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Treasurer – Land Tax Cuts

Dr Rosalie Woodruff MP

Dr Rosalie Woodruff MP  -  Tuesday, 7 June 2022

Tags: Treasury, Housing Crisis

Dr WOODRUFF - Thanks. I have a question about last year's budget in relation to the land tax when you advised that the land tax adjustments last year were based on an option provided by Treasury in an options paper. Was there any advice provided by Treasury in respect of the land tax adjustments that were passed this year?

Mr FERGUSON - I think I can say yes there was advice given to Government to give guidance about a range of options. I think I can put it that way, can't I?

It was deliberative advice so it's not for public release but certainly Government gets advice and I recall seeing advice giving indications of budget impact and fairness of different tax arrangements that led us to settle with the Government's decision that was reflected in the bill, so I'm not disclosing what was in that advice but, yes, we received advice and it would be very sensible to take advice before settling on a government policy position.

Dr WOODRUFF - Did Treasury favour any of the options provided in the options paper on land tax and will you tell us what those options were?

Mr FERGUSON - I think I would not be able to do that because it's advice that is deliberative for the minister; it’s confidential to be considered, knowing that there is always interest in these things but Treasury needs to know that when they provide advice or any other department needs to know that when they provide advice that they can be open and frank about and not worry about it being released and, therefore, curtailing their frank and open advice or their information that is provided.

Dr WOODRUFF - Whether there were options provided and whether Treasury favoured the option doesn't tell us exactly any of the detail. It's really a question of whether Treasury was in agreement with the options that were provided.

Mr FERGUSON - That's not the nature of my relationship with Treasury, even back then when it was in my role as minister for Finance. Treasury tell us what's possible, what the implications are, how to achieve those options and then it's up to executive government to decide on a path forward and ultimately, obviously, a matter for the parliament to use its consideration of a policy position that's been put forward.

I have just been reminded that at the 2021 election, one of the elements that led us to the bill that was recently passed was that Treasury was asked to give advice to Government on our election policy. We forecast that we would ask Treasury to give advice to provide options for capping future land tax increases because we were aware that land values were going up.

Dr WOODRUFF - Why wouldn't you want to be clear with Tasmanians about the options that were on the table? What do you have to hide in that situation?

Mr FERGUSON - Nothing at all. What the Government has done is taken its policy decision to the most accountable forum in the state, which is the parliament.

Dr WOODRUFF - I think people would like to know the basis by which you arrived at the proposal when that came to parliament.

Mr FERGUSON - I understand that.

Dr WOODRUFF - Last year, during Budget estimates, the then Treasurer advised that commercial leases often have pass-through provisions to allow things like land tax cuts to be passed through to commercial tenants. He also observed this is not the case with residential leases. Why have you claimed that the land tax cuts would be passed on to tenants? What's your evidentiary basis for that claim?

Mr FERGUSON - I haven't said that. I'll ask you to find a place where I've said that. I don't think you will find it.

Dr WOODRUFF - I don't know about that, I think that's -

Mr FERGUSON - If you have evidence to the contrary, I'd welcome -

Dr WOODRUFF - Okay; so you've been quite precise about that?

Mr FERGUSON - If I may continue -

CHAIR - Order. Dr Woodruff, can you please not talk over the top of the minister.

Mr FERGUSON - I'm always careful with what I say. I'm fairly confident that would not be something that I have on the record. If I have, please show it to me and I'll correct the record. What I have said. is that cutting land tax, particularly future land tax increases, as applicable to investment properties that are subject to residential tenancy agreements, will have a downward impact on cost of living pressure, because it's self-evident that if you mitigate a future land tax increase, you're mitigating future rental rises. Any landlord who receives a significant increase in their land tax bill, is going to factor that in to future rental lease payment settings. I make that claim, and I'm happy to stand by that claim.

