that have little or no coronavirus cases will show some price growth over the next six months, Domain economist Trent Wiltshire told Yahoo Finance.

“Prices may grow modestly - or at least outperform other cities - in Perth, Adelaide and Canberra,” Wiltshire said.

“A key reason it the fact there are few Covid-19 cases, or even none, and the economy can reopen and pretty quickly return to some form of normality.”

Retail values take a hit Retail property values have been cut while office towers have showed greater resilience in filings from ASX-listed Mirvac, Cromwell and Dexus that offer a barometer on the effect the pandemic slowdown has had on commercial real estate.

Led by Susan Lloyd-Hurwitz, diversified player Mirvac slashed a hefty 9.9 per cent from the value of its high-profile malls portfolio over the second half.

Brisbane-based fund manager Cromwell, which is under attack from its major shareholder over its strategy, cut the valuation of a Polish shopping centre portfolio it controls by 5.3 per cent.

While Mirvac-owned centres are among the most productive in the country – Broadway in central Sydney has been ranked in the past as one of the top malls in sales turnover per square metre – its portfolio is considered among those more exposed to falling foot traffic during the coronavirus-imposed restrictions.

"COVID-19 has transformed the world in the space of a few short months," Ms Lloyd-Hurwitz said.

Mirvac will pay total distributions of 9.1¢ per unit for the full 2020 year, a drop of 21 per cent on its 2019 pay-out. Along with other major ASX-listed property players, in March Mirvac withdrew its earlier guidance for a 5 per cent lift in distributions to 12.2¢.

An analysis of foot traffic by Macquarie found smaller neighbourhood and suburban shopping centres have held up significantly better than the major fortress malls and CBD retail destinations during the downturn.

Footfall declined the most for CBD assets, a headwind for landlords with greater exposure to the central city, including Mirvac.

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In contrast, Mirvac's industrial assets gained 1.4 per cent and its office towers 0.4 per cent during the second half, with greater valuation gains over the full year.

Thanks to COVID-19, the normal rules no longer apply to our shopping routine, or the relationship between retail tenants and landlords.

The country's largest office landlord Dexus, led by Darren Steinberg, has cut the value of its diversified portfolio by 1.2 per cent.

"The office portfolio experienced a circa 1.5 decline on prior book values as a result of the softer assumptions relating to rental growth, downtime and incentives over the next 12 months," Mr Steinberg said.

"The industrial portfolio experienced a circa 0.7 per cent increase on prior book values, reflecting the quality of the portfolio and investment attractiveness of the asset class.”

The update on valuations from Cromwell had been highly anticipated, with the fund manager under siege from its largest shareholder, Singapore's ARA Asset Management, which this week launched a part takeover in an effort to win board representation.

Cromwell's handling of the Polish malls portfolios is a sore point with ARA. Cromwell has advised its shareholders not to accept the ARA offer, warning the Singaporean investment house could win control of the company, replace the board and influence strategy for its own benefit.

No rise in general rates as Mackay Regional Council hands down 'most difficult' budget The toll of the coronavirus pandemic on Mackay Regional Council is evident in the figures of its 2020-21 budget, which has forecast a $5 million deficit.

Key points:

 General rates will not rise but updated land valuations will mean some notices increase  $7 million has been allocated to COVID-19 recovery assistance  The Mayor says revenue losses made the budget very difficult to draft

Mayor Greg Williamson said revenue losses and the multi-million-dollar job of assisting the region's recovery made a noticeable impact on the $306 million budget.

"We've had revenue streams disappear in waste and the entertainment centre ... those revenue streams have been always there in previous budgets, they're not here now," he said.

As part of council's plan to alleviate financial stress on residents, there will be no rise in general rates but some notices will increase to align with new land valuations by the Department of Natural Resources.

"Our data shows that most residential ratepayers, around 59 per cent, will see no increase or will receive a reduction in their rates in 2020-21," the Mayor said.

He said it was against legislation for council to freeze rates, as they needed to be in line with State Government valuations.

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"But the decision by council to adopt no increase in general rates, despite CPI being around 1.8 per cent, will ensure any rises in valuations aren't exacerbated."

Cr Williamson said it was an achievement to keep the deficit to $5 million.

"When we first started on the process three months ago, the red ink was overwhelming.

"[The budget] has been a very, very difficult one to put together, and it will probably be the most difficult in the regional council's history in terms of the bottom line."

The rates decision will cost council about $3.7 million, with other COVID-19 support measures putting the total recovery figure around $7 million.

Council will waive fees and charges for businesses impacted by the pandemic and spend $1.2 million on a special round of community grants.

It has also removed the city centre levy and halved development fees until September.

Council's long-term financial forecasts showed there would be deficits for the next two years and a surplus in the following eight.

Much-anticipated local projects secured funding in the budget, with $113 million allocated to capital works, including:

 $1.8 million towards the design of a mountain biking facility running from Eungella to Finch Hatton  $3.3 million for designs and initial construction of upgrades to the Mackay riverfront

"We focused on liveability and how we deliver a tourism product for the region," Cr Williamson said.

