The State Government’s recent move to adjust the land tax structure was wise and necessary. That said, it will take more than a minor facelift for Tasmania’s property tax system to be fair, equitable and positively impact on home ownership, mobility, accessibility and affordability, while also delivering the Government with the revenue it needs.
The changes recently announced to the thresholds and rates of land tax need to be considered in the context that Tasmania’s land tax structure was built when our land was cheap, and we’re no longer cheap. The days when you could buy a family home for under $150,000 or budget $150 a week for rent are long gone.
Tasmania has been discovered, with the cost of housing now on par with other states. What remains strikingly different to the rest of the country, however, is the land tax you’ll pay on Tasmanian land. Before the recently announced changes, owners and commercial tenants were frequently paying triple what you would in other states for the same value property. With the recent changes, our land tax is sitting at around double what you’d pay in other states for small scale holdings valued at under $3 million. So, we’re edging closer to the national ballpark but we’re still well outside the boundary fence.
Take for example ownership of taxable land valued at $500,000 – perhaps it’s a holiday home and a rental property – under the new rates taxpayers will be billed $1,850, while across Bass Strait, the most you would pay is $775. And let’s say the taxable land adds up to $1 million – maybe it’s a commercial property or a few rental properties and a vacant block of land – in this scenario the most you’ll pay elsewhere in Australia is $4,500. In Tasmania, the bill will be $9,350.
It's also important to consider that the dramatic rise in property prices means that, while the rate of land tax payable will reduce, the base on which the tax is calculated will significantly increase as a result of fresh valuations. The Government is no doubt aware of this and, knowing huge bills are scheduled for populated municipalities like Hobart and Kingborough, they have hoped to be a step ahead of the inevitable shock and subsequent rent increases, noting that equity is very different to cash flow.
The cost to buy in Tasmania is still breath-taking for many lifelong Tasmanians. When previous valuations were completed around 2015 for Hobart, the median house price was around $480,000. Today, it’s doubled to $1 million. In Kingston, the 2015 median was $370,000 and now it’s over $700,000. In real world application, if you owned a couple of rental properties in 2015 with a land value of $300,000 your bill would have been $1,563 under the original tax rates. Leaping forward to today, under the new rates and safely assuming the land value has doubled to $600,000, you’re looking at $3,350 in land tax, which would have been $5,588 without recent State Government action.
Given the context and our current environment where demand is smothering supply, we need to be realistic about what impact these small but essential changes will have on rent prices. The price of rent will not plummet. What these changes will do, however, is prevent further increases and keep more people housed while new homes can be built, and that’s very worthwhile. Issuing astronomical land tax bills would be akin to throwing kerosene on an already raging fire. To think there is no correlation between cost of goods sold and investor bill shock and increasing the rent when the demand is there is naive.
It's good to see Government action on Tasmania’s land tax system. Their next move should be looking at property taxes more broadly, including the abolition of stamp duty and introduction of a broad-based property tax, which is already underway in other gutsy and forward-thinking states. Reform of this magnitude can take decades to fully implement, so we need to start now.
Check out when your property is due for a fresh valuation here.