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Title : Review of Western Australian State Taxes -
: Land Tax
Author : Tax Policy Elective 1993
Organisation : School of Law, Murdoch University
Language : English
Keywords : LAND TAX, TAXATION, WESTERN AUSTRALIA,
: EQUITY, EFFICIENCY, SIMPLICITY, REFORM
Abstract : See abstract for Preface and Introduction
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Creation Date : 25 April 1994
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elaw/comment/watax/chap1.txt
--------------------------------------------------------------

_Review of Western Australian State Taxes - Chapter 1_



_LAND TAX_

Land Tax Review - Group 1
Kate Wholley, Sarah Tapper and Jim Borshoff


Introduction 16
Land Tax Assessment 16
Progressive Rates versus Proportional Rates 18
The Owner Occupier Exemption 20
The Primary Production Exemption 23
Exemptions for Religious Bodies, etc 25
Conclusion 26
Summary of Recommendations 27
Appendices 29
Bibliography 34


_INTRODUCTION_

In Western Australia land tax represents a significant part of
State Taxation. In the 1991-1992 period land tax as a
proportion of total taxes, fees and fines constituted 6.6% of
revenue collected, amounting to $133.6 million.(15) However,
despite the potentially broad-based nature of this tax, certain
statutory exemptions have limited the tax base to primarily
commercial and income-producing rental properties. Effectively
this creates an urban tax, which is inequitable and contrary to
efficient tax design. The use of a progressive rate scale also
introduces distortions into the system, by influencing
land-holding and investment choices.

Land tax can provide an ideal tax base because liability
attaches to the land itself, and can not be avoided by
transfer, unlike other forms of liability.(16) Utilisation of
this broad base, which promotes horizontal equity, should be a
major objective for tax reform.

This chapter analyses the current system of land taxation in
Western Australia having regard to the tax policy assessment
criteria of equity, simplicity and efficiency. Collection and
administration under the Land Tax legislation is briefly
examined. The comparative advantages of proportional over
progressive rates of taxation are discussed, followed by a
consideration of the existing exemptions and the benefits to be
gained from their removal.


_LAND TAX ASSESSMENT_

Under the _Land Tax Assessment Act 1976-1982_ (hereafter "the
Act"), land tax is imposed on ownership at midnight 30 June for
the following financial year. Liability for land tax is
calculated on the "unimproved value" of land,(17) assessed by
reference to the aggregated unimproved value, or of land that
is not exempt.(18) The Act provides marginal rates increasing
with the aggregated value.

Unimproved value should be distinguished from "site value" and
"gross rental value". Site value is unimproved value plus any
natural components such as drainage or levelling.(19) Gross
rental value is the actual annual rent that would be realised
if improvements to the land were included in the
assessment.(20) Site value and gross rental value are the
basis under which local council rates are calculated.(21)
Unimproved value is the price which the land would bring if
sold under normal market conditions, assuming that no
structural improvements had been made.(22) The advantages of
using this as the basis of assessment is that imposing
liability on the improved value would reduce incentives to make
the best economic use of the land because of the taxation
attached to any improvements constructed on the land.(23)
Taxing the unimproved value provides incentives to make
productive use of the land to generate income to offset the tax
burden.(24) _We recommend that assessment based on the
unimproved value of land be retained for the above reasons._

However, practical problems have arisen with the High Court's
interpretation of the meaning of "unimproved value".
Calculation based on current market value less the value of
improvements to land has been expressly rejected and as yet no
practical alternative has been formulated.(25) Effectively,
this excludes the only realistic device appropriate for
assessment. _We recommend that the legislature clarify this
issue by specifying a formula based on current market value
less the value of improvements to the land._

Imposition of land tax liability on a fixed date does not take
into account the fact that ownership may change during the
following financial period. However, the administrative
difficulties involved in proportioning liability are too great
to make this a realistic alternative. _We recommend that
liability imposed on ownership at 30 June is the appropriate
method of fixing the tax burden._

In Western Australia the time lag problem(26) associated with
long intervals between land valuations and land tax liability
assessments(27) is currently being addressed. A Bill(28) is
presently before the Western Australian Parliament which
proposes the implementation of annual valuations to overcome
the inequities that arise when there are long intervals between
assessments.(29) _We recommend that a system of annual
valuations be adopted.(30)_


_PROGRESSIVE RATES VERSUS PROPORTIONAL RATES_

At present in Western Australia, land tax is collected at a
progressive rate. It can be categorised as a wealth tax, with
the majority of tax being paid in the upper two value ranges.

