Today Mark outlined the Greens' support for the Land Tax Bill, his disappointment at the level of misinformation about the Bill and the missed opportunity for broader tax reform, including the removal of stamp duty on residential property purchases.
Land Tax (Miscellaneous) Amendment Bill 2019
In a fair and compassionate society like Australia, everyone should contribute to ensure that we have the public services and amenities that we all need and use. However, inequality in wages and wealth mean that some are able to contribute more than others. So when those people in our society who have more wealth and more assets deliberately avoid contributing their share, it costs us all.
We all have less—less investment in our health services, less money for education, less for the environment, less for essential infrastructure, less for public transport, less for everything. The Greens believe that everyone should contribute their fair share, so allowing some people to avoid paying their fair share just is not acceptable to us. The Greens support a progressive tax system, and we support closing legal loopholes that allow people to avoid or reduce paying their fair contribution. Properly applied, land tax is widely recognised as one of the fairer taxes because the more property you own the more you contribute in tax. Also, land tax is difficult to avoid. You cannot pick up your investment property in Adelaide and move it to the Cayman Islands.
However, some landowners have been avoiding paying their share of land tax by using multiple legal entities, such as private companies and trusts, to split the legal ownership of property to get around rules that require tax to be paid on the total value of an owner's property holdings. So the Greens will support closing these legal loopholes. Other states have done this already, and it is time for South Australia to do the same. We will be supporting the aggregation provisions of this bill, but I think we do need to talk about tax minimisation because the debate around the legitimate bounds of taxation planning, the legalities of tax minimisation and the illegality of tax avoidance and tax rorting has been with us for as long as human societies have levied taxes.
In relation to land tax and the impact of the aggregation, there is no suggestion of illegality but there is no doubt that the bulk of those affected people have made a deliberate choice to structure their affairs in order to pay less tax. Certainly, there are plenty of people who claim that their control of multiple legal entities is purely a fluke of historical circumstance and not a deliberate ploy to pay less tax. That may be the case in relation to a few people, but it is certainly not in relation to most. So we need to get real about this.
Australia's population is about 25 million people. There are 2.5 million companies in Australia. There is one company for every 10 adults and children in this nation. In South Australia, there are 120,000 companies, and guess what? Most of them are not making widgets, most of them are not providing services. The vast bulk of these companies are simply vehicles for holding property. Sure, a few make things and some provide services, but most of the 120,000 companies are simply created to hold property. Many property companies are also trustees of discretionary or unit trusts, which in turn own properties. Why? The answer is pretty simple. Go online and have a look at the industry that has been established over many, many decades for the creation of shelf companies.
Registration of an Australian company currently costs around $650 to $750 if you use a shelf company provider or a company formation agent. In fact, I found them for closer to $500. There are some cut-price businesses out there on the market. You can buy shelf companies very cheaply. If you go to an accountant, they might charge you a bit more—maybe $1,200, maybe $1,500—to set up a shelf company. The Australian government charges $495 to register a proprietary company, and each year you will have to pay $254 in an annual fee, again to ASIC.
Let's translate those costs that investors have chosen to spend with the savings that they have achieved in the South Australian land tax system. If you own two properties, each worth $300,000, and you own them in your own name, then your land tax on the combined value of $600,000 is $1,155. That is the tax that you pay. But if you own one of them in your own name and one of them in the name of a private company, then you pay no land tax at all.
So if your main objective is to pay less tax, it makes sense to buy a shelf company. Even taking into account the establishment costs, you will recover double what you spent in your first year, and you will save $900 in land tax every year, even taking into account the $254 fee payable to ASIC. If you buy another $300,000 property, using another shelf company, you avoid paying about $4,000 a year in land tax. That is why people do it. It is not surprising that that is what people do. It is what their tax accountants advise them to do.
I have told this story to a few people. If ever I am asked why I do not practise law anymore, having given up the practice of law in the private sector in 1988, the answer is that my employer had great plans for me: I was moved into the tax minimisation section of the law firm. My job was to create discretionary trusts for our wealthy clients, with the sole objective of helping them to pay less tax. That is what the bosses at my legal firm in country Victoria wanted me to do.
The Hon. J.S.L. Dawkins: In Warrnambool?
The Hon. M.C. PARNELL: An honourable member interjects, but I am not going to respond because I do not want to identify the firm. They were good employers otherwise, but the area of work they wanted me to go into was not something that I wanted on my gravestone, hopefully in a long time hence: 'Here lies Mark Parnell. He created great tax minimisation schemes for our wealthy clients.' That was not going to be my legacy to this world. I thought I could do better than that. I decided that practising law was good and I had enjoyed it for many years, but I was not going to be taken down that path, so I decided to go in a different direction.
