Opinion Piece - Let's Talk About Tax

Opinion Piece – Let’s Talk About Tax

Planning Institute of Australia

13 May 2024

James Newbury, Shadow Minister for Planning

Australians are currently talking about housing affordability. A lot of the debate is being driven by the growing number of Australians who no longer dare to dream of owning a home. With experts and policy makers debating proposed solutions, let’s talk about the single biggest parasitic cost to property – tax. Let me describe how Government has its hand deeply in every pocket and how that has both crippled the property sector and eroded affordability.

On the day that the State Government released their 2024-25 Budget, the Property Council described Victoria’s property tax environment as “hostile”. The Budget confirmed that $21.5 billion in property taxes would be collected each year – almost half of the total State tax take. The commentary from the Property Council followed the announcement that two property related taxes, the fire services property levy, and the metropolitan industrial and municipal waste levy, would increase over the coming financial year.

For those keeping score, the recent hikes bring the tally to twenty nine, the total number of new or increased property taxes in Victoria over the last decade. But keep your pencil sharp because the tally total won’t stop at twenty nine.  The Government has confirmed that a thirtieth new tax is being developed.

As we know, the growth area infrastructure contribution is charged across certain development on the urban fringe. The charge is currently payable in developments across seven municipalities. The tax was introduced under the guise of contributing towards new infrastructure in expanding suburbs. Recently, the Treasurer confirmed that the Government is consulting on a plan to extend the charge to developments across every suburb and town in Victoria’s seventy nine municipalities. It will be a great big new tax on everything.

Tax is more than numbers. It hits the hip pocket. The Urban Development Institute of Australia has previously looked at the material impact of tax and charges in Victoria. That modelling found that 28 percent of the final price of an apartment in an urban area is made up of a combination of taxes and charges. In financial terms, that represents an estimated cost in charges of $66,900 per dwelling and a cumulative tax charge of $98,300.

In addition to these prohibitive costs, it gets a lot steeper for foreign purchasers. A significant developer recently looked at their construction costs and calculated that taxes and charges on their builds had equated to 32 per cent for foreign purchasers on apartments.

Hold your breath for a moment whilst we look at what those proportional costs comprise: planning levies (metropolitan planning levies; planning permit fees; subdivision fees), building levies (building permit levies, cladding rectification levies), taxes (Goods and Services Tax; land tax; council rates), infrastructure charges (development contributions; drainage charges; new customer contributions), and housing and open space charges (public open space contributions). You can now exhale.

Hold your breath again. In areas of greenfield development, taxes and charges account for an average 44 percent of the final lot price. In financial terms, that represents an estimated cost of $146,100 per lot. These figures comprise: land taxes and council rates whilst the land is being developed; stamp duty upon the purchase of the land; Goods and Services Tax remitted on revenue; subdivision fees; contributions like Development Contribution payments; and Growth Area Infrastructure contributions where they are applicable; in addition to costs to clear the land from vegetation, assessments on the land’s cultural heritage, and payments to service providers like Melbourne Water. And you can now exhale again.

No Government is without sin, when it comes to adding to the burden of tax on property. But some Government’s have ratcheted up the proportional burden in a way that is causing damage. The only credible way to address the genuine issue of housing affordability, is for Governments to stop putting their hands so deeply in the sector’s pocket.

James Newbury, Shadow Minister for Planning