The Future Party supports the creation of a broad based land tax as one of the most economically efficient means of revenue generation available to government. This is supported by standing economic theory and the specific recommendations of the Henry report. Such a tax captures a portion of the pure economic rent derived from land ownership. Thus, it does not distort economic decision making. The tax would be applied at a rate determined by the value of the unimproved land. That is, the value of the land tax will not be determined by the quality of the building that exists on the land, but on the per square metre value of the land. Appropriate adjustments will be made where heritage listing prevents redevelopment.
Stamp duty is currently incurred at the time of sale. In many cases, this is a substantial sum, and prevents people from upgrading and downgrading their housing to fit their needs.The number of transactions in the property market is decreased. These lost transactions have value. For instance they correspond to people upsizing or downsizing their home as their family circumstances change, or moving to towns with better job prospects. Economists refer to all these potential benefits left unrealised due to a tax as a deadweight loss. Stamp duties, furthermore, are levied (unlike a land tax) on the improved value of a property. This creates an incentive against improvements, such as renovation, and again, there is a further deadweight loss. Likewise the payroll taxes that the land tax replaces also incur deadweight losses. However the land tax itself, because it does not create any disincentive against economic activity, incurs no deadweight loss.
The Future Party proposes that land tax should be levied quarterly for properties that are not the owner’s primary residence such as investment properties or holiday homes. Owner occupiers will be given the option of either paying the tax quarterly, or allowing the tax liability to accumulate and to be collected by the state government at time of sale. The tax liability will be adjusted quarterly according to the interest rate of the NSW government bonds. The option to defer payment of land tax will only be available for homes owned by individuals or couples. Land tax on holdings of family trusts, commercial properties and investment properties must pay the tax as it is due. In the case of death where the liability has been deferred, the land tax will be assessed as part of estate decisions. If the property is owned by an individual, the tax will be paid from the value of the estate; however, if the property is owned by a couple, in the event of death of one person, the surviving spouse will be allowed to continue to defer the liability on the property.
The deferred land tax liability avoids cashflow problems for landowners who may be asset rich but have little income - for instance, pensioners who own a family home.
The deferred land tax liabilities will be available for governments to spend as they are accrued. Land tax liabilities will be packaged as bonds that companies and individuals can purchase, allowing the state government of the day to spend the deferred liabilities as they are accumulated. This process will ensure a steady stream of revenue for the government, rather than relying on sale of properties to dictate the revenue of the government of the day.
The resulting tax revenues from a given property should be split between the relevant Local government and State Treasury, who will thus share the benefits from adding value to local land through the provision of public services and infrastructure.
The land tax will need to be phased in gradually, to give property holders the chance to adjust to the new regime and to ensure state government revenues are stable. The intention is to avoid greatly advantaging or disadvantaging individuals based on when they purchased the their property. To do this, all property will incur land tax from the date of the legislation being enacted, however stamp duty will gradually decrease with time, dropping by 1/10th of the current rate of stamp duty per year over a 10 year period.
The land tax will have a minimum valuation threshold, below which which land tax is not payable. This will avoid the complication with calculating the land value of large rural properties. The Future Party suggests all properties with land values below $10,000/hectare will not incur any land tax.