The Australian Taxation Commissioner’s dire warnings about keeping records to justify every tax deduction has at least one use.
When a territory minister starts carrying on about “greedy landlords” you can drag out figures from past years and invite him to take a long hard look in the mirror.
Yes, I am a landlord. Am I any greedier than any employee seeking a pay rise; shareholder seeking a dividend; or government raising taxes? Let’s see.
I accept one should be careful about making a case with only one example, but judging from the Letters to the Editor column my experience is typical.
I do not want to have a personal hard-done by whinge here. I have done very well thank you very much. Rather, I want to make a broader public-policy point. The point I am going to illustrate with my (fairly typical) figures is that some significant shifts in Australia’s rental set-up appear inevitable.
In 1993-94, rates on my rental property were $297 and the land tax was not much more at $325.
Last financial year the rates were $1841 and the land tax was $4282.
So over the 13 years rates had gone up 520 per cent. And land tax 1375 per cent.
It is quite astonishing, isn’t it – land tax up 1375 per cent in 13 years.
In the meantime, inflation went up a mere 38 per cent. And average weekly earnings went up 91 per cent.
And what did the “greedy landlord” do with the annual rent over this time. It went up from $9199 to $17,112 – an increase of 86 per cent, something above inflation but less than average weekly earnings.
Thank you ATO for being so insistent about record keeping. Thank you Australian Bureau of Statistics for putting all the historic series data on line free.
So, who is being greedy, or at best fiscally irresponsible, Attorney-General Corbell, the landlord whose rent goes up 86 per cent over 13 years, or the Government that puts up land tax by 1375 per cent in the same period? And this is leaving aside the ACT Government’s new utilities levy and insurance levies.
What is happening here?
In fact, the Territory Government has not been greedy. It has just been cunning. We have all heard of cost shifting between the states and the Feds, particularly in health. For example, state public hospital out-patients are often forced to get their own drugs, paid for by the Feds.
Well, land tax is not so much cost shifting as revenue snaffling.
You see, landlords are not fools. They can put up with low rent returns and high costs because they get a fair amount of it back through negative gearing and even more when they finally sell and take the capital gain. The states and territories know this and swoop in with their own taxes. The ACT is the worst offender. It has the highest land tax in Australia (except for some very high priced NSW properties).
But there is a limit. I suspect that with plateauxing house prices, higher interest rates and no end in sight to state and territory taxes outstripping inflation, many ACT landlords are considering sale. They are wondering whether they can stomach returns of as low as 1.5 per cent (mine is 1.3 per cent) in the hope that prices will go up at least 8 per cent every year to make up the difference between rent returns and the bank interest rate. Maybe sell up, cop the capital-gains tax and go elsewhere.
Incidentally, in a higher-inflation environment Peter Costello’s “halving” of capital-gains tax was no such thing. Under the new regime you are not allowed to compensate for inflation. So that it may well be people will be paying tax when they have made no real (or after-inflation) capital gain at all.
With that in mind, property investment looks less attractive.
It also means that we might start seeing a shift to permanently high rent. At present rent is subsidised by Federal tax breaks and capital gains. As state and territories fill the vacuum with higher property taxes, and capital gains look less likely to make up the difference, landlords will start asking for the real rent on the amount of capital being hired.
When you go to a bank and ask for the use of $500,000 it costs you $45,000 a year or $865 a week. People who rent a $500,000 house might have to start thinking about that weekly cost of capital. At present it is often less than half that.
With fewer people investing in property, scarcity will allow remaining landlords to move to real rents.
Hitherto, the ACT Government has got away with its huge land-tax increases. Any rent increases could be blamed on a few “greedy landlords”. But it is wearing thin. The real-estate industry should start advising landlords to itemise rent invoices and receipts – “$330 rent and $110 ACT rates and land tax”, for example – so the mass of voting tenants can be better informed.
Tax profoundly affects the way people act and it has major social implications. Don’t expect rental accommodation to become more affordable any time soon.
As for Corbell’s assertion that tenancy law does not give enough protection to tenants, it deserves a footnote. A cursory glance at the Residential Tenancies Act shows that rent can only go up once a year and with eight weeks’ notice; landlords have to give 26 weeks’ notice for eviction; trades-practices law prevents bogus rent auctions; bonds are kept by the Rental Bonds Board and in case of dispute are referred to the tribunal; and there are a myriad other protective clauses. Fair enough, too. Tenants and landlords are not in an equal bargaining position. But the pendulum is in about the right place now.