Property Tax, Not Land Tax

Sydney Morning Herald

Thursday January 25, 2007

THE familiar sounds of summer. The crackle of cicadas. The squawk of seagulls at the beach. The anguished cries of property owners who have just received their official land valuations. They complain that some valuations from the Valuer-General are going up in a market that is going down, and point to instances of properties selling for less than the Valuer-General's figures. A house and land at East Gosford has been given an official land valuation of $324,00 though it sold last year for $266,000. It is not clear just how widespread the problem is. However, the accuracy of official valuations concerns all land owners because the valuations are the basis of both land tax and council rates.

Until now, the general problem has been that the Valuer-General has knowingly undervalued properties, not overvalued them. That was the key finding of a 2005 report from the State Ombudsman that made almost 40 recommendations on how the Valuer-General should improve the system. Crucially, theOmbudsman urged a revision of the base valuation for every property in NSW, though this will take five years. The Valuer-General accepted the recommendations, and a committee of State Parliament has been overseeing their implementation. Meantime, those who object to valuations must formally challenge them one by one.

Those paying land tax could have an additional headache: from this year the Office of State Revenue will assess them not on just the latest Valuer-General valuation, but on the average of the last three. This is sensible reform, designed to level out peaks and troughs in the market. However, it will create short-term problems. First, the averages will rely on inaccurate figures from previous years. And second, the timing is off. Averaging will have the immediate effect of keeping official valuations high in a weakening market.

While the Government waits for the Valuer-General to get the figures right, it should seek to make the system fairer by spreading the burden of land taxes and rates. This would be most easily achieved by levying them on improved value - that is, both land and buildings - not the value of just land alone. The main effect would be to greatly increase the proportion of revenue that could be raised from home units. Spreading the burden would also lessen the effect of changes in valuations.

Equitable reform to the basis of land tax and council levies should be the pledge of the Government and the Opposition before the March election.