Legislative Council Thursday 21 June, 2018
Ms FORREST (Murchison) - Mr President, it hardly needs to be said that the time given to scrutinise this bill is completely unsatisfactory. I know some people believe we should just tick off everything the Government states it has a mandate for, but I am not one of them. To suggest that because this was a pre-election promise - or predominantly pre-election promises - it should be simply accepted and passed without full and proper scrutiny denies the role and importance of this House.
Any government policy that requires legislative change must come through and be approved by the parliament. If it is bad policy, one that does not or will not achieve the stated aim or may not be in the best interest of Tasmanians, it may be rejected when subject to full and proper scrutiny. This is regardless of pre-election promises.
I note that this year hundreds of election promises were made. Some were shared with the people of Tasmania, making it impossible to know what the broader community thought of each one. In addition, we did not see about 100 election promises that the Premier seems to believe he still has a mandate for.
Mr President, we must do our job. The approach of undertaking full and thorough scrutiny of all matters that come before this House is what I do. It is my job. It is what the people of Tasmania want members here to do and it is what the people of Murchison elected me to do.
As members know, we are taking this bill under suspension as it needs to be dealt with before the end of this financial year. The delay is partly due to the March election, but regardless, full and proper scrutiny of such a detailed and complex bill is necessary.
To try to expedite this, the Treasurer wrote to the Leader, who passed his letter on to us, about the impending bill. It was helpful and I contacted him immediately when I received this letter, seeking a briefing and a copy of the bill as soon as possible.
The Treasurer agreed to a briefing before the bill was tabled, but would only arrange for this for a time one hour prior to the budget being delivered and the bill being tabled in the other place.
This made it more difficult as within two hours of that briefing we had 650 pages of budget papers to read in preparation for this and next week.
I certainly appreciate the briefing provided and the opportunity to further discuss my concerns and thoughts on this bill, but we really are under pressure to fully consider the significance of this very complex bill.
In his letter of 7 June 2018 addressed to the Leader, the Treasurer says the measures are not controversial. The measures cover three of the taxes that we rely on to raise our own source revenue. At the very time when we are in grave danger of losing some of our 65 per cent revenue that comes from the Australian Government, we need to start looking at how we might survive. Or do we wait for the apocalypse before we try to find plan B?
What if we had to raise another $100 million in state taxes - how would we do it? Which of our taxes are fair? Which taxes are efficient? What is an efficient tax? We need to have a better understanding of our tax system. Normally a bill like this would give us opportunity to canvass these matters. We should be looking at each proposal in the bill, of which there are many, to try to understand how it satisfies the benchmarks of being fair and efficient. All taxes result in a loss by a person burdened with the tax, but the reason for raising state taxes is to fund services which people want and in some cases have a right to demand as part of a civilised community.
Most people would agree this includes a roof over people's heads, but if the contribution of one person in this place in the budget reply is any indication, this may not be a universally accepted view. The reality is that taxes have different impacts, including the three taxes covered by this bill - they are payroll, stamp duty and land - which I will come to shortly. The other matter in this bill is the First Home Owner Grant and proposed concessions, which I will consider first.
Whenever this matter comes before us, I always remember a quote which I will read to you -
It's hard to think of any government policy that has been pursued for so long, in the face of such incontrovertible evidence that it doesn't work, than the policy of giving cash to first home buyers in the belief that doing so will promote home ownership.
These are the words of the respected Mr Saul Eslake who is often quoted by members in this place. He made the point in his often quoted speech, 'Saul Eslake: 50 Years of Housing Failure'. These words were also included in his submission to the Senate economics reference committee and were recorded in theAustralian in January 2014. Mr Eslake continues in his speech -
… cash handouts for first home buyers have simply added to upward pressure on housing prices, enriching vendors (and making those who already have housing feel richer) whilst doing precisely nothing to assist young people (or anybody else) into home ownership. For that reason I often think these grants should be called 'Existing Home Vendors' Grants', because that is where the money ends up, rather than First Home Owners' Grants.
Ms Armitage - It is disputed by many in the industry, and having been a real estate agent myself, I have found many first homebuyers -
Ms FORREST - I am quoting an economist. I will keep going with my comments and you can comment on this in yours. Mr Eslake concedes that since grants have been confined to new homes only, the effects are not as bad, as they tend to add to our housing stock and do provide some stimulus to the construction sector. With regard to this he said -
I have no doubt that some of the increased grants to first time buyers of new homes will end up boosting developers' or builders' profits but I accept that at least some of it will induce a supply side response to any resulting increase in demand for new homes, while considerably fewer taxpayers' dollars will be wasted inflating the prices of existing homes.