Queensland Supreme Court confirms local government power to determine differential rates In Island Resorts (Apartments) Pty Ltd v Gold Coast City Council [2020] QSC 145, the Supreme Court of Queensland recently dismissed an application for judicial review of Council’s decision to set differential rating categories.

The Court confirmed that local governments have a broad discretion to set differential rating categories of land and to levy differential general rates. The case raised the following issues:

 whether a type of tenant was a personal characteristic that was an ‘irrelevant consideration’?  whether the unimproved value of the land, the services the applicant provided to the land and the services Council did not provide to the land were ‘relevant considerations’?  whether the land rating categories and minimum differential general rate were ‘unreasonable’?

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Background The applicants owned 70 properties at Couran Cove on South Stradbroke Island within the Gold Coast City Council (Council) area. The Council passed annual resolutions for differential rating categories and fixed minimum differential general rates in those categories , which affected the applicant’s properties. The relevant differential rating categories differentiated between land that provided rental accommodation to a ’permanent resident’ or to ’itinerants’ (meaning a visitor or tourist). Council’s revenue statement and resolution of rates noted that land used for tourism, including the ’itinerant’ category, placed demand on Council services and should generate a higher contribution to the general rate. The unimproved value of each of the applicant’s properties was only $12,500 and the rates were about 20% of the value of the land. The applicant provided services to its properties such as water and electricity supply, refuse disposal, transport and pest suppression, under an agreement with the Council and the developer of the land. The applicant argued that the Council did not provide any services to its properties within the definition of ’general rates’ under section 92 of the Local Government Act 2009 (Qld).

The applicant applied for judicial review claiming that the Council took into account irrelevant considerations, failed to take into account relevant considerations and exercised their power unreasonably when resolving the relevant rating categories and minimum differential rates.

Supreme Court decision The Supreme Court dismissed the application for judicial review, finding that the Council’s decisions fell within the Council’s power to determine differential rating categories and levy differential general rates. In reaching this decision the Court considered the findings in Xstrata Coal Qld Pty Ltd v Council of the Shire of Bowen [2010] QCA 170, noting that (for deciding rating categories and differential rates):

 personal characteristics of the landowner, if unrelated to the land, are irrelevant considerations; and  characteristics of the land are relevant considerations, such as the use to which the land might be put, the burden the land has on Council’s budget, and the value of the land.

The Court also considered Ostwald Accommodation Pty Ltd v Western Downs Regional Council [2015] QSC 10, noting its finding that the use of land for a major income earning activity was a relevant consideration.

The Court confirmed the broad discretion of local governments to determine differential general rates, which are essentially political decisions of an elected body. Imposing rates is a function that is considered ’quasi-legislative’ and involves an express permission for differentiation with no relevant express statutory constraints.

Although the Court has guiding notions of equity and fairness, these do not justify reading limits into the local government’s broad powers.

Firstly, the Court held that the distinction between renting to a ’permanent resident’ or ’itinerant’ related to an attribute of the land, being the use to which it was put, which was a relevant consideration. International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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It was also permissible for the Council to have regard to the burden the use of land may place on Council’s budget, being the perceived demand tourism places on Council services. The Court noted that although renting a property is always ’owner dependant’ in that the owner has chosen to use their land for that rental use, that does not mean the different uses that land are put to by their owners cannot be a relevant consideration when deciding rating categories and rates. Secondly, the Court found that the Council had not failed to take into account relevant considerations. Although the rates imposed were significant in comparison to the unimproved value of the land and it was open to the Council to consider this, the Court held that the Council was not bound to do so. In any case, the value of the land did not necessarily relate to its burden on Council services for the community benefit.

The Court considered the services the applicant provided to the property were only relevant to utility charges and not differential general rates. The applicant failed to establish that the Council had not provided any ’general rates’ services, as the provision of services by Council is for the community generally and does not necessarily need to be provided directly to the applicant or connected with their land. The Court noted that tourists travelling to the applicant’s resort may benefit from the Council’s mainland roads and medical treatment.

Finally, the Court held that the Council’s decisions were not an unreasonable exercise of power. The Court noted that the Council must be allowed substantial latitude in establishing the criteria for differential rating categories. There was a rational basis for the Council’s decisions, which involved an assessment of the burden to be imposed on the landowners in the ’itinerant’ category and the amount to be raised by the general rate for the community’s benefit.

Implications for local governments This decision has confirmed the broad power local governments have to impose differential rating categories. The Court has shown reluctance to question the unconstrained discretion of a politically elected body in determining differential general rates. This case reinforces that local government distinctions between land rating categories should relate to attributes of land, but that local governments are not bound to consider every attribute of the land, including the land’s value.

In light of the recent Justice and Other Legislation (COVID-19 Emergency Response) Amendment Bill 2020 (Qld) that came into force on 25 May 2020, a regulation may provide for Queensland local governments to continue to exercise their broad powers to decide land rating categories and rates by a resolution outside of its budget meeting process, throughout the 2020-2021 financial year. Although there is currently no regulation to that effect, we anticipate it will be put in place soon so that Councils can respond to the impacts of COVID-19 on their budget for the next financial year.

