Stupid property taxes should not be a revenue stream for weak governments

They’re at it again, yet another tax under the guise of the new green taxes for Australia. Little wonder governments at state and federal levels usually end up in Struggle Street when it comes to explaining the need for yet another new tax on property. It reminds me of a speech President George W. Bush made at a Gridiron dinner in 2001 when he said “you can fool some of the people all of the time, and those are the ones you need to concentrate on.”

As if a carbon tax is not enough to contend with, the federal government is proposing to introduce in 2012 a mandatory energy star rating for homes being sold or rented out. The Minister for Carbon Tax Greg Combet says “it will allow buyers and renters to better compare different properties, making it easier to identify a property which uses less energy or water and thereby save money.”

So vendors and landlords will have to pay around $200 to have their property assessed, the cost to home owners and property investors is approximately $1.1 billion over the next 10 years.

The Age reported last week Australian homes still the world’s biggest, and the latest figures show that the average new home built in Australia is still 10% bigger than its counterpart in the United States and 9% bigger in New Zealand. NSW still builds bigger houses than Northern Territory, Queensland then Victoria, at 246 square metres per residence. Maybe the Minister for Carbon Tax should watch the movie The Castle – “tell him he’s dreaming”. Australia currently has a dramatic shortage of housing evidenced by record low rental vacancy rates, which is driving up rents to all-time record highs. All an energy star rating for houses will achieve is a disincentive for investors, which contradicts the government’s affordable housing commitments.

To put this into perspective let me find another George W. Bush quote: “There’s a huge trust. I see it all the time when people come up to me and say, ‘I don’t want you to let me down again’.”

If there was a television show ‘Australia’s Dumbest Property Taxes’ the past NSW Labor government would be nominated for a Logie. A catastrophic government that resulted in annihilation at the March 2011 election, given its policy implementation was usually followed up with another backflip.

Let’s look at some of NSW’s worst property taxes (not in order of stupidity).

Premium Property Stamp Duty (still alive), where homes sold for more than $3 million will be taxed at 7% on the amount above $3 million. The Vendor Exit Tax, where investors were charged a 2.5% tax on the sale of investment properties (introduced 2004, axed 2005). The Premium Property Tax (abolished), where all properties with a land value above $1.97 million (including the family home) pay an annual speeding fine because their land value is increasing. The NSW Ad Valoreum Tax (introduced 2010 and abolished by the new Liberal government in 2011), a land transfer charge of 0.2% on sales between $500,000 and $1 million and 0.25% above $1 million.

In my opinion, state and territory governments have well and truly exceeded their use-by dates. When the Howard government introduced the GST in 2000, it was sold on the basis that the much-despised ongoing state stamp duties would be abolished. This has been obviously not the case given the much-awaited Henry Tax Review in 2009 was dismissed and placed into that politically convenient “too hard basket”. On August 19, Henry told an Economic Society forum in Sydney there was almost unanimous agreement submissions to his Australian Future Tax System  review that state-imposed stamp duties were bad and should be abolished.

Why, are property taxes charged as an upfront – when council and water rates are levied quarterly?

“I’ll be long gone before some smart person even figures out what happened inside the Oval Office.” – President George W. Bush, Washington, D.C., May 12,2008.

Sound familiar?

Remove local and state governments and bring in big business to drive infrastructure and make it accountable. Get superannuation funds to invest in Australia’s growth and development. Just because you own a property, propping up a government that struggles to make ends meet is a no-brainer.

Alternative business models would be very interesting to say the least – time to challenge Australia.

Robert Simeon is a director of Richardson & Wrench Mosman & Neutral Bay  and has been selling residential real estate in Sydney since 1985. He has also been writing real-estate blog Virtual Realty News since 2000. The RWM real estate model has sold in excess of $1 billion in database sales globally.