Commercial enterprises bear the majority of the burden of land
tax. Under the current progressive rate system, based on
1991-1992 figures, the average tax per assessment for
commercial properties was $2,389 compared to $752 per
assessment for residential properties.(31) Here it can be
noted that commercial enterprises are in the best position to
pass the tax on to the general community, by factoring it into
the prices of goods and services. The effect could therefore
actually be regressive, as the economic incidence of the land
tax is shifted on to the community.(32)

The aggregation provisions under the Act operate to group land
holdings thereby combining land values held under one specific
ownership; thus facilitating maximum revenue collection, as the
total value is taxed in a higher bracket. The problems
inherent in this system are that landholders are encouraged to
structure their affairs to attempt to create the illusion that
their land is held in a number of different ownerships.(33)

To achieve "real" vertical equity people with higher income
levels should pay progressively higher rates of taxation. The
progressive rate system would appear to satisfy this criteria
if landholding is assumed to be an accurate and appropriate
measure of the ability to pay. However, there are many methods
of owning land and it is not true that the owners of the most
valuable land have the greatest ability to pay tax. For
example, property trusts and superannuation funds are among the
largest owners of land, and the beneficial owners of these are
not necessarily wealthy.(34)

Assuming that landholding is not an accurate reflection of the
ability to pay, a viable alternative is a system which adopts
proportional tax rates. Introducing a flat rate means that
owners with more valuable land still pay more tax, but it is
attached proportionally to the actual value of the land rather
than based on subjective assumptions of social and economic
theory. This would achieve minimalist vertical equity with
landholders of more valuable land paying more tax in absolute
terms.

A proportional tax rate system also satisfies the criteria of
simplicity. Calculation of tax liability is simple, and
therefore reduces administration and collection costs. Under
the present progressive rate system the aggregation provisions
make the determination of the applicable marginal rate a
complex procedure. Given that the valuation process is already
in place, converting to a proportional rate system will not
require significant infrastructural change.

It is acknowledged that implementing a proportional rate will
result in windfall gains to those who currently pay land
taxation under the progressive rate. The justification for
sanctioning such gains is that the recipients have previously
borne a disproportionate burden of land taxation, and the
redistributive effects will promote equity in the system.

Removal of the aggregation provisions helps to overcome the
problems with avoidance associated with the progressive rate
system, since taxpayers can not easily change their method of
ownership to avoid tax liability. Avoidance introduces
distortion by unevenly distributing liability throughout the
tax base. Minimalising the incentive for avoidance by
introducing a flat rate regime will improve the efficiency of
the tax by preventing this distortion.(35)

Determining land tax liability under a proportional rate system
renders the aggregation provisions unnecessary because
liability attaches to every parcel of land individually. The
only valid reason for maintaining these provisions would be if
a threshold level were introduced. If a threshold level is
specified individual landholdings under the same ownership can
be grouped together under the aggregation provisions, pushing
them over the threshold level where they then become liable for
land taxation. If assessed as individual landholdings then
certain holdings may fall under this cut-off point and
therefore be exempt from land taxation. However, there are
still the inherent problems associated with landowners holding
land in different legal ownerships to avoid liability over the
threshold level.

The attraction of a general threshold level is that it
discriminates in favour of those taxpayers who hold less
valuable land. The rationale for this is political, based upon
the subjective assumption that these taxpayers fall within the
lower income groups.

Implementing a general threshold level is however both
inequitable and inefficient. As an exemption it erodes the
broad base of taxation and undermines horizontal equity.
Inefficiency results from the influence on investment choices
in land. Purchasers of land are discouraged in investing in
land valued over the threshold level.

_We recommend that a proportional rate of taxation be
introduced, with no general threshold level. A minimum rate of
0.345 cents for each dollar of unimproved value should be
applied.(36)_


_THE OWNER OCCUPIER EXEMPTION_

Residential land under the Western Australian Land Tax system
consists of vacant, rental and owner-occupied homes, but
excludes land used for commercial, rural and other(37)
purposes.