Rates relief for property owners

The government will significantly reduce the amount of revenue it will receive from residential and commercial general rates in 2020-21. International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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This will provide relief to households and businesses as they get back on their feet after the financial pressures faced during COVID-19.

The usual annual increases to average rates will not be applied to 2020-21 bills to reduce the cost of living and inject more cash into the economy.

Residential properties

When combined with the $150 fixed charge rebate previously announced as part of the ACT Government’s Economic Survival Package, this means that average residential general rates will not increase.

As a result, more than 110,000 households (around two-thirds) will notice a reduction to their 2020-21 rates bills while the remaining property owners may notice an increase due to their land value going up.

Commercial properties

Average commercial general rates for commercial properties with an Average Unimproved Value (AUV) of $2 million or less (more than 90 per cent of commercial properties) will not increase. As a result, around 4,600 commercial property owners will notice a reduction in their rates bills.

Average general rates for commercial properties with an AUV of above $2 million will increase as scheduled. The average general rates increase for these properties will be 5.8 per cent. Where property owners or their tenants have experienced a significant reduction in business income due to COVID-19, they can apply for rates relief as part of the ACT Government’s Economic Survival Package.

More economic support for Canberrans

The rates relief is combined with the support already provided to property owners through the Economic Survival Package including:  Rebates to property owners supporting their tenants through providing rent relief  Stamp duty concessions for more home buyers  Delaying 2019-20 quarter four rates notices by four weeks to allow more time for payment  No interest on deferred rates for property owners significantly affected by COVID-19  A $2,622 credit on the fixed charge on commercial rates (properties with AUV of $2 million or less) in the 2019-20 quarter four notices  The 2020-21 fire and emergency services levy will be charged at the 2019-20 amount  The City Centre Marketing and Improvement levy will be reduced by 50 percent in 2020-21 with the remaining 50 percent deferred by six months.

Residential and commercial landlords are also encouraged to help businesses and families by passing these savings on, where they can, to their tenants if they are struggling to pay rent because of COVID-19.

Proposal to charge expensive property owners higher rates shelved The NSW government has shelved a controversial proposal for councils to charge owners of expensive properties more by changing the way rates are calculated.

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The majority of Sydney councils supported a plan by the state's pricing regulator to shift how rates are assessed away from basing them on a property's "unimproved value" – effectively the value of the land – to its "capital improved value", or actual value.

This would mean property owners with the same sized land would be charged different rates depending on the value of their house or apartment. It would likely mean the owners of expensive apartments would pay more.

The difficulty of implementing the controversial change has been demonstrated by the reluctance of the state government to discuss the plan, recommended by the Independent Pricing and Regulatory Tribunal in 2016.

In its long-awaited response to the recommendation, published on Thursday, the government said it would not introduce such a scheme "at this time".

It cited the lack of a clear case in supporting it, as well as the high cost of introducing a new system and concerns from some quarters about its impact.

"The government also remains unconvinced of the merits of moving to a system of valuation based on capital improved value (CIV) at this time, given the significant potential impact to local residents, substantial implementation costs and the inconclusiveness of extensive public consultation," it said.

"Additionally, it is unclear how the introduction of CIV may unfairly impact particular groups of ratepayers or result in unintended, real-life consequences for families and businesses."

Greens MP David Shoebridge said the government had "fluffed" a chance to deliver a more equitable and sustainable way to levy rates.

"Using the capital improved basis to rate properties rather than the unimproved land value would have allowed councils to access a fairer income stream," he said.

But Local Government Minister Shelley Hancock said "now is not the time for rating upheaval" given the impacts of drought, bushfires and the coronavirus pandemic on people across the state.

The government has not put a timeframe on when it will reconsider basing rates on the capital improved value" of properties.

Local Government NSW president Linda Scott said councils were pleased the government had kept open the possibility of eventually tying rates to the capital improved value of properties.

"Changing the rating structure to a system of capital improved value would better allow councils to have rates that grow with their growing populations," she said.

In an interim report in February, the government said feedback received during the public consultation process for the scheme showed that any change to the rating system would attract "both applause and criticism".

"Every aspect of the system is contested and fraught with competing vested interests, ideas of fairness, and differing views regarding technical application of the legislative requirements," the report said.

In its response to the review on Thursday, the government did support allowing councils to levy a new type of special rate for new infrastructure jointly funded with the state or Commonwealth.

It had previously rejected IPART's proposal to replace pensioner rate rebates with a rate deferral system.

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Coronavirus land tax relief extended to licensed pubs, clubs and restaurants

In response to the coronavirus (COVID-19) pandemic, the Victorian Government has extended its land tax relief to landlords of eligible licensed pubs, clubs and restaurants.

