AN EROSION OF QUEENSLAND’S TAX COMPETITIVENESS
The Government’s proposed increases to land tax will place Queensland’s rates far higher than NSW and Victoria, eroding the state’s investment competitiveness.
Companies weighing up the merits of investing in a significant property asset will face a new tax equation, which will see the land tax bill for a commercial asset in Queensland 13% higher than a similar asset in NSW, and 4% higher than Victoria.
When compared directly on a per square metre of floorspace basis, Queensland commercial and retail properties already a pay a higher rate of land tax.
- Average current land tax on office: Brisbane $21.39/m2 vs Melbourne $18.05/m2. This equates to a 18% higher rate in Brisbane.
- Average current land tax on retail: Queensland $14.39/m2 vs Victoria $13.01/m2. This equates to a 10% higher rate in Queensland.
The increases slated for 1 July, will only make this equation less attractive for Queensland.
The proposed increase to the Additional Foreign Acquirer Duty will also erode Queensland’s investment competitiveness.
Between 2007-2016 there was $16.5 billion in direct foreign investment in commercial real estate into Queensland. Foreign investment increases the amount of capital available for investment in construction, creating employment and economic growth. A higher tax rate for these investors will only serve as an economic obstacle to Queensland’s growth.
Once considered the 'low tax state', Queensland has relinquished this title, making it harder to lure investment in new job-creating projects to Queensland.
INCREASE TO THE COST OF A NEW HOME
Land tax is a significant holding cost for developers. While they seek council/state development approvals, construct the project and hold the subdivided lots for sale, they pay land tax to the State Government.
Holding costs need to be thought of in the same way as the cost of materials such as concrete and bricks. Ultimately, they are baked into the cost of the final house because the developer/builder must cover their costs for the project to be viable.
Greenfield residential developers have estimated that the additional land tax they will pay during development will translate into an additional $800-$1000 cost for new home buyers.
THE DEVALUING OF QUEENSLAND PROPERTY ASSETS BY OVER $1 BILLION
The investments and super savings of thousands of Queenslanders will be affected by the land tax rate increase, which will result in a significant devaluation of commercial assets.
The market value of commercial properties is not determined the same way as residential properties. The primary driver of a commercial property’s market value is its net income. Any increase in tax for these properties will result in less net income, and therefore a lower asset value. Property Council analysis, based off the Government’s revenue estimate of $227m, has determined that between $1 billion to $1.25 billion could be wiped off commercial property values in Queensland.
Australian super and investment funds are heavily invested in Queensland commercial properties, and this reduction will have a flow-on impact for ‘mum and dad’ investors and everyday superfund savers.
This devaluation of Queensland assets will be a significant hit to investor confidence, placing future major investments at risk.
The Property Council is calling for the Government to abandon the tax increases, and commit to review and modernise Queensland’s property tax framework.
Current land tax thresholds for both individuals, and companies, trusts and absentees have been in existence since the 2009/2010 financial year. This has led to more landholders being captured, or progressing to a higher threshold, as land values have increased significantly during this period.
Unlike NSW, which has annual valuations and annual reviews of thresholds, Queensland has been subjected to a decade of bracket creep. Additional thresholds and surcharges will only serve to increase the complexity of the system. A best practice model would see a gradual collapsing of the many thresholds that exist, and a transition to a more broad-based approach.
An all-encompassing review of Queensland’s out-dated thresholds and property tax rates needs to be undertaken to put Queensland back on the investment map.