Land tax is currently levied on residential land which is
vacant or rented while owner-occupied homes are exempted from
the tax.(38) This exemption equates to approximately 83% of
all residential land in Western Australia.(39) The unimproved
value of the land contained within this exemption is $23.8
billion.(40) The exempted unimproved value corresponds to
potential tax revenue foregone of $37.3 million.(41) On this
basis the objective of broad-based taxation is significantly
undermined when only 17% of the potential base is utilised. A
broadening of the current tax base opens the possibility of two
revenue options for the Government. The first is that more
revenue can be raised.(42) The other is that revenue may be
kept neutral but generated from a greater number of taxpayers.

At present the legal and economic incidence of land tax does
not coincide in the taxpayer who is the landlord of a rented
property. While the legal incidence of the tax lies with the
landlord, the economic incidence may be passed on to the tenant
through the rent that is paid. If the exemption is removed
then an owner-occupier would not only incur the legal but also
the economic incidence of the tax. Therefore where there are
owner-occupiers and tenants in similar economic circumstances,
both would incur the economic incidence of the tax. In this way
horizontal equity can be achieved, and the tenant is not
discriminated against with the economic burden of land tax.

Vertical equity would also be achieved with the removal of the
exemption because owner-occupiers with dwellings of greater
unimproved values than others will pay more land tax.(43)
Where persons have a disproportionate percentage of their
wealth invested in their owner-occupied dwelling,(44)
assistance could come from the creation of a deferred land tax
payment scheme, where payment is delayed until such a time as
the owner-occupier is able to pay, or when the property is
sold. It is envisaged that the outstanding debt would be
registered as an encumbrance on the property in much the same
way as a mortgage. Alternatively, a system could be devised
whereby periodic instalments are made rather than a lump-sum
payment. In addition, in cases of general hardship equity may
be achieved through the establishment of a Land Tax Hardship
Board.(45) This can be accomplished by incorporating
appropriate hardship provisions in the land tax
legislation.(46)

It has been argued that the imposition of land tax on
owner-occupied homes would depress the residential market and
is therefore not efficient.(47) However, persons will require
a residence to live in whether rented or purchased. In either
case the economic incidence of the tax would fall on both
groups. The effect of an imposition of land tax on all
residences irrespective of their classification as
owner-occupied or rented will not be to depress the residential
market. In fact overall demand for residences will remain the
same as it is only the classification of the residence which
may vary. Therefore the argument can not be sustained.

Nor can the issue of the non-deductibility of the land tax for
owner-occupiers be used to support this contention. Land tax
is a s.51 income tax deduction for owners of income-producing
rental properties.(48) These properties however are subject
to capital gains tax when sold. The capital gains tax
therefore acts to offset the total benefit obtained from the
deductibility of land tax for rental property owners.
Owner-occupiers would not be able to deduct land tax primarily
because no income is produced by the property. By the same
token the absence of the deductibility is offset by the
availability of non-taxable capital gains upon the sale of the
owner-occupied dwelling.(49)

This analysis not only supports efficiency by removing the
exemption but also helps to rebut any contention that
owner-occupiers should have a concessional rate of land tax to
offset the non-deductibility. Instead, the free capital gains
can provide the offset for owner-occupiers.

The application of a flat rate for land tax together with the
removal of the owner-occupier exemption would make government
collection and taxpayer comprehension simple, with a minimal
increase in collection costs.(50) As the assessment for land
tax would generate one assessment per property under our
recommendations the opportunity would exist for the land tax
assessment notice to be included on the water rates notice for
each property. This has the potential to reduce collection
costs further without increasing administrative complexity.

There will be windfall losses suffered as a result of removing
the exemption. The justification for this is that these groups
have previously been afforded special treatment, and requiring
them to pay land taxation merely distributes the liability more
equitably. It promotes horizontal equity as it broadens the
tax base.

It is acknowledged that there are considerable political
problems involved in removing this exemption. The family home
has always been held sacred by the community, and given the
percentage of the voting public involved in this change it
would be politically unpopular. Notwithstanding this, from a
tax policy perspective this move is warranted to achieve
horizontal equity.(51)

_We recommend that the exemption for owner-occupied dwellings
be removed._


_THE PRIMARY PRODUCTION EXEMPTION_

The stated policy objective behind the initial introduction of
land taxation was the breaking up of large rural estates
thereby promoting the "best" economic use of the land by other
income-generating operations.(52) However, it has been
observed that by the 1950's the tax was no longer meeting this
objective.(53) The implication of this is that the tax was
being factored into costs by the landowners.