Dr WOODRUFF - There's no doubt that isn't going to help out tenants in anything like the short term. This is the old neo-liberal trickle-down effect idea, which has been proven false time and again. It doesn't make its way to improve the living conditions or lives of people who are the most disadvantaged. It is absolutely incorrect to talk in that general sense as though it's going to have any material impacts on the real cost of living, and the real cost of rent for Tasmanians. Are you going to accept that this is not something which will have a material benefit to the most disadvantaged Tasmanians who are suffering a burden of rents that they can't afford to pay?

Mr FERGUSON - I do have a great regard for, and support your sentiment, about helping people who are less well-off, or suffering disadvantage, or who are on incomes that they find it challenging to pay for rent, or for the dailies of life. Unfortunately, Dr Woodruff, you misquoted me in your previous question, and put words in my mouth that I haven't said. I'm happy to stand by my position, which is that had we not acted, you almost certainly would have seen further rental increases due, if nothing else, to the increase in land tax that some landlords would have to be paying.

Dr WOODRUFF - You think there won't be rent increases now, as a result of this measure?

Mr FERGUSON - You're doing it again. You're putting words in my mouth.

Dr WOODRUFF - I'm asking you a different question.

CHAIR - Dr Woodruff, please don't talk over the minister.

Mr FERGUSON - I think it's pretty unfair to do that. I haven't said that.

Dr WOODRUFF - I'm not talking about what you had said; I’m asking you a question now, here in the committee?

Mr FERGUSON - I'm aware of rental increases. I acknowledge that is occurring and that is a factor in the Australian rental market, including here in Tasmania. But one step that we have taken around land tax that we have discussed for the last 30 minutes has taken one element out of potential future rental increases. Landlords would have seen a significant increase in the of the land underneath their property, and would have seen a greater increase in land tax, without our legislation. I think even the Greens may have supported it, I'm not sure.

Dr WOODRUFF - Yes, we did.

Mr FERGUSON - That has mitigated the very point that I'm trying to make about future rent increases. Apart from providing rent relief to about, I think 10 000 or so 8000 taxpayers, that will now be below the threshold, it also does provide that point that I'm making about mitigating other rental increases that could have been attributed to a greater increase in land tax.

Dr WOODRUFF - Did Treasury model the benefits that you hope would flow down to rental tenants from introducing that legislation? Did Treasury provide some modelling? You've made some general statements about improving rental prices because of bringing it in. So, has Treasury done some modelling that gave you confidence to make those statements?

Mr FERGUSON - I certainly have confidence in making the statements that I have, as opposed to the ones that you misquoted to me.

Dr WOODRUFF - What are they based on?

Mr FERGUSON - I have said as much as I am able to about the advice that I received from Treasury to assist Government in forming its policy and legislation.

Dr WOODRUFF - I am not asking what the advice is. I am asking did Treasury provide you any advice to help you form the conclusion that tenants would be better off with that land tax legislation that you passed?

Mr FERGUSON - I am not trying to be tricky but I am prepared to say that Treasury gave me advice because I sought it. We considered that advice in forming our policy response, which we then took to parliament.

Ms O'CONNOR - Treasurer, it has been argued that land tax cuts are necessary because our rates, compared to other states, are higher. But our understanding is that prior to your cuts, at a property value of about $2.1 million, South Australia becomes more expensive than Tasmania. At $6 million in value, Tasmania's land tax bill is cheaper than every other state other than Queensland. At $8.5 million in property value, Tasmania's land tax bill becomes the cheapest of every state.

On this basis, Tasmania actually has the most generous regime for landowners with a large property portfolio, which is not the majority of Tasmanians, other than perhaps the ACT. If updating our land tax regime is the goal, why were rates at that higher threshold not increased?

Mr FERGUSON - Why were the rates at the higher threshold not increased?

Ms O'CONNOR - Yes.

Mr FERGUSON - We didn't touch that higher threshold -

Ms O'CONNOR - Why not?

Mr FERGUSON - whereas we did touch the other two. We raised the first threshold and lowered the rate of the second but held the top threshold at the same amount and the same rate. I am very comfortable and happy. I think we explored this in parliament where we did interstate comparisons. I am happy to do so now if you give me a moment to take advice.