Eligibility criteria specific to this extension of the land tax relief are that:

 A tenant must operate a licensed pub, club or restaurant under a general, full club or on-premises liquor licence as a commercial tenant.  The tenant’s turnover at that premises must have reduced by at least 30% since March 2020.  At the premises level, the tenant’s turnover must have been no greater than $50 million in the 2018-19 financial year, or their expected turnover in 2019-20 financial year must be less than $50 million.

The greatest opportunities in a beaten up sector

Looking forward, Covid-19 has created earnings uncertainty for certain sectors such as those exposed to discretionary retail whilst creating opportunities through an acceleration of structural shifts such as ecommerce. The main casualty is the passive investments that did not take into account earnings risk. In the short term, due to earnings uncertainty, the majority of AREITS (in particular retail REITS), have withdrawn their earnings and distribution guidance, and for the first time under the code of conduct, landlords are now being asked to share the pain with their tenants by providing rent relief.

As restrictions ease and more businesses reopen, collections should improve. However based on the REITs quarterly updates, April’s rent collections are as follows:  retail landlords were able to collect only 30 to 40% of last year's rent,  for offices, they’re collecting about 70 to 80% and  for industrial, about 90 to 95%.

There's been an increase in capital raisings as companies look to strengthen their balance sheet and provide flexibility for growth opportunities. In the long term there's been cyclical headwinds which includes higher unemployment rates and lower GDP growth, which impacts tenant demand, vacancy rates and market rents. Importantly, Covid-19 has accelerated some of the inevitable structural changes such as the adoption of online retailing and more flexible working options. We summarise some of the affected areas below:

Logistics This is the sector we think will most benefit from this new normal. Logistic assets which form part of the supply chain for food and delivery of parcels have shown to be quite resilient. In actual fact, there's been an increase in demand from online retailing which has benefitted that subsector. We’ve factored in a 5% fall in valuations mainly towards the smaller logistic centres which are more exposed to the SMEs.

Retail Most of the large retail landlords which are exposed to discretionary retailing have been impacted and are trading at a large discount to NTA of about 40 to 50%. We see this sector as having the most downside risk to earnings going forward as it suffers from both cyclical and structural headwinds. In Australia, the penetration rate of online retailing has been relatively slow at around 11%. With Covid-19, this is expected to increase to 19% over the next two years. With the increase in retail consolidation and online presence, we expect that the shift of power will move from the landlord towards the tenant. With this, we expect that there will be a rebasing of rents and shorter lease terms going forward. As a result, we're factoring in a 20-30% fall in

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valuation for regional malls and 5-10% for convenience centres as they're more defensive and exposed to supermarkets, and essential services.

Office With the unemployment rate at an all-time high of 10%, tenant demand will be impacted, as will vacancy rates and market rent. What we've learned from past downturns is that when vacancy rates increase from 4% to levels of about 10 to 15% net effective rents decrease from about 20 to 25%. In terms of structural shifts, it is too early to determine how successful the adoption of working from home has been. However, companies now know that with the existing technologies available, certain functions can be done from the home. Offsetting this is the space required for physical distancing and the elimination of hot desking. So net net, we're expecting a 25% fall in valuation for CBD offices and a 15% fall for metro offices.

Residential The increase in the unemployment rate and moderation in migration will have a negative impact on demand however this is partially offset by a reduction in interest rates and expected reduction in supply in both existing stock and new. So we're factoring a fall in sales of about 20 to 30% and a 5% decline in price. However, in the long term we believe there'll be more of an upside risk than downside risk as we know that during downturns the government is supportive of this sector, especially in the first home buyer market segment.

Industrial I think the greatest opportunities will exist around the industrial sector, especially the ones that form a supply chain for ecommerce. Over the next couple of years this will be the only sector whereby we have cap rate compression instead of expansion, which is what we would have expected from the retail and office space.

Summary The REIT space is in a far better position than it was during the GFC. Gearing is much lower at 27% compared to 45% then. Liquidity is also better as more diversified sources of funding and longer durations helps REITs in terms of not having to raise capital and dilute earnings. However, Covid-19 has created both cyclical and structural headwinds to the ability to deliver on capital security and income yield. We remain focused on investing in REITS with sustainable earnings growth, strong balance sheets and favourable thematic drivers.

Amy Pham Fund Manager Pengana Capital Group

Sydney local council rates: New financial year to bring price hikes, rebates and reprieves

The switch to the new financial year will see winners and losers from Camden to Fairfield, Penrith to Randwick and Sydney's southern suburbs.

Camden Council residents will get a one-off $100 rate rebate this financial year, Georges River residents have been given a 12-month reprieve on a 10.6 per cent rate hike but pensioners will lose out on $150, and Fairfield will soon vote on keeping rates at the same level as last year.

In coming weeks, all Sydney councils will be allowed to increase their rates by 2.6 per cent to meet growing costs.

But at a time when families are doing it tough, councils have implemented their hardship policies and some have interest free periods lasting a year while others have delayed due dates for payments by a month.

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Pensioners will get their usual $250 annual rebate which is voluntarily topped up by some councils to give an even bigger discount.

City of Sydney pensioners pay no rates at all while eligible pensioners in Blacktown can get up to $450, $300 in Campbelltown, $350 in Parramatta, $355 in Sutherland and $300 in Waverley.