Drought conditions and economic hardship in the late 1960's
resulted in the abandonment of this policy with respect to
primary producers. This blanket exemption remains in Western
Australia(54) and is based on the recognition that income
generated from primary production is subject to seasonal
conditions and international commodity prices.

However, the present economic climate has impacted equally as
hard on other sectors in the community and this rationale must
therefore be questioned. In particular the small business
sector, which under present provisions bears a disproportionate
land tax burden, is struggling for survival. It must be
acknowledged that commercial enterprises are employment
generating operations and as such play an important part in
economic recovery. Primary production also has an important
role to play, but as stated by the 1993 Land Tax Working Party:

"[t]he recessionary environment experienced during the early
1990's has impacted on the economic performance of all small
business, including the rural sector. As such, the rural
sector can no longer be afforded special status in respect to
land tax liability."(55)

Revenue foregone as a result of the exempt status of primary
production land amounted to $9.8 million in the 1991-1992
period. State taxation revenue provides externalities, such as
roads in remote areas. Given that Metropolitan Regional
Improvement Tax is imposed on urban land holders,(56) there
can be no justification for special treatment of rural
properties.

The special hardships faced by primary producers can be dealt
with under hardship provisions, such as suggested
previously.(57) These can take into account variable factors
such as seasonal fluctuations in providing relief, rather than
maintaining a blanket exemption.

Similarly, the fact that primary producers have a major
component of their capital assets invested in their land(58)
is no justification for exemption from liability. Rural
operations, being income-producing, may claim a s.51 deduction
under income taxation provisions(59) to partially offset the
liability that would be imposed if the exemption was removed.

Removal of the primary production exemption may be said to
result in windfall losses to holders of primary producing land
and windfall gains to those whose liability will be lessened.
Given that equity is a major objective of taxation policy it
may be argued that these losses and gains are actually a result
of implementing a more equitable distribution of land tax
liability and are relieving sectors who have long borne the
legal and economic incidence of land tax, as opposed to
implementing discriminatory measures against landholders who
have been previously exempt.

Calculation of land tax liability would be simplified by
removal of the primary production exemption. At present,
problems arise with regard to urban land that is used for
primary production purposes. Holders of land must show that
one third of their income is generated from this land and
investigation into this gives rise to complexity that would be
avoided if flat rate taxation was imposed on all land
regardless of use. The opportunity for avoidance and for
accruing the benefit of multiple exemptions(60) under the
present system further supports the removal of the primary
production exemption. Land speculation on urban fringe
properties continues with the possibility that land will be
used only to generate the necessary income to meet the
exemption requirements rather than being put to its "best"
economic use.(61) This fails to meet the tax policy objective
of efficient tax design.

It must be stated that the political hurdles associated with
the removal of the primary production exemption are by no means
insignificant. Rural lobby groups in Western Australia have
considerable influence at a political level and this fact may
lead to difficulties in implementation. _However, if viewed
purely from the objective of equitable and efficient tax design
the recommendation made is that the blanket exemption of
primary production land be removed and that hardship cases be
dealt with under appropriate hardship provisions._


_EXEMPTIONS FOR LAND OWNED BY RELIGIOUS BODIES, EDUCATIONAL
INSTITUTIONS, CHARITIES OR THE CROWN_

Under the present system the above classifications of land and
various others(62) are exempted from paying land tax. This is
subject to a qualification that the land not be used for
business purposes. These exemptions are yet further examples
of how a potentially broad-based tax is being reduced to narrow
confines with a very limited scope.

These exemptions create distortions in resource allocation, and
may not necessarily reflect accurately the needs of the
groups.(63) The only benefit they provide is on welfare
grounds, where they give help where none might otherwise be
available. However, in order to extend the tax base and
increase efficiency, these groups should not be excluded, and
any assistance required can be provided by the government on a
needs basis.(64) It must be noted that some large educational
or religious institutions own vast tracts of land which are
currently not yet taxed while the institutions in question may
in fact be extremely wealthy.