It was very pleasing to see the Treasurer was on a unity ticket with Mr Saul Eslake in 2014. I am sure members recall Mr Gutwein's comments soon after taking over the important role of treasurer. When he gave his second reading speech, which was repeated by the Leader in this place when we were debating the First Home Owner Grant Amendment Bill 2014, the Treasurer said -
It, [meaning the bill] is supportive of concerns that broadly-based ongoing first home buyer assistance does not make housing more affordable for first home buyers but may instead inflate the price of property. It also better targets the assistance to more directly stimulate housing construction and increase housing supply.
I reiterate what Mr Saul Eslake said: the decision back then was to confine the assistance to new houses. The extension of the first home builder grant, which provides for the building of new homes in the current bill, does come at quite a cost. I asked to be provided with a financial modelling last week, in the briefing of Thursday last week and again early this week. We were provided with the briefing a short time ago and that is appreciated.
The table provided is helpful and I seek leave to have it incorporated into Hansard. As it is a table, it is difficult to read but it is relevant to my comments.
Mr President, I seek leave to have it tabled and incorporated into Hansard of my speech.
Ms FORREST - I note some of the costings. Most are revenue forgone rather than new revenues, except for the foreign investor surcharge. The impact of the extension of the First Home Owner Grant or builder grant on new properties is $5.1 million over three years. That is the ongoing impact.
Prior to having this information, I was able to glean something from Finance-General, volume 2 of the budget papers. It states that the budget for 2017-18 was $13.4 million for this particular area. Leader, what is the estimated outcome for that outlay? That was in the 2017-18 Budget. There is not a line for the estimated outcome in this area so is the Leader able to provide that? This budget year coming, 2018-19, includes costs of $9.1 million and $4.7 million in 2019 20, followed by $2.9 million in each of the last two years of forward Estimates.
Mrs Hiscutt - Could you ask your question again? Exactly what are you looking for?
Ms FORREST - In the Finance-General chapter in budget paper 2 of this year's Budget, on page 103 under the administrative expenses, it tells you how much the first home builder assistance is. This current year we are in, the budget - it was $13.4 million - and then the forward Estimates are there, but I am interested in what the estimated outcome is. The estimated outcome is not listed in this.
Is that what the first home builder grant measure, as contemplated by the bill, will cost? Are these figures what it is expected to cost? What it will cost may be clarified by this information we have been given, but I only received this a very short time ago.
Given that the first home builder grant extension was a promise made before the full extent of the housing crisis was apparent - it was made apparent after the election, not before, as it seems to have been suggested - we were informed it was made as a budget promise in the briefing following the Housing Summit. Regardless, I disputed the Treasurer's assertion this is not controversial, given what we know about it. We have not had much information about it, except this morning when we were given this costing at the briefing.
I am not sure that the extension is the best use of the scarce funds we have or the revenue forgone in the current climate. In the table I have referred to, it means an extra $3.3 million of revenue forgone, which is revenue we need to find from other places to provide services that perhaps would be better spent in other areas of housing. That is only an opinion, but it is not an insignificant number.
I move on to the duty provisions in the bill. One relates to concessions for first homebuyers for a 12 month period. According to the calculation of concessions, on page 86 in budget paper 1, this will cost $6.7 million. Again, this is a lot of money and I am not sure everyone will consider this as an uncontroversial matter. It will apply to existing residences.
Whether assistance to first homebuyers of existing homes is given by the way of grant - which is what we used to do and the current Treasurer got rid of in 2014 - or a duty concession, the effect on prices is the same. We have that on no lesser authority than the Treasurer in 2014. The proposal before us will have the same effect as the First Home Owner Grant, which we agreed to remove in 2014. It does not increase the available housing stock. It will make the current housing stock, especially homes under $400 000 at the threshold, more expensive as a result of the inflationary nature of this policy on house prices, as noted by the Treasurer in 2014. At least one member here may argue this is not the case, but the Treasurer has said this sort of measure on existing homes, rather than assisting people into home ownership, may inflate house prices. This has been supported by Mr Eslake and many other economists Australia-wide.
