Lend Lease slams 15% withholding tax as Property Council fails to convince Wayne Swan to scrap it

Property development giant Lend Lease has put pressure on Federal Treasurer Wayne Swan to reconsider his federal budget decision to double the withholding tax.

The tax is charged on the distribution paid to foreign investors who buy into managed funds and is set to increase from 7.5% to 15% from July 1.

The withholding tax was as high as 30% under the Howard government, but was cut to just 7.5% by Kevin Rudd in July 2010.

Lend Lease chief executive Steve McCann has called the tax change “sudden, surprising and unhelpful” and says that the largest real estate and infrastructure projects cannot be funded by even the largest super funds.

“Real estate and infrastructure is heavily reliant on offshore institutional capital, especially in the post-GFC era,” he said in an email reported by the Australian Financial Review.

McCann warns that an increase in the tax will cause foreign investors to recalculate their return on investment and reconsider investing in Australia.

The end result will be that Australia’s ability to compete with other countries for offshore capital will suffer, with a flow-on effect for jobs, McCann says.

Lend Lease has $10 billion worth of construction projects on its books, including the massive Barangaroo development.

In its defence, the government claims the new tax rate is a better balance of the needs of Australia to remain an attractive destination for foreign investors while ensuring a fair return.

Treasury is estimating a tax return of $260 million over four year generated from the withholding tax.

Earlier this week, the Property Council of Australia (PCA) failed to convince the federal government to reverse its decision.

PCA chief executive Peter Verwer was in Canberra yesterday attending the Residential Markets Summit hosted by the National Housing Supply Council following a meeting with Wayne Swan.

A spokesperson for the industry body says Verwer would not be commenting any further than the PCA’s post-budget statement.

Verwer was supported by Financial Services Council head John Brodgen, representing the interests of retail and wholesale fund managers and superannuation funds.

On May 8 following the budget statement, the PCA issued a statement calling the withholding tax increase “another extraordinary misstep” by the Gillard government.

“The Rudd government scored a global coup in slashing the withholding tax to 7.5%, [and] the world responded by sending us more of their money to manage,” said the PCA at the time.

Verwer called the move “desperate and cack-handed” and said it would send “an appalling signal to international investors” daring them to try and invest somewhere else.

“This measure shreds Australia’s ambition to become the leading funds management hub for the Asia-Pacific region, and is another example of this government’s inability to sell a good news message and stick to a clear course.”