It has been suggested that it is not productive to remove these
exemptions as the exempt land is unlikely to be converted to
alternative uses at a later date.(65) However, on
revenue-raising grounds, and to prevent distortive effects,
there are substantial reasons to include these groups in the
tax base.

Exemptions for crown land should also be removed. These induce
investment distortions between the private and public sector
which should be avoided. On general principle, there is also
no reason why the public sector should be exempted from
taxation, despite potentially leading to extra liabilities
which would mean larger budget subsidies.(66)

These exemptions have particular distortive effects where the
government authorities are involved in land development.
Homeswest, the State's public housing authority, is exempt from
land tax which gives it an unfair advantage over private land
developers.(67) It must also be noted that government
authorities including local councils, are significant users of
land and the exemption can lead to over-consumption of valuable
land compared to commercial enterprises who pay land tax.(68)
The additional land tax revenue gained if the exemption were
removed can be used by the government to provide public
benefits.(69)

_We recommend that the remaining exemptions including religious
and educational institutions, and Crown land, be removed._


_CONCLUSION_

Land tax is an ideal tax from a taxation policy perspective.
It has the potential to provide a broad taxation base, and
because the supply of land is fixed, liability attaching to the
land can not be avoided by a change in ownership. However, as
currently administered in Western Australia land tax fails to
achieve the policy objectives of equity, efficiency and
simplicity.

Horizontal equity can be achieved by removing the present
exemptions thereby broadening the tax base to encompass all
landholdings in Western Australia. Additionally the
introduction of a proportional rate system will ensure vertical
equity is met from a minimalist perspective.

Efficiency can be improved by the removal of the exemptions as
investment choices will no longer be influenced by the
availability of the exemption categories. Proportional rates
will also reduce distortion within the system as landholders
will not have the incentive to employ avoidance tactics to
escape higher marginal rates.

By implementing these measures, the liability for land tax will
attach to every parcel of land in Western Australia, regardless
of use and irrespective of ownership. Combining this with a
singular rate will simplify calculation and collection for both
government and taxpayer. The cost of implementing such a system
will be compensated by the anticipated reduction in overall
cost collection, given that most of the administrative
machinery is currently in place.

Windfall losses suffered due to these reforms are a result of
the equitable redistribution of liability which necessarily
accompanies the widening of the tax base. Any significant
hardship arising from the change in incidence can be dealt with
under appropriate legislative provisions. One option is to
implement a deferred payment scheme where the liability is
attached as an encumbrance on the land. Alternatively a
payment by instalment programme can be established. Special
hardship cases may be handled by a Land Tax Hardship Board
which could provide relief in individual cases on a merits
basis.

An alternative that warrants consideration is the application
of concessional rates to previously exempt groups. However,
this would be inconsistent with the rationale behind the
removal of those exemptions, and would go no further to
achieving effective taxation design.

It must be acknowledged that implementation of these
recommendations may meet with political obstacles. The
political ramifications of such a move are outside the scope of
this discussion from a tax policy perspective but these issues
would need to be considered in detail. Nevertheless, it is
submitted that these obstacles could be addressed if emphasis
is placed on the equitable arguments canvassed in this paper.

Implementing these recommendations will provide the government
with an ideal mechanism to control revenue raising. A ceiling
may be imposed to fix revenue at a pre-determined level and the
proportional rate may be adjusted accordingly. If additional
revenue is sought a relatively small change in the rate will
bring in a large increase in revenue due to the equitable broad
base. This mechanism will already be in place to maintain
total State taxation revenue in the event that the taxation mix
is altered. Current debate over the Liberal Government's
proposed abolition of Payroll Tax combined with the fact that
the High Court of Australia may hold licence fees
unconstitutional makes such a change in the taxation mix a real
possibility.


_SUMMARY OF RECOMMENDATIONS_
o We recommend that assessment based on the unimproved value
of land be retained.

o We recommend that the legislature clarify the meaning of
"unimproved value" by specifying a formula based on current
market value less the value of improvements to the land.

o We recommend that liability imposed on the 30 June is the
appropriate method of fixing the tax burden.

o We recommend that a system of annual valuations be adopted.

o We recommend that a proportional rate of taxation be
introduced, with no general threshold level. A minimum rate of
0.345 cents for every dollar of unimproved value should be
applied.

o We recommend that the exemption for owner-occupied dwellings
be removed.

o We recommend that the exemption for primary production be
removed.

o We recommend that the remaining exemptions including
religious and educational institutions, and Crown land, be
removed.