The majority of first homeowners in our regional areas will be looking to buy a home under $400 000. In my electorate, apart from the west coast, you will not find a house over $400 000, particularly when they are seeking to enter home ownership. They are not looking for properties over that value. They are looking for something at the lower end of the market where they can possibly buy in. The inflationary nature of this policy risks pushing more houses up in price within that bracket. Some will be pushed out of the price range as a result. Vendors will see there is the opportunity that these people will receive this money so they will push the price up. Even those houses below $400 000 will have prices inflated to the point that they may be pushed out of the reach of someone who could have afford it had it not been subject to such inflationary considerations. I accept it may only be in place for one year. There is provision in the bill to enable it to be extended by way of a disallowable instrument.
We know in this place that once it is in, under the same government and effectively the same parliament, it will not be easy to remove, regardless of the effect on property prices. This is bad policy. If it was bad back in 2014, it is even worse now. The Government is actively inflating the price of houses. This is bad policy.
Another duty concession in the bill is the reduction of duty for pensioners if they downsize to a smaller home. This is estimated to cost $1.9 million according to page 86 of the budget papers. I note the table we have today says $2 million, so I was fairly right. A slight difference but not a lot. At a time when we are spending more overall, we should be spending more time discussing the virtues and vices of particular taxes rather than chipping away at them and narrowing the basis of so many.
Conveyancing duty is only triggered on the change of property ownership. This gives a very narrow base of ownership transfer costs. Some people hardly ever pay conveyancing duties because they remain in the same place. They do not sell the house. They do not move. Some people pay a lot if they need to move for employment, for example. A narrow base leads to a high rate of conveyancing tax. All state governments have been addicted to conveyancing taxes, including us. There is a disincentive for home owners to move because of high rates of conveyancing tax. This means housing stock is used less efficiently than it would with greater mobility. Conveyancing tax is not efficient. The move to reduce the duty for pensioners is based on sound economic arguments in broad terms and for that reason I do not disagree with it.
Where I have a reservation is that the bill only relates to pensioners. If the tax as it currently applies is inefficient that inefficiency affects everybody. It is not only pensioners who have to move or downsize. If the current arrangement discourages mobility for pensioners, it probably discourages mobility for everybody, including those wanting or needing to move for whatever reason, whether it be jobs or family - it could be for any reason.
When we talk about taxes we all need to try to be on the same page instead of just ticking off a measure proposed during an election campaign. Pardon my cynicism, but this potentially could be seen as a way of buying votes and being politically populist, rather than necessarily fixing a bad tax. If it is a bad tax, I suggest we need to take a different approach.
Offering concessions to what is a bad tax might help a few people who benefit from the concessions, but it continues to disadvantage people left paying the bad tax. I am speaking in relative terms, but that is what happens when you have taxes with narrow bases. Those who pay are at relative disadvantage. Tinkering at the edges of a bad tax often only makes it worse.
I do not have any concerns with the extra duty on foreign purchases of property. I understand this is being imposed in other jurisdictions as well. I have a couple of questions on that. They were covered in the briefing, but I hope the Leader can respond in her reply. Why are there different rates for residential properties and primary production land? How much will it raise? According to the table provided, the foreign investor surcharge over the four years from 2018-19 to 2021-22 is $26.7 million. I know that is an estimate and we do not really know; that is the Treasury modelling over that period. I have the answer to that now.
I notice these changes, particularly to the foreign investor surcharge, should have been included as policy changes in the policy and parameters statement in the budget papers. The footnote in budget paper 1 in the policy and parameters statements said that they were parameter changes. How can a change of policy be a parameter change? It is a policy. Maybe the Government did not want people to think it was actually increasing any taxes. It is increasing them for foreign people, not Tasmanians. But how can it be a parameter change when it is clearly a government policy? If these are parameter changes, we would not be here discussing the bill; we do not have any control over parameter changes. They are policy changes. We expect to know, and I thought it would have been in the policy and parameters statement, what the impact will be.
Three measures in the bill propose changes to payroll tax. Payroll tax was handed to the states by the McMahon government in the early 1970s. Since then, the base has narrowed and the rate has risen. A once reasonably fair tax has degenerated as all states have fiddled with the rate and the thresholds, trying to make their states more competitive. It is only applied to a few in fundamentally what has been a race to the bottom.
Now only large employers pay; small employers and self-employed persons do not. It is widely regarded as anti-employment and it is probably, in my view, beyond repair where we have gotten to. As Saul Eslake pointed out in his recent opinion piece in the Mercury -
We need to stop fetishising small business - it isn't the engine room of the Tasmanian economy, its share of employment in Tasmania has dropped from 56 per cent to 45½ per cent over the past decade.
The payroll tax threshold is designed to help small business, but just as the First Home Owner Grant, which we got rid of in 2014, was supposed to help increase home ownership, it has failed. As I pointed out, the payroll tax system designed around helping small business has failed. The percentage of people employed by small businesses has fallen.