Not such good news for pensioners in the southern suburbs though.

Georges River had applied to the pricing and regulatory tribunal to increase rates by a total 10.6 per cent from July 1 to help cover its budget shortfall. But they've agreed to defer any potential price hike by at least a year to consider other cost cutting measures.

As part of that process, the voluntary $150 top up payment Georges River gave its pensioners on top of the $250 pensioner rebate has been scrapped for this financial year.

A proposal currently before Ryde council will allow those receiving JobKeeper or JobSeeker to apply for a one-off rate rebate of $400. Applications will be received up until September 30 and applied to the November 2020 instalment. The proposal will go to a vote on June 23.

Every ratepayer in Camden will be given a one-off $100 rate rebate as part of the council's $16.8 million Covid 19 support package and there will also be a freeze on domestic waste management charges.

What's happening in your council area?

 Bayside: Eligible pensioners receive a $250 rebate; the May instalment can be deferred until 30 June and those experiencing financial hardship can make a plan to pay by 30 June 2021.  Blacktown: Eligible pensioners can receive a rebate worth up to $400; payment plans and interest-free periods available for those in hardship.  Blue Mountains: Eligible pensioners receive a $250 rebate; compassionate measures in place.  Burwood: Eligible pensioners receive a $250 rebate; hardship assistance policy in place; review of all fees and charges taking place.  Camden: All ratepayers receive a one-off $100 rebate; eligible pensioners receive a $250 rebate; freeze on domestic waste management charges; interest waived on overdue rate notices.  Campbelltown: Eligible pensioners can receive a rebate worth up to $300; interest waived for late payments due to hardship.  Canterbury-Bankstown: Eligible pensioners receive a $250 rebate; can defer rates without accruing interest.  Canada Bay: Eligible pensioners receive a $250 rebate; one month free extension automatically applied for fourth rate instalment; can apply for additional time to pay.  City of Parramatta: Eligible pensioners can receive a rebate worth up to $350; interest waived on late payments; payment plans and deferrals available.  City of Ryde: Eligible pensioners receive a $250 rebate; proposal before council for a one-off $400 rebate for those receiving JobKeeper or JobSeeker; interest on late payments waived to September 30.  City of Sydney: Pensioners receive free rates; freeze on domestic waste management charges; due date for first instalment extended by a month for all ratepayers; hardship provisions in place.  Cumberland: Eligible pensioners receive a $250 rebate; hardship rate relief measures in place.  Fairfield: Eligible pensioners receive a $250 rebate; proposal before council to keep rates same as last year and ignore the 2.6 per cent increase.  Georges River: Was seeking a 10.6 per cent increase through the pricing regulator but this has been deferred by at least a year; eligible pensioners will receive a $250 rebate rather than the $400 they received previously; extensions and payment plans available for those suffering hardship. International Property Tax Institute IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

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 Hawkesbury: Eligible pensioners receive a $250 rebate; hardship provisions in place.  Hornsby: Eligible pensioners receive a $250 rebate; hardship assistance available.  Hunters Hill: Eligible pensioners receive a $250 rebate; from July 1, will begin sharing some services with Lane Cove Council to try reduce costs; hardship assistance available.  Inner West: Eligible pensioners receive a $250 rebate; hardship assistance available.  Ku-ring-gai: Eligible pensioners receive a $250 rebate; hardship assistance available.  Lane Cove: Eligible pensioners receive a $250 rebate; hardship assistance available.  Liverpool: Eligible pensioners receive a $250 rebate; hardship assistance available.  Mosman: Eligible pensioners receive a $250 rebate while council also makes rebate available to Australian Service Veterans who don't qualify for the pensioner rebate; hardship assistance available.  Northern Beaches: Eligible pensioners receive a $250 rebate; hardship assistance available; promise of no rate increases bigger than under previous council extended a year to June 2021.  North Sydney: Eligible pensioners receive a $250 rebate; hardship assistance available.  Penrith: Eligible pensioners receive a $250 rebate; hardship assistance available; special rate variation of 5.4 per cent increase in rates comes to an end and reverts back to 2.6 per cent so residents should see small decrease in rate bills.  Randwick: Eligible pensioners receive a $250 rebate; hardship assistance available; final year of its special rate variation meaning residents pay 3 per cent extra on top of the 2.6 per cent rate peg.  Strathfield: Eligible pensioners receive a $250 rebate; hardship assistance available.  Sutherland: Eligible pensioners can receive a rebate worth up to $355; hardship assistance available.  Waverley: Eligible pensioners can receive a rebate worth up to $300; hardship assistance available.  Wollondilly: Eligible pensioners receive a $250 rebate; hardship assistance available.

Value capture: adored by academics and despised by developers, its time may have finally come

It was property developer Ron Medich's last hurrah. In 2017, he and his brother Roy sold parcels of land around Badgerys Creek, the site of Sydney's forthcoming second airport, for a sum believed to exceed $500 million. The following year, Ron Medich was jailed for the murder of Michael McGurk.

