Last week I questioned how affordable housing in Australia was. Whilst thinking about that topic, I started to consider all the property taxes that State and Local Government charge investors and owners and why levies can vary so much.
Following the release of the Federal Budget in May, there has been much discussion on how Australia will tackle the deficit fiscal position. An obvious starting point is reviewing Taxation Revenue and identifying where adjustments can be made.
The Federal Government has re-aligned responsibilities for services, pushing more onto the States. However State and Local Government are limited in the ways they can generate revenue.
Currently taxes on property are the major source of revenue for State and Local Governments. In the 2012-13 financial year, property taxes accounted for 46.4% of State and Local Government revenue. This represents an increase of approx. 7.2% on 2011-12, rising from $33.5 billion to $35.9 billion.
Other sources of taxation revenue for State and Local Governments in 2012-13:
– $20.752 billion (26.81%) – Employers Payroll Taxes; increase of 5.09%
– $11.089 billion (14.32%) – Tax on Provision of Goods and Services; increase of 2.35%
– $9.638 billion (12.45%) – Tax on Use of Goods & Perform. of Activities; increase of 8.57%
Another major revenue source for State Governments is stamp duties on conveyances.
An increase in stamp duties on conveyances in 2012-13 of $1.183m (10%), saw the total of taxes on properties (at the State level) increase by $1.597m (8%) to $21,933m. New South Wales and Western Australia contributed the most to the overall stamp duty increase, recording increases of $804m and $444m respectively.
The largest increase in property taxes was recorded by New South Wales, where taxes rose $795m or 11% over the 2012-13 year.
Local Governments generate property related taxation revenue via municipal rates, which increased 6.8% over the period 2011-12 to 2012-13 to $14.027 billion.
Local government rates are a tax charged on the value of property, with most types of land included in the tax base. The tax rate can vary according to the type of land. For example, land for residential use may be charged a different tax rate from land for commercial use.
Council Rates charged can vary significantly across jurisdictions. Jurisdictions with lower average land values tend to charge higher tax rates for a given property value.
This may reflect that if one area has lower land values than its neighbour, it must charge a higher tax rate to raise the same level of revenue to deliver the same quality of services.
Rates can vary from year to year depending on the Council budget, other sources of Revenue, available cash and anticipated expenditure for the coming year.
If State and Local governments made reforms to stamp duties and land tax would this make housing more affordable?
It seems that this would ease current impediments to housing supply generated by the tax system but not necessarily ease affordability. Following the Federal budget these taxes may need to go up if States and Local Governments are responsible for providing more services, therefore potentially pushing housing affordability more out of reach for first home owners and investors.