Because the current payroll tax base is too narrow and the rate too high, I can hardly complain about reducing the rate to 4 per cent for payrolls between $1.25 million and $2 million. I would like to know what the effects on government revenue will be. They are policy changes and they were not determined as policy changes in the policy and parameters statement. In the information we were provided in the briefing we see that will be $35.2 million.
I would like the Leader to explain the figures on page 85 of budget paper 1 in the tax expenditure statement, if she could.
Mrs Hiscutt - Is this a question for Estimates?
Ms FORREST - It could be matter for Estimates. It directly concerns the bill and it would be helpful to have the answers now. The cost of the tax-free threshold for 2018-19 will fall - that is in the table on page 65 of budget paper 1. How is such a large fall possible? The threshold has not changed. What is the cost of the reductions flowing from reductions in the rate from payrolls between $1.2 million and $2 million? The policy and parameter statement changes include the payroll tax changes due to the threshold but these are policy changes. I ask the Leader to reconcile the figures - the cost of the proposed change by reducing the rate for payrolls between $1.25 million and $2 million with the concession calculations.
Mrs Hiscutt - We will try to look at that, but could you keep your question aside to put to the Treasurer if we cannot answer it now?
Ms FORREST - It is relevant to this bill. The big question with payroll tax is a narrow base. There is nothing inefficient about a tax on labour. If it was applied broadly, it would be fair and efficient for large employers and everyone in receipt of income from labour. We personally do not carry the burden of any payroll tax, yet employers and employees of large companies do. How is that fair? If we cannot fix the inherent problems of a tax with such a narrow base, perhaps it is time to scrap it completely. I wrote an opinion piece about this recently. If we continue to erode and destroy it, which we have basically done, we should get rid of it. We should negotiate with the Australian Government to help implement a lower rate on all labour earnings. That is what the PAYG system does, and it would be much fairer. I know some people are attracted to higher GST as a solution but GST is a tax when money is spent.
A low rate when money is earned is as efficient. It brings money into government earlier and it does not distort patterns of employment between small and large employers or between the employed and self-employed. It is a low rate tax applied when it is earned rather than when it is spent. It is fairer because it is more progressive. It is well known that high income earners save more and spend less on a relative basis than lower income taxpayers, hence a tax on earnings is fairer than a tax on spending. I have less concern with payroll tax rebates for apprentices and trainees, except that if the system was broadly based to the lower rate, we would not have to fiddle around the edges as we constantly do, or if it was removed altogether.
The same argument applies to the payroll exemption that applies to relocation of businesses to regional areas. Do they work? The recent Vodafone experience puts doubt in my mind about the effectiveness of such relocation incentives. I am not violently opposed to them, but do they work? Is it a case of big businesses blackmailing governments to hand over some cash or let the businesses keep more in their own pockets through foregone revenue? That is a rhetorical question.
Finally, to the land tax changes. As any student of economics knows and as the Henry review pointed out, land is an efficient tax base because of its fixed supply and its immobility. It does not move and we are not making any more of it. A low rate across the board does not affect investment decisions - every landowner pays. We are talking about unimproved land. Land taxes were introduced for the very reason of promoting economic efficiency, to discourage speculators from sitting on land banks waiting to make windfall gains rather than putting the land to more productive use. Land taxes are reviled by some because we have narrowed the base and increased the rate. Rates are property taxes like land taxes and more efficient. They cause less distortions because there are fewer exemptions than with land tax.
The current system discriminates against land use for commercial purposes, which is the exact opposite of the rationale for the introduction of land taxes in the first place. Productive activity was to be encouraged, rather than land speculation.
Our current land tax exemption system distorts economic activity by granting land tax-free status to principal residences, and that viewpoint is anything but an efficient tax because it promotes speculative activity in residential housing.
The one-year land tax exemption for newly rented, former short-stay accommodation properties acknowledges, in my view, that the current land tax arrangements are not equitable and distort activity. It makes absolutely no sense to limit this exemption. If we are going to have it, why have it just in the Greater Hobart area?
On the east coast, in the member for Prosser's electorate, access to rental properties, especially in the summer months is next to impossible. This is at a time when workforce demand increases with tourist numbers swelling in that area. Workers have to live somewhere. They cannot get accommodation and sometimes people are forced out of their homes.
It is not a problem related to Hobart or the Greater Hobart area. We do not see the Mercury or the Examiner publishing front page stories about people up the east coast. The member for McIntyre will talk about this problem. It may not be quite such a problem in parts of my electorate, but it is on the east coast, where there has been more growth in tourism, particularly during summer months.