_BIBLIOGRAPHY_

"Call for Land Tax Changes", Law Institute Journal, June 1991,
481. [Briefly looks at the Law Institute's call for changes to
land tax, in particular at the discriminatory effects of the
exemptions.]

CHONG, F., "Land tax makes investors reconsider", Business
Review Weekly, October 1989, 121-122. [Looks at how investors
are turning overseas as land tax is too high in Australia.]

GARLAND, J.M., Economic Aspects of Land Taxation, Melbourne
University Press, Melbourne, 1934. [Examines the economic
rationale behind the introduction of land tax in Australia.]

GIUGNI, P.D., "A Practical Approach to ownership in land tax",
Taxation in Australia, vol.23, May 1989, 668-672. [Examines
the land tax legislation in NSW.]

HUTCHINSON, A.R., Land Rent as Public Revenue in Australia,
Land Values Research Group, 1968. [Looks at how land tax
stimulates re-development, and is a useful source of revenue
for the States.]

INDUSTRY COMMISSION, Taxation and financial policy impacts on
urban settlement, Volume 1 Report, 1992. [Analyses land tax
from the perspective of urban settlement - very thorough in its
analysis, and provides useful insights into the urban
perspective.]

LAND TAX WORKING PARTY REPORT TO THE SMALL BUSINESS COALITION,
Land Tax - Options For Reform, April 1993. [Looks at the
impact of land tax on industry, particularly small businesses,
recommends change in line with tax policy criteria.]

MUSGRAVE, R.A., & MUSGRAVE, P.B., Public Finance in Theory and
Practice, 5th rd., Mcgraw-Hill Book Company, 1989. [Excellent
on economic and legal incidence.]

NEW SOUTH WALES TAX TASK FORCE, Tax Reform and NSW Economic
Development: Review of the State Tax System, August 1988.
[Very useful and detailed report of the NSW situation; despite
the differences in the two States, shows which issues need to
be addressed.]

PREST, A.R., Some Issues in Australian Land Taxation, Centre
for Research on Federal Financial Relations, ANU, 1983. [Good
discussion on externalities.]

REAL ESTATE INSTITUTE OF AUSTRALIA LTD., Property Taxes and
Charges in Australia - A Discussion Paper, Professional Series
No. 1, October 1988, Canberra. [Looks at land tax and at stamp
duties relating to the conveyance of land - gives graphs and
figures for each State.]

Report of the Committee of Inquiry into Revenue Raising in
Victoria, Vic. Govt. Printer, Melbourne, 1982 sic. for 1983.
[As in the NSW Report useful for showing which issues need to
be addressed.]

WALSH, C., (ed.), Issues in State Taxation, Centre for Research
on Federal Financial Relations, ANU, 1990, Canberra. [Useful
for exploration of legal and economic incidence of land tax;
briefly looks at effect on investment decisions and capital
gains implications.]

