Page 75 - Week 01 - Tuesday, 12 February 2019
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Moving to the government response, I will concentrate on recommendations 2 and 6, starting with recommendation 6, which is the public review of residential rates and land tax. In its response to recommendation 6, the government committed to a public review of stage 2 of the ACT’s tax reform program ahead of finalising the details of stage 3. I welcome that commitment. I see it as a vindication of the points that I have been making on residential rates and land tax over the last year, and vindication of the points which many people in the community have been making. In particular, OCN has probably been outstanding in this regard.
Now that the government has committed to a review, the next question is: what should the review do? The Greens have a number of suggestions as to what it should include. First, the review must be public and highly transparent. Tax reform needs broad-based community support if it is to be sustainable in the long run. Second, the review must focus strongly on both fairness and economic efficiency. I am really concerned about the potential impacts of the route we are going on on renters, Canberrans on low incomes and first homebuyers.
Third, the review must include a serious investigation of moving the residential rates system to a market value tax, as the ACT Greens suggested in our discussion paper last year. The issues that we are seeing are partly happening because Canberra’s tax system is moving from stamp duty—which was, and is of course, a market value tax—to rates and land tax, which are both land value taxes. Relatively speaking, that reduces the taxes paid on McMansions and increases the taxes paid by first homebuyers and seniors with small houses in older suburbs. Market value rates are much more likely to match taxation and ability to pay.
Fourth, the review must include an investigation of the impact of increasing residential land tax, given that recommendation 18 of the 2012 Quinlan review was to abolish it over time. Many economists believe that, in theory at least, land tax ultimately partly flows through to rents. If this is correct in the Canberra context, this could be having substantial negative impacts on low income Canberrans. The review needs to test whether this, which is undoubtedly a fairly reasonable theory, is actually happening in practice in the ACT or whether there are some other factors here, such as the shortage of rentals. Fifth, the review must consider the role of deferrals of taxation and tax concessions. These are critical for fairness to people on low incomes and people who are falling into financial hardship.
Finally, the review needs to be about taxing better, not about cutting taxes, because of course cutting taxes would mean cutting the services our community relies on, and also because conceptually they are two different questions: how much money we spend on government services and how we tax are related but different questions. This review should be about how the tax pie is shared and how to ensure that we share it in the most equitable and efficient fashion.
Moving on to recommendation 2, this is around rates for units. The government’s response to recommendation 2 includes the following quote on the topic of setting rates for units:
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