People wanting to work in these areas cannot find accommodation because many rental houses are now in the short-stay market. Often they are closed over the winter and not used at all. Owners have made enough money over the summer with full occupancy at high rates, and they go and have their own holiday somewhere in the north.
I am not criticising the people doing that. That is what is happening and it is okay, but if you are going to try to incentivise people, why restrict it to the Greater Hobart area.
Why was this narrowing exemption made? I hope the Leader can provide a good reason for it, otherwise I am not sure whether I would support this section of the bill.
I know the member for McIntyre has proposed an amendment. She will speak about it herself. Perhaps the bill does not provide enough protections to avoid rorting. We need to look at the whole matter.
It is 100 pages of legislation. Not all of it relates to this particular part, but it requires close scrutiny to ensure no loopholes exist.
The land tax changes proposed in this bill are not totally objectionable, but would not be necessary if we had a fairer system of land taxes with a broader base and lower rate. The current land tax regime and income tax system encourage the activity the proposed changes in this bill are designed to address.
All the changes in the bill are patch-up jobs for a state tax system which is in need of a complete overhaul, but no-one wants to talk about. Too politically sensitive.
If this bill is about addressing some of the housing affordability and accessibility challenges facing many Tasmanians, we need to look far more broadly and be willing to engage across the political divide to fix our broken tax system.
If anyone wants to argue with me that it is not broken, I will have to disagree with them. If they argue it is not broken, why do we have a bill like this delivered in such haste? Why do we keep tinkering around the edges in the guise of making it better? The old saying is that you cannot make a silk purse out of a sow's ear.
These measures do not make it better, fairer or more sustainable.
In Saul Eslake's article, The causes and effects of the housing affordability crisis, and what can and should be done about it, published on 2 May 2017 on John Menadue's Pearls and Irritations website as part of the 'Making Housing Affordable' series, he made a number of suggestions about what the states and territories could and should do. Mr Eslake has spoken considerably about this issue. He is well regarded in economic circles and by members of this parliament, who quote him regularly. He said -
State and Territory Governments can contribute towards enhancing people’s capacity to become home-owners by:
• scaling back cash grants and tax exemptions or concessions for first-time buyers which simply allow buyers to pay more to vendors than they otherwise would;
The first point, and we are not following it. The second -
• replacing stamp duties with a more broadly-based land tax (with no exemptions for owner occupied land, but with appropriate transitional provisions to avoid double taxation of recent purchasers) so as to eliminate the disincentives which stamp duties create for people to move home as their needs change, as well as provide State and Territory Governments with a more predictable and stable source of revenues;
What do we do? We tinker around the edges. The third point -
• reducing up -front taxes and charges on land developers and builders for the provision of suburban infrastructure, permits and inspections (or simply revenue-raising) - whilst recouping revenue foregone through increased municipal rates or land tax, and working with the ACCC to ensure that reductions in up-front taxes and charges are passed on to new home buyers;
The next two -
• reforming planning laws to reduce the scope for frivolous or vexatious objections to redevelopment of existing residential sites at higher densities; and
• increasing investment in urban transport infrastructure to improve access to and from new suburbs to places of employment, entertainment and recreation.
According to Saul Eslake and others, the solution to housing affordability, and access to homes in the rental market, is much broader than tinkering around the edges of some of our least efficient and least fair taxes. It includes planning reform and investment in infrastructure to link our communities. By ramming this bill through parliament in this way, this Government epitomises the complete disinterest of governments past and present to have meaningful discussion on tax reform.
While I will not be voting against this bill, I am considering an amendment related to the eligible first homebuyers concession for established homes under the value of $400 000 to remove this section, which had to be part seven of the bill due to its inherit inflationary impact on housing valued at $400 000 or less. I will decide whether I proceed with that amendment after I have listened to the whole debate. It is not in the best interest of first homebuyers; it is in the interest of vendors and property agents who collect their percentage based on the value of the property. I agree with that, as do many people in this country much more knowledgeable and skilled in this area, including many economists. I quoted Saul Eslake and I could have quoted many others. That is the reality. I will listen to other members' contributions, but we are going back to the future. The Treasurer has gone back on his sensible decision of 2014. I commended him at the time, I continued to commend him every time we have looked at extending the first home builders grant. This will have a marginal inflationary impact but not to the extent the First Home Owners Grant for existing properties does. Mr President, I cannot believe we are doing it.