The other members who have spoken in this debate have referred to various letters that have been written, online forums, letters that have been written to them directly. I will refer to a few things as well, but I want to point out that these aggregation measures also have some very credible champions in the community.
I think we will start with SACOSS. This is the South Australian Council of Social Service, the umbrella body for the charitable sector, the people in our society at the coalface of looking after those most in need. That is what SACOSS is; that is who they represent. They represent the religious charities, Anglicare for example, and they represent a whole range of service providers whose job is to help those who need help the most. Sometimes people call it, I think unkindly, a poverty lobby. The people whom they most help are often living in poverty. SACOSS CEO, Ross Womersley, said:
The proposed changes to the legislation to stop tax avoidance are good, sensible policy—both for fairness and to limit existing incentives that encourage investors to 'crowd out' low income and first-home buyers in the housing market.
That is the view of those at the coalface. I know some members, like the Hon. Russell Wortley, will talk about people who are saying, 'Well, if you make me pay more tax, I might have to sell my property.' Well, if you do sell your property, it will be sold to someone else who will rent it out or, even better, someone who will live in it themselves.
People are bemoaning the fact that, whilst completely unsubstantiated, property prices will crash. This is the great dilemma that we have in society. If you talk to someone under 30 about property prices crashing, they love the idea. They cannot see themselves ever getting into the property market because the prices are so high. If you talk to those who already own property, it is regarded as a national disaster when property prices go down. We have to get real about this. SACOSS is behind this measure. Again, Womersley says:
Changes to the land tax aggregation will be good for the housing industry, good for the economy and good for South Australia—we just need the political good will.
There was also a very pertinent opinion piece that was published in InDaily back in July, a little while ago, by Noah Schultz-Byard, who is The Australia Institute's person in South Australia. I will read a couple of paragraphs of his opinion piece because I think he summarises it quite well:
While some government backbenchers and potentially influential crossbenchers are apparently concerned by the PR push from the property lobby, Australia Institute research has shown that regular South Australians are less inclined to support tax cuts and special favours for investors.
When asked recently what they thought was the best way for the State Government to make up a $517 million loss in GST revenue, two out of three voters backed increasing taxes on wealthier South Australians and property investors.
Similarly, in research undertaken in early 2019, nearly two-thirds of South Australian voters (63 per cent) said they believed that keeping funding for public services, like health and education, is a more effective way to create jobs and encourage investment in our state than a tax cut for property investors…
If these changes are not passed by the Parliament, it will be an unfortunate win for vested interest and pressure-group politics that will have a lasting effect on this government's ability to enact meaningful reform in the future.
I might come back to that point later on because I think that is important. That brings me to the politics of this and the position of the Labor Party. I understand the political advantage in the Labor Party making hay while the Liberals are being attacked by the propertied classes and the lobbyists. I can understand why they want to throw some petrol on those flames, sit back and enjoy their opponents' discomfort. I understand that that is what the Labor Party does in opposition.
What I do not understand at all is that, having had their fun, having enjoyed the Liberal Party's internal disputes and the disputes they have with people who are otherwise their supporters, they did not then eventually say, 'Okay, we've had our fun. Why don't we now do the right thing and support measures that prevent people from avoiding paying their fair share of tax?'
In fact, to anyone who has asked me over the last several months, I have said, 'The Labor Party is having a bit of fun with this. They are enjoying the politics. But in the end, if they stand for anything, if their social policies are at all to be believed, then of course they will get behind putting in an aggregation provision, the same as the other states have done—we haven't, but the other states have. They will get behind it.' Then, we find that the hypocrisy of the Labor Party knows no bounds.
Listening to the Hon. Clare Scriven, the Hon. Tung Ngo and the Hon. Russell Wortley, I think they all used a particular word taken from 'Tory Talking Points 101', and that word is 'burden'. The Hon. Clare Scriven kept talking about 'a greater tax burden'. That is straight out of the Conservative playbook.
Any guide as to how to be a good Conservative advocate states, and I am making this quote up as if it were a quote but it is actually from me—I have not actually read 'Tory Talking Points 101', but I expect this is what it says—'Always refer to tax as a burden. Burdens are bad. Burdens are things we want to get off our backs. Relieving the burden will set us free. It will provide us with opportunity and incentive. Tax is bad: less tax is good. Whatever you do, don't talk about fairness or wealth redistribution. Don't talk about the services that are provided by the public sector. Don't talk about schools, hospitals or police and, whatever you do, don't talk about community, don't talk about society or our common wealth. Talk to individual aspiration and how governments should get out of the way.' That is 'Tory Talking Points 101' and that is all we have heard today from the Labor Party.