The Medich windfall, revealed by the Herald at the time, is just one of many examples of immense profit brought to the attention of a federal government inquiry into major infrastructure finance.

Critics claim governments have manifestly failed to deliver value for taxpayers from the massive infrastructure projects funded largely out of public coffers. Rather, they have allowed land owners to privatise much of the benefit in the form of dramatically increased land values.

It is a particularly pertinent issue in today's NSW with its record $100 billion infrastructure pipeline, and transport projects including the western Sydney airport, that will transform the city and set up brand new urban precincts that feed off the rail line and the planned M12 motorway.

Last week it was revealed construction will soon begin on the $11 billion metro line between the new airport and St Marys. Announcing the plan at a press conference on Monday, Scott Morrison and Gladys Berejiklian had plenty to say about injecting cash and creating jobs, but nothing to say about recouping money from the massive increases in land value that will surely follow.

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Peter Phibbs, a professor of housing and planning at the University of Sydney, has tried to get politicians to take notice for years. "Whenever we change the zoning on a piece of land, we are seriously increasing the value of that land," he says.

"We should be trying to clip the ticket on those situations. Sometimes we've done that, but a lot of times we've just let it go.

Why Melbourne needs its own version of the Greater Sydney Commission Melbourne’s global reputation for liveability does not resonate with many Melburnians. Its economy has slipped into per capita recession a couple of times over the past decade. Population growth has outpaced the provision of parkland and social housing. Many households must look to fringe areas to find housing they can afford.

The Victorian government has duly ramped up its urban management program. New suburbs are well planned if belatedly equipped with the infrastructure they need. A multi-billion-dollar “big build” includes the Metro Tunnel, the West Gate Tunnel, level-crossing removals and, prospectively, a new suburban freeway – the North East Link.

Ordinary citizens may well give the government credit for this ambitious agenda. Equally, they might wonder how all these projects add up to a long-term vision for Melbourne.

The official metropolitan strategy, Plan Melbourne, has little profile in the community. The government gazumped its own plan with its breathtaking 2018 election announcement of a suburban rail loop to reshape the city.

In contrast, the Greater Sydney Commission has devised a compelling metropolitan strategy. Its “three-city vision” has captured the popular imagination and galvanised a degree of infrastructure co-ordination across government agencies and local councils in Sydney.

Why is Victoria different?

The Victorian government took over the planning of metropolitan Melbourne in 1985. The Melbourne and Metropolitan Board of Works (MMBW) had for three decades managed the city’s development “under licence” from the state. State and local governments jointly “owned” the board as its governing body included state appointees and council-elected delegates.

The MMBW prepared the metropolitan strategy for sign-off by the state, acted as development approval authority for projects of metropolitan significance and delivered key infrastructure. This included water-cycle management, metropolitan parks and, for a time, city-shaping roads. Having its own rates base gave the MMBW a high degree of fiscal autonomy.

Bringing metropolitan planning under direct ministerial control seemed like a good idea at the time. The Cain Labor government had come to power with a detailed urban agenda. It included revitalising the CBD, reframing the city around the Yarra, boosting the economy and amenity of the western suburbs and reining in sprawl.

The government did not want a powerful, semi-autonomous, planning agency contesting this urban agenda. Premier John Cain also felt the MMBW was prone to corruption in planning matters.

What seemed to be a logical realignment for more democratically accountable planning has since been shown to be a regrettable move. Direct state control of metropolitan planning and infrastructure is beset by issues of legitimacy, competency and funding.

The need for a metropolitan mandate

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The state government speaks for the state, not the metropolitan community. Its lack of a metropolitan mandate constrains the government’s legitimacy in resolving conflicting planning objectives – for example, promoting urban consolidation while protecting local amenity. Communities are likely to see the government as unsympathetic to local concerns.

The primary competency of state governments rests in providing jurisdiction-wide services like health, education, policing and justice, which lend themselves to economies of scale and vertical integration. Such operations often unfairly attract the disparaging label “silo”.

State governments are best at serving citizens “at large” rather than citizens “in place”. By contrast, local governments have a natural competency in linking up and leveraging neighbourhood services.

The “silo tendencies” of state governments have to be tempered by investment in new institutions to make sure projects together produce the metropolitan outcome that policies like Plan Melbourne seek. At least five state government agencies have a direct hand in planning Melbourne. Around ten others have co-ordination or oversight roles in urban development.

Understanding how this complex web of institutions works is a challenge for those in the system let alone for ordinary citizens.

In the ten years to 2018, state government employment grew by around 20% in Victoria. In part, this increase reflected investment in project delivery, planning and co-ordination. In local government, which faces similar growth management challenges, employment has been more or less steady since 2010-11.

What can a commission do that the state can’t?

A metropolitan sphere of governance – working in a similar way to the former MMBW – might offer productivity advantages compared to elaborate administrative reforms within state governments to curb their silo proclivities.

Because they lack a mandate from the metropolitan community, state governments are not well placed to advance particular reforms to improve urban infrastructure.