WESTERN AUSTRALIAN STATE TAXATION DEPARTMENT, Annual Report
1991-2. [Shows how the State Taxation Department is organised,
and provides applicable figures for the period.]
15 Western Australian State Taxation Department, Annual
Report 1991-92, p.9
16 New South Wales Tax Task Force, Tax Reform and NSW
Economic Development: Review of the State Tax System, August
1988, p.239
17 Section 13
18 Section 15
19 A.R.Prest, Some Issues in Australian Land Taxation, Centre
for Research on Federal Financial Relations, The Australian
National University, 1983, p.2
20 State Taxation Department of Western Australia, General
Information on Land Taxes, 1992
21 Op.cit., Prest, pp.11-14
22 Report of the Committee of Inquiry into Revenue Raising in
Victoria, Vic. Govt. Printer, Melbourne, 1982 sic. for 1983,
P.285
23 Op.cit., NSW Task Force, p.237
24 Industry Commission, Taxation and Financial Policy impacts
on urban settlement, vol.1 Report, 1992, p.7
25 Toohey's Ltd. v. The Valuer General (1924) 25 SR (NSW) 75;
[1925] AC 439
26 This problem refers to the situation where the assessed
value may not accurately reflect the actual value, because the
value has changed in the interim period. The more frequent the
assessments the more likely the two values will coincide.
27 Op.cit., Industry Commission, p.8
28 Act Amendment Annual Valuation and Land Tax Bill 1993
29 It is acknowledged that there will still be a timelag but
from an administrative point of view more frequent assessments
will prove to be too resource-intensive.
30 Assessment costs will increase, however this will be
compensated for by the benefits (increased tax yield )
associated with more up to date valuations of land. This is
evidenced by the new rates in Schedule 3 of the Taxation
Legislation Amendment Act 1993 which are fixed at a lower level
to partially compensate for the increased yield.
31 Residential properties in this context consist of rental
properties and vacant residential land (owner-occupied
dwellings are exempted).
32 Op.cit., Victorian Report, p.297
33 Op.cit., Industry Commission, p.6
34 Op.cit., NSW Task Force, p.256
35 Ibid., p.255
36 This rate is calculated by dividing the total tax assessed
by the total unimproved value of assessments, and expressing
that result as a percentage. The figures used are found in
Appendix B:
Total tax assessed: $136,000,000
Total unimproved
value of assessments: $39,439,000,000
It should be noted that this rate:
1) maintains revenue neutrality
2) is still less than the minimum progressive rate of
0.350 cents for each dollar of unimproved value corresponding
to land valued between $5,000 and $10,000
3) can be adjusted upwards to increase revenue from land
tax. For example, a 0.100 cents increase would result in
nearly a 30% increase in land tax revenue.
37 Religious, educational, charitable institutions.
38 Land Tax Assessment Act 1976, s.21 and Part 1 of the
Schedule
39 17% of all residential land is currently taxable.
40 Figure is derived by using the total unimproved value of
assessments for the current and broad tax bases -
Broad Tax Base 28,653,000,000
-Current Tax Base 4,871,000,000
23,782,000,000
= $23.8 billion
41 Figure is derived by using the total tax assessed for the
current and broad tax bases -
Broad Tax Base 98,806,000
-Current Tax Base 61,532,000
37,274,000
= $37.3 million

42 R.A. Musgrave & P.B. Musgrave, Public Finance in Theory
and Practice, 5th ed., McGraw-Hill Book Company, 1989, Chapter
12
43 Op. cit., NSW Task Force, pp. 245-246
44 Those who are asset-rich and income-poor.
45 Op. cit., NSW Task Force, pp. 245-246
46 The nature and scope of these provisions must be the
subject of further consideration in order to ensure that relief
will be granted where needed.
47 Real Estate Institute of Australia Ltd., "Property Taxes &
Charges in Australia - A Discussion Paper", Professional Series
No. 1, October 1988, Canberra, p.4
48 Income Tax Assessment Act
49 This is working on the assumption that the property will
realise a real capital gain when sold, once consideration has
been made for cost of borrowing, where applicable.
50 Op. cit., Victorian Report, p.163. The costs to assess
exempt owner-occupied dwellings are estimated as-
$1.5 million to establish
$2 million per annum to maintain
51 If this recommendation is too politically unpalatable then
an alternative would be to introduce a threshold which would
exempt owner-occupiers holding land valued below a
pre-determined level. This may improve the political
feasibility of including owner-occupied land in the tax base.
However, this does not overcome the problems involved with
exemptions as previously discussed.
52 J.M. Garland, Economic Aspects of Land Taxation, Melbourne
University Press, Melbourne, 1934, p.32
53 Land Tax Working Party Report to the Small Business
Coalition, Land Tax - Options For Reform, April 1993, p.8
54 Land Tax Assessment Act 1976, s.21 and Part 1 of the
Schedule
55 Op. cit., Land Tax Working Party, p.8
56 See Appendix E for current MRIT
57 See p.11
58 Op. cit., Industry Commission, p.15
59 Income Tax Assessment Act
60 Op. cit., NSW Task Force, p.250
61 Op. cit., Industry Commission, p.15
62 Land Tax Assessment Act 1976, s.21 and Part 1 of the
Schedule
63 Op. cit., Victorian Report, p. 294
64 Ibid., p.313
65 Op. cit., NSW Task Force, p.252
66 Op. cit., Victorian Report, p.294
67 Op. cit., Industry Commission, p.13
68 Ibid., p.14
69 Ibid., p.13