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How to lose $291 million without thinking about it

Opinion

Treasurer Jackie Trad announced a new property tax in her latest Budget. But six months later she changed her mind. How did that happen? Robert MacDonald explains

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It must have seemed like a brilliant idea and a great little earner when the Queensland Treasury boffins floated it – a few tweaks to property taxes that would raise more than half a billion dollars over four years.

The beauty of it? Only foreigners would pay. Voters wouldn’t feel a thing.

Treasurer Jackie Trad announced the changes in her Budget for 2019-2020 – released in June last year.

Queensland, she said, would be increasing its land tax surcharge for absentee foreign owners from 1.5 per cent to 2 per cent and widening the definition of who paid the surcharge to include foreign companies and trusts.

Really nothing much more than bringing us in line with New South Wales and Victoria, we were assured, but still, a move expected to deliver $540 million over four years.

Barely six months later, Trad was backtracking big time. The Government’s Mid-Year Fiscal and Economic Review (MYFER), released in December, revised its projected four-year land-tax revenue down by $291 million.

Why the sudden reversal?  The result of “consultation with industry regarding implementation of the Foreign Surcharge” was the wonderfully bland explanation in the MYFER papers – which suggests Treasury didn’t do much consulting with industry before announcing the tax changes.

If they had, they might have spotted some of the presumably unintended consequences of the new rules – among them, that many local investors could in fact be liable to pay the new foreign surcharge, thereby defeating the no-pain-for-voters element of the proposal.

This would come about, the Property Council of Australia said in a post-Budget submission, because of the broadening of the definition of foreign ownership to include publicly listed companies and property trusts that had majority foreign ownership.

“If this application takes effect as proposed, some groups will be treated as ‘foreign’ notwithstanding that they are Australian-managed, controlled, Queensland-based and publicly listed on the ASX,” the Property Council said.

It said that real estate services firm, JLL, estimated that two-thirds of Brisbane’s CBD office stock was owned by entities that would be considered foreign under the new Queensland definitions. The same would apply in many non-CBD areas.

“A remarkable number of Queensland businesses would rent space within these buildings and face a major increase in their leasing costs if these properties are impacted by the surcharge,” the Property Council said.

Again, probably not what the Government had in mind.

And did the Government really want such big contributors to the Queensland economy as international brewer, Lion, the owner of Castlemaine Perkins, to face a near doubling in its land tax just because it owns the land at Milton where it has invested about $120 million in the past decade?

The Property Council says Lion’s land tax bill would rise from about $1.2 million to around $2.14 million under the new scheme.

The proposed increase would also result in the land tax for overseas-owned student accommodation provider, Student One, with three Brisbane CBD buildings, doubling to $3 million and “likely prevent the company from investing in a new facility in regional Queensland.”

Again, was that what the Government had in mind?

The new regime does propose ex gratia relief from the surcharge for investments that make a “significant contribution to the local economy” but the Property Council says the Government’s draft exemption guidelines cover only significant residential development and not foreign business operating businesses on land that they own.

“If ex gratia relief is only extended as far as the draft guideline proposes, Queensland’s foreign tax surcharge will be the broadest and most economically damaging in Australia.”

And so, the Government has taken a step back while it thrashes out the details with the property industry.

Or to use the wonderfully wordy and non-specific language of the MYEFR:

“The Queensland Government is committed to maintaining competitive taxation settings, and will establish guidelines, in consultation with stakeholders, that provide relief for commercial activities that make a significant contribution to the state economy. This will ensure Queensland continues to be an attractive destination for investment.”

You wonder why they didn’t think of that before they announced these new tax arrangements in last year’s Budget.

Perhaps they were hoping no one would notice.

 

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