Page 3064 - Week 10 - Wednesday, 16 September 2015
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The lease variation charge is an efficient tax because it isolates and taxes the additional value of a lease due solely to a government decision—due solely to a government decision. It has no impact on production and consumption decisions because the windfall gain is generated by a change in the lease that the government grants. In very clear and simple terms for the Leader of the Opposition, who needs things explained in clear and simple terms, if the government sold a block of land for commercial use and the lease conditions of that land are later varied to reflect higher value uses, LVC captures that higher value.
Mr Hanson interjecting—
MADAM DEPUTY SPEAKER: Mr Barr, sit down. Stop the clock, please. Mr Hanson, I have asked you to stop interjecting. Next time you will be warned. Mr Barr.
MR BARR: Thank you, Madam Deputy Speaker. Let me repeat: if the government sells a block of a land and the lease conditions on that land are later varied to reflect a higher value residential use, the LVC captures this higher value which was not contained in the sale price the government received. As well as providing part of the increased value to the community this ensures fairness with other developers who may not have been interested in purchasing the land when its lease specified a lower value range of purposes but may have been interested if the original lease was for that higher value use. The LVC delivers neutrality between sales of blocks for one use and the latter is converted to a higher value use than the sales of blocks which originally contain the higher value.
The lease variation charge is only one factor of many that a developer would consider before deciding to proceed with a development. Other factors include level of prevailing interest rates, confidence within the economy, prevailing economic conditions, the remaining useful life of any existing buildings, availability of labour, decisions of the commonwealth government, tenant interest—demand in the marketplace, residential presales targets, and a range of other considerations. Major drivers of cost include, of course, the purchase of the land in the first place, construction costs, and the goods and services tax on the sale of a new building. All of these are much more significant than any LVC that may be payable.
The lease variation charge is an important revenue source for the territory—$70 million or thereabouts in the next four year. If it were reduced to zero for four years, as Mr Smyth is proposing, the forgone revenue would need to be raised somewhere else. This is the bit that shows the priorities: the tax cut the Liberals are offering, which will be delivered to a very narrow subset of property owners and developers, will be paid for by the residents of Canberra. Those opposite want to pay for this by increasing taxes somewhere else or cutting services. That is Liberal Party mantra—do not tax those who have the capacity to pay when you can hit everyone else and cut services.
We know the demand for commercial space at the moment is low and that vacancy rates are higher in some C and D grade buildings in Civic than was the case when
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