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Land Tax Hike Overshadows Growth Initiatives

  • May 15, 2015

Land Tax Hike Overshadows Growth Initiatives

The WA State Budget positions the property sector as the state’s key economic driver as the economy transitions from a resources-focus. Alarmingly, however, the Budget also expects the property sector to underwrite the state’s big revenue shortfall in 2015-16 through increased land taxes.

The big infrastructure investments in the Budget along with more opportunities to participate in a new round of asset sales will support more jobs and activity in the construction sector. However the increases in land tax rates while broadening the land tax base, is a big blow to the property sector as it gears up to keep WA growing.

Now more than ever tax reform is needed in WA. This starts with reducing the inequity in the land tax system, a plan to eliminate stamp duties and participation by the state in the national tax reform process.

To read the Property Council’s Budget press release, click here.

Budget Snapshot

2014/15

2015/16

2016/17

Economic Growth

3.25%

2.0%

3.5%

Inflation

2.0%

2.25%

2.5%

Unemployment Rate

5.5%

6.25%

6.0%

Population growth

1.9%

2.0%

2.1%

Dwelling investment

3.25%

2.0%

-0.5%

Business investment

-10.5%

-12.0%

-7.5%

Deficit

$1.3b

$2.7b

$1.1b

Key Property Take-Outs:

  • Increased land tax rates for all marginal tax thresholds except the top rate, which remains at 2.67%;
  • A new flat dollar land tax amount of $300 for unimproved land value between $300,000 and $420,000;
  • Commitment to a $24.1 billion infrastructure investment program over the next four years;
  • A second round of government asset sales, including office buildings and land in development partnerships;
  • Limiting the First Home Owners Grant to new home building and purchases of new homes;
  • A new Social Housing Investment Package, to deliver 1,000 new social housing dwellings;
  • The Metropolitan Region Improvement Tax expanded to regional areas;
  • KeyStart home loans retained;
  • A 10.6% increase to the average residential Emergency Services Levy charge.

Economic Outlook

After recording 3.25% growth in 2014/15, the WA economy is expected to bottom out at only 2% growth in 2015/16. Higher growth rates are expected from 2016/17 onwards, fuelled by rising export revenues and continuing strong construction activity in and around Perth. State population growth is expected to stabilise at around 2% for the remainder of the decade. Western Australia continues to have the lowest unemployment rate of all the States, however labour market conditions are softening, with the unemployment rate forecast to peak at 6.25% in 2015/16 and wages growth to remain soft.

The Budget is expected to record a deficit of $1.3 billion in 2014/15, followed by $2.7 billion in 2015/16.

Land tax

The budget included a revised land tax scale, which is estimated to raise additional revenue of $182 million in 2015-16 and a total of $826 million over the next four years.

Western Australian Land Tax Scale – click here

Interstate Comparison of Land Tax Payable – click here

From 2015/16, the land tax scale will be revised to:

  • Apply a flat dollar amount of $300 to taxable land with an improved value above the exemption threshold of $300,000 and up to $420,000;
  • Increase land tax rates (expect the top rate, which will remain unchanged at 2.76%); and
  • Adjust some of the property value thresholds.

Metropolitan Regional Improvement Tax

The Government has reversed its decision to expand the MRIT State-wide from 1 July 2015. Instead the Government announced that the MRIT will instead be expanded from 1 July 2016 only to regional areas where a region scheme is in place, such as the Peel Regional Scheme and the Greater Bunbury Scheme.

Stamp Duty

No increase to the rate and the government revenue from transfer duty is expected to decline due to the decline in duty collections from high value commercial property transactions.

First Home Owners

The $3,000 First Home Owner Grant (FHOG) for established homes will be removed from 2015-16. No changes are proposed to the $10,000 FHOG for new homes and first home buyers will continue to benefit from an exemption of transfer duty on the purchase of a new or established home up to the value of $430,000 (and vacant land valued up to $300,000).

Emergency Services Levy

The average metropolitan residential charge (ESL category 1) is forecast to increase to $261 in 2015/16, an increase of $25 or 10.6% from 2014/15.

Asset Sales

The asset sales program is being expanded to include the disposal of Fremantle Port Authority, through a long term lease, as well as the sale of the TAB. The Government has identified for further investigation as part of its asset sale program:

  • Selected LandCorp land assets;
  • The Forest Products Commission;
  • Portfolio of Government Regional Officer Housing stock;
  • Securitisation of part of Key Start’s loan book;
  • The State’s vehicle fleet, via a sale and leaseback agreement;
  • Various government-owned office buildings, via sale and leaseback arrangement; and
  • Individual generation assets of Synergy and Horizon Power and Western Power’s non- core Assets. 

 Asset Investment

Following an expected Asset Investment Program of $6.6 billion in 2014-15, infrastructure investment by the State Government will moderate slightly to $6.3 billion in 2015-16, and a total of $24.1 billion over the forward estimates period.

This represents a consolidation from the record levels of investment in previous years, as the significant upgrade to the State’s hospital infrastructure nears completion, and investment effort focuses on transport infrastructure and the completion of major projects in the Perth metropolitan area (including the new Perth Stadium and the Elizabeth Quay development).

New Infrastructure Investment

  • $308 million as part of a $560 million new Social Housing Investment Package that will deliver 1,000 new social housing dwellings and halve the number of seniors and families with children on the priority waitlist;
  • An additional $191 million over four years for school infrastructure, including the construction and redevelopment of senior high schools.
  • $140 million in 2015-16 for Western Power, primarily for wood pole and electrical conductor management programs.