Mr FERRALL - In terms of comparisons, at median land value, which obviously varies across the jurisdictions: for New South Wales a median land value of $407 000, median tax liability is zero; Queensland $242 500, the tax liability is zero; Western Australia, with median land value $265 000, the liability is zero. South Australia, $220 000, the median value is zero. I think it is a matter of what you are comparing.

Ms O'CONNOR - Okay. Treasurer, during debate on the Land Tax Rating Amendment Bill 2022, you repeatedly claimed that reducing land tax would place downward pressure on rents as landlords will factor in their costs when determining rents. Highly respected economist Saul Eslake says:

It's a myth propagated by the property industry that land taxes affect rents. They don't. Rents are determined by the interaction of demand and supply in the land market and the rental housing market.

Treasurer, it is our understanding that this is well understood among economists. You might recall that in my second reading on that bill I also cited the Henry tax review, the Directorate-General for Economic and Financial Affairs of the European Commission, and Adam Smith's The Wealth of Nations. Treasurer, is there anyone at the table, including you, or anyone from Treasury, willing to refute Saul Eslake's comments stating that a reduction in land tax does not bring downward pressure on rents?

Mr FERGUSON - If you don't mind me saying, although I didn't write it down when you were reading your question to me, what is it that you allege that I've said again?

Ms O'CONNOR - You said repeatedly during debate that lowering the land tax threshold will would put downward pressure on rents. Repeatedly.

Mr FERGUSON - I did say that. Earlier, before you entered the room, Dr Woodruff put to me quite a different quote, which suggested that I had said it would lead to a lowering of rents, and I refuted that, and felt that that was a misrepresentation.

Ms O'CONNOR - What's the difference?

Mr FERGUSON - There is a difference, because what I've discussed instead is the more defensible position that if you mitigate future land tax increases, then you're mitigating future claims that a landlord could make on a tenant that 'I need to increase the rent by this amount because my taxes went up by this amount'.

Ms O'CONNOR - Do you disagree with Saul Eslake that changing land tax thresholds, lowering the threshold of payment, does not affect rents? Do you disagree with Saul Eslake? I'll bet you your Treasury advisors don't disagree with Saul on this one.

Mr FERGUSON - I don't know if we disagree or not. I'm just going to speak for myself. I'm comfortable with the words that I've used, with the rationale that I've explained, repeatedly in parliament, and also prior to you joining us this afternoon. It's not an outrageous claim that I've been making. What I've been making is a fair and reasonable position that removing future land tax increases has the effect of placing downward pressure on future rents, and I feel that I've explained that very adequately, and I'm happy to explore it in any length that you would like. I do feel that I was misquoted by an earlier question, not from you though.

Ms O'CONNOR - I feel that you haven't been able to say whether or not you disagree with Saul Eslake, but was any assessment done of the impact of the 2021 land tax on residential rents before embarking on further cuts this year, and do you intend to do any assessment, or are you aware of any assessment of this year's cuts going forward?

Mr FERGUSON - I actually also had that question from Dr Woodruff earlier, in perhaps slightly different words.

Ms O'CONNOR - No, it was different.

Mr FERGUSON - I did receive advice from Treasury, and it helped to guide Government in deciding its policy going forward. We did commit at the 2021 election that we would review opportunities and ask Treasury for advice on options of capping future land tax increases, because we were aware that land values going up will have a very direct relationship with future land tax bills that Tasmanians, were it not for our action, would be receiving from 1 July of this year. We acted in the way that we discussed at length in parliament. No, I don't think I'm able to discuss the detail of Treasury's advice to me -

Ms O'CONNOR - No, it's whether there's been an assessment. That's not discussing detail, that's confirming whether or not there's been any examination of the impact on rent.

Mr FERGUSON - but the government does continue to receive and observe and respond to data on cost of living matters including rents, so we're certainly not blind nor uncaring about the realities that Tasmanians are facing including a booming housing market, which is having an impact not just on values and wealth for people who own homes -

Ms O'CONNOR - Under investment and supply.

Mr FERGUSON - but also the rental payments that people are having to find.