Their true believers, if there are any left, must be furious with what the Labor Party is doing here. I am not surprised, because the Labor Party's moral bankruptcy never surprises me. Their abandonment of their base has been a constant work in progress over many decades. Who could forget that magic moment when the Australian Electoral Commission finally reported that the trade unions had been overtaken as the biggest donors to the Labor Party? Who were they overtaken by? Property developers. What a magic moment that was in Australian politics, when the property developers outspent the unions in support of the Labor Party. Remarkable!
In New South Wales, we saw the corruption that resulted from that shift in political allegiance. Members of the Labor Party can get up in here and they can bemoan their political opponents who apparently subscribe to the trickle-down effect and how the best way to improve our economy and improve the lot of people who need help is to just help the wealthy and that wealth will trickle down. So they rail against it, but then you listen to their speeches and that is all they talk about. All they talked about was providing relief from the burden for millionaires so that they might keep rents reasonable for those who are in the private rental market. It is just remarkable.
The other thing that has been disappointing has been the level of misinformation. I cannot direct all of this to the Labor Party. I think there are people in the Property Council and elsewhere who are equally to blame. I will criticise the government on this: how well has this been explained? There was one email that I got just today. They always start with, 'I have always been a Greens supporter.' You know there is something coming when the email starts with, 'I have always voted Green,' and then they tell you what you need to do to help them keep that behaviour going.
This person said they had heard that Mark would be voting in favour of this aggregation measure. This person who contacted me was not happy and said that it was going to impact on the underdog. He then set out his own personal circumstances. He owns one property, jointly with his wife, and they live in it. He is worried that these shocking land tax changes are going to absolutely impact negatively on him and his wife.
Where has that misinformation come from? It is widespread. I think it is a problem for us all, but it is particularly the Treasurer's problem, that people do not understand that not only does land tax aggregation not impact most people who either own no property or only own one property, it still does not impact on people who even own two properties—one they live in and one they might rent—and for most people who might own a house they live in and own two investment properties, if they own them in their own names aggregation does not kick in. It only kicks in in relation to people who are multiple investment property owners who have chosen to divide their investments in different legal entities for the purpose of avoiding tax. That is why they did it. They are the people who are affected.
Yet, here we have this story from the Labor Party that somehow everyone's rent is going to go up, all capital will flee South Australia, properties will remain boarded up, vacant and covered with cobwebs, because the wealthy are not to pay their fair share of tax. But what perhaps most disappoints me, other than the immediate impact of what is happening today, is the missed opportunity. When I say 'missed opportunity' I think that this country is appalling at debating tax reform. I think that this debate in South Australia has set back any prospect of meaningful, progressive tax reform for probably 10 to 20 years.
We know that every tax inquiry undertaken in Australia, whether it was Ken Henry or anyone else, even the Labor Party in South Australia, when they have undertaken comprehensive reviews of taxation policy, they nearly always come up with this idea, 'Hang on. Why do we not get rid of stamp duty? That is a really ineffective transactional tax. We could get rid of that. If we replaced it with a broad-based land tax, that would be a fairer system, much less prone to rorting, and it would be better for society all around.' I have suggested that at various times. I have suggested it to the Treasurer; he smiled politely and suggested that it might not happen.
But if we are real, and if we are serious, and if we look at all of the serious economic reviews of Australian taxation, they nearly all recommend that. Mind you, it is not something we can go alone on. We cannot go alone; you could not just overnight get rid of stamp duty and replace it with land tax because you would have a serious cash flow problem. A policy like that would only work at a national level; the feds would need to bankroll it, because you would be losing a steady stream of stamp duty and it would not be replaced in the short term without it being bankrolled by the feds.
But what a missed opportunity! What government, Liberal, Labor, or Greens, in the future is going to be able to come out and touch the taxation system after the horrors of this debate over the last several months? It is really disappointing.
The Greens' policy is that we would like to go much further. Aggregation is a simple no-regrets option that, as I have said, other people have done. We would have gone further. We would like to join with other parties in meaningful tax reform that does look at things like stamp duty and a broader based land tax, of course at a much, much lower rate because it would be on a broader base. But I think that is now off the agenda for a while.
So I am disappointed with the direction this bill appears to be heading in. The Greens will certainly be supporting the second reading of this bill. We also have amendments; I do not know if they have been filed yet. They are the same amendments that the member for Florey, Frances Bedford MP, in another place, tabled. These are amendments that were crafted by SACOSS—again, by those people at the coalface of helping the most disadvantaged in society. They are amendments that go towards increasing public housing, increasing social housing and sharing the benefits of this additional taxation that will come from removing the rorting and removing the unfairness in the system. With those words, the Greens will be supporting the second reading of this bill.