One example is development licence fees. Increases in land value associated with rezoning and development approvals are the result of good urban governance and citizen-funded infrastructure rather than the efforts of passive land holders. “Value capture” strategies like development fees could raise billions in revenue without distortive effects. However, state leaders rarely canvass such reform.

While the state government has a big vision for Melbourne, it lacks the wherewithal to manage metropolitan development towards this end. Stronger institutions for integrated metropolitan governance are needed.

An opening gambit could be to establish a Melbourne Metropolitan Commission, taking on board the experience of the Greater Sydney Commission. It has done a great job of creating a new vision for Sydney, but is ultimately a wholly owned institution of the state government.

An effective Melbourne Metropolitan Commission would require at least a partial democratic mandate from the metropolitan community. A minority of seats on its board could be reserved for local council representatives appointed by electoral colleges across the metropolitan region.

As the custodian of Plan Melbourne, the commission would be the planning authority for all parts of the city that are of metropolitan significance. This would include major activity centres, the principal public transport network, the urban growth boundary and the national employment and innovation clusters identified in the plan.

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The commission should be the “gatekeeper” that tests potential city-shaping projects against the metropolitan strategy.

The commission would control the public transport and arterial road networks, as well as metropolitan parks and water-cycle management. This place-based governance would be able to unlock synergies and innovations in these systems that have eluded state governments.

The commission might also be able to pursue the case for a fairer sharing of the value that metropolitan development creates.

NSW missing out on $8 billion a year from failure to tax land-rezoning, inquiry told

NSW is missing out on more than $8 billion a year in revenue because of a tax system that fails to adequately capture value from land rezoning and new infrastructure, the Productivity Commission has been told.

The calculation, based on NSW adopting a "betterment levy" on rezoned land similar to the ACT's, will put pressure on the commission amid its review of infrastructure contributions in NSW - and on the government as it looks for ways to fix the state's post-pandemic finances.

Federal Liberal MP John Alexander, currently chairing an inquiry into fast rail financing, said the pandemic's impact on public coffers made it imperative for politicians to sit up and take notice.

"For decades, all sides at all levels, governments have either been negligent or incompetent in not seizing this opportunity," Mr Alexander told The Sun-Herald. "Because we've been warned, we're entering the area of gross negligence."

The submission to the NSW Productivity Commission from Sydney University academic Cameron Murray, backed by the university's Henry Halloran Trust research unit, recommends scrapping the current system of ad hoc infrastructure contributions in favour of a 75 per cent "betterment levy".

The levy would be applied on the increase in land value when it is rezoned for more lucrative use or benefits from new public infrastructure, such as a metro train line or airport. Mr Murray said a 75 per cent levy, which is the ACT model, would have raised about $8.2 billion in 2018-19 in NSW, and $18 billion nationally, but a levy as low as 30 per cent would still be useful.

Mr Murray said the western metro line between the second airport and St Marys, which will begin construction this year, was a "classic example" of a government project that will deliver a boon to landowners. It is understood the business case does not contain any value sharing proposals.

"That's a great project that is going to create a lot of value for landowners that they get to pocket for free," Mr Murray said. "The value was created by the public investment ... I would guess there are hundreds of millions of dollars of value that could be captured by the public."

Economists, planners and academics have long argued for better value capture mechanisms to fund public infrastructure and ensure the value generated by taxpayer-funded projects is not privatised by landowners.

NSW Treasurer Dominic Perrottet has laid out a plan to abolish stamp duty in favour of a broad-based land tax, itself a form of value capture. But some experts argue a separate levy on the uplift caused by one-off infrastructure projects or rezoning is preferable.

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"We should be trying to clip the ticket on those situations," said University of Sydney professor of housing Peter Phibbs. "People in Sydney hate the idea of landowners not getting rich off the back of public decisions."

NSW has a record $90 billion infrastructure pipeline over the next four years. Mr Perrottet said the government already used "value sharing" for projects where it made sense to do so, such as the Sydney Metro. For example, the government raised more than $1 billion by selling the air rights above stations at Martin Place, North Sydney, Waterloo and Pitt Street.

The Planning Minister can also charge developers a Special Infrastructure Contribution in limited circumstances. The Western Sydney Growth Area SIC is expected to raise $278 million over the next four years, a department spokesman said.

Mr Perrottet left the door ajar to further value capture measures. "The government is always open to exploring new and better ways to fund infrastructure, and I look forward to considering the NSW Productivity Commissioner's review of infrastructure contributions," he said.

Developers generally oppose value capture taxes. In a submission to Mr Alexander's fast rail inquiry, the Property Council of Australia said it was against betterment levies, but could support additional development levies on land that was "significantly" rezoned for higher density.

A long-time proponent of value capture in the Coalition, Mr Alexander said Sydney's hugely expensive property market made it even more vital for governments to capitalise on rising land values.

"Their obligation surely must be that when they are investing taxpayers' money, they should get a fair return for the taxpayer," he said. "There is so much money to be uplifted, you can still be incredibly generous to the landowner."

The Australian states where house prices could fall by up to $50,000 – as governments consider one simple change

 Cost of buying home could fall by $50,000 under plan to phase out stamp duty  Victorian government has signalled it could reduce tax to stimulate home buying  Comes as Australia's housing market is crippled by the impact of the coronavirus  Federal government also considering overhauling tax system to phase duty out  Buyers would instead be charged a land tax each year of a few thousand dollars  Stamp duty has been widely criticised as it deters people from moving home

The cost of buying a house across Australia could fall by up to $50,000 as states consider slashing stamp duty to help the housing market recover from the COVID-19 crisis.

Stamp duty is paid to the state government upon the purchase of a property but economists argue it discourages home ownership and prevents older people from downsizing, which frees up bigger homes for families.

Amid a huge decline in the housing market during the pandemic, the Victorian government has signalled it could drop the much-hated tax to stimulate property buying.

The federal government may also overhaul the property taxation system to combat the COVID-19 slowdown by creating a long-term 'opt-in' land tax.

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Buyers who fork out for a $1million home pay a stamp duty of $40,000 in New South Wales and $55,000 in Victoria.

Under the proposed new framework homeowners would pay stamp tax up front and could then choose to pay land tax of a few thousand dollars a year on the value of a home's unimproved land, The Australian Financial Review reported.

Unimproved land refers to how much a plot of land is deemed to be worth not including the cost of the home itself.

The phasing out of stamp duty is already happening in the Australian Capital Territory, with the state government instead enforcing a slowly increasing land tax.

It comes after the COVID-19 pandemic crippled the housing construction industry and cost an estimated 70,000 tradesmen their jobs.

The Victorian government is expecting property sales and house prices to fall about nine percent this year which is likely to bring a similar percentage fall in stamp duty, the state's treasury said.

A report by outgoing National Australia Bank chairman Ken Henry when he was the former treasury secretary found stamp taxes were among the worst for stimulating economic growth.

Even before the coronavirus derailed the property sector a report by the Productivity Commission in 2019 urged Scott Morrison to ditch the 'inefficient' tax in favour of an annual homeowners' tax.

'Shifting from stamp duties to a broad-based property tax could leave New South Wales up to $5 billion a year better off, while also improving housing affordability,' the report said.

'Stamp duties are among the most inefficient and inequitable taxes available to the states and territories.

'In contrast, property taxes – which are levied on the value of property holdings – are the most efficient taxes available to the states and territories.'

Victorian Premier Daniel Andrews has flagged that he would be in favour of major tax reform and is keen for the states and national cabinets to discuss the matter.

'When it comes to national reform opportunities, you can always count Victoria in for that discussion,' he told reporters last week.

'Every significant drive or wave of national reform in our country's history, Victoria has played a leading role in it and that won't be changing.' Update on costs relief in NSW for landlords during COVID-19

Land tax reduction and deferral

A land tax reduction is available for commercial landlords in the following circumstances:

 For properties that are leased to a tenant or tenants who qualify for the National Code of Conduct for commercial leases. That is, SME tenants with annual turnover of less than AU$50 million and suffering at least 30% reduction in turnover due to COVID-19.

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 The landlord has reduced the tenant(s) rent for any period during the period 1 April 2020 to 30 September 2020.

Only waived rent is taken into account (not deferred rent).

The reduction applies on a property by property basis and is capped at 25% of the landlord’s total land tax for 2020.

Landlords can recoup waived rent from Revenue NSW up to a cap of 25% of the landlord’s total tax liability for the year. The reduction is applied as a refund of land tax paid or a reduction of unpaid land tax.

Landlords will need to provide Revenue NSW with evidence of the rent reduction and of the tenant’s reduced turnover.

Landlords who claim the land tax rebate can also defer any outstanding land tax by up to three months.

Parking Space Levy deferral

Payment of the Parking Space Levy has been deferred until 30 September 2020. As a result, the due date for payment of the last quarter outstanding balance for the 2019-2020 levy year has been extended from 1 June to 30 September 2020.

Council rates deferral and reduction

The Local Government (General) Amendment (COVID-19) Regulation 2020 was passed on 17 April 2020 granting councils the power to give rates relief by:

 Deferring the first instalment of 2020-2021 rates by 1 month to 30 September 2020  Waiving or reducing rates for businesses experiencing significantly reduced income due to COVID-19

The rates relief measures are not compulsory. Each council may decide whether to implement these measures, based on that council’s particular circumstances.

NABERS fee waiver

NABERS will waive its’ lodgement fees during the period 1 July 2020 to 30 June 2021 for the following:

 All apartment buildings ratings  All hotels ratings  All data centres ratings  All shopping centres ratings  Office buildings and tenancy ratings smaller than 1,000m2

Subject to the following limitations:

 The waiver applies to one rating type only (e.g energy) per property  The waiver applies only to current ratings that expire during the wavier period  Commitment Agreements are excluded

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NABERS will also waive Assessors Accreditation fees for 12 months applied retrospectively from 1 March 2020 to 28 February 2021.