___________________MdU Library Gopher Header Information---------------- Title : Review of Western Australian State Taxes - : Land Tax Author : Tax Policy Elective 1993 Organisation : School of Law, Murdoch University Language : English Keywords : LAND TAX, TAXATION, WESTERN AUSTRALIA, : EQUITY, EFFICIENCY, SIMPLICITY, REFORM Abstract : See abstract for Preface and Introduction Contact Name : The Editors, E Law Contact Address : Murdoch University Law School, PO Box 1014, : Canning Vale, Western Australia, 6155 Contact Phone : +61 09 360 2976 Contact Email : elaw-editors@csuvax1.murdoch.edu.au Last Verified : 25 April 1994 Last Updated : 25 April 1994 Creation Date : 25 April 1994 File Size : 34K File Type : Document File Format : ASCII Publication Status: Final COPYRIGHT POLICY : Material appearing in E Law is accepted on the basis that the material is the original, uncopied work of the author or authors. 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ISSN:1321-8247 URL: gopher://infolib.murdoch.edu.au:70/00/.ftp/pub/subj/law/jnl/ elaw/comment/watax/chap1.txt -------------------------------------------------------------- _Review of Western Australian State Taxes - Chapter 1_ _LAND TAX_ Land Tax Review - Group 1 Kate Wholley, Sarah Tapper and Jim Borshoff Introduction 16 Land Tax Assessment 16 Progressive Rates versus Proportional Rates 18 The Owner Occupier Exemption 20 The Primary Production Exemption 23 Exemptions for Religious Bodies, etc 25 Conclusion 26 Summary of Recommendations 27 Appendices 29 Bibliography 34 _INTRODUCTION_ In Western Australia land tax represents a significant part of State Taxation. In the 1991-1992 period land tax as a proportion of total taxes, fees and fines constituted 6.6% of revenue collected, amounting to $133.6 million.(15) However, despite the potentially broad-based nature of this tax, certain statutory exemptions have limited the tax base to primarily commercial and income-producing rental properties. Effectively this creates an urban tax, which is inequitable and contrary to efficient tax design. The use of a progressive rate scale also introduces distortions into the system, by influencing land-holding and investment choices. Land tax can provide an ideal tax base because liability attaches to the land itself, and can not be avoided by transfer, unlike other forms of liability.(16) Utilisation of this broad base, which promotes horizontal equity, should be a major objective for tax reform. This chapter analyses the current system of land taxation in Western Australia having regard to the tax policy assessment criteria of equity, simplicity and efficiency. Collection and administration under the Land Tax legislation is briefly examined. The comparative advantages of proportional over progressive rates of taxation are discussed, followed by a consideration of the existing exemptions and the benefits to be gained from their removal. _LAND TAX ASSESSMENT_ Under the _Land Tax Assessment Act 1976-1982_ (hereafter "the Act"), land tax is imposed on ownership at midnight 30 June for the following financial year. Liability for land tax is calculated on the "unimproved value" of land,(17) assessed by reference to the aggregated unimproved value, or of land that is not exempt.(18) The Act provides marginal rates increasing with the aggregated value. Unimproved value should be distinguished from "site value" and "gross rental value". Site value is unimproved value plus any natural components such as drainage or levelling.(19) Gross rental value is the actual annual rent that would be realised if improvements to the land were included in the assessment.(20) Site value and gross rental value are the basis under which local council rates are calculated.(21) Unimproved value is the price which the land would bring if sold under normal market conditions, assuming that no structural improvements had been made.(22) The advantages of using this as the basis of assessment is that imposing liability on the improved value would reduce incentives to make the best economic use of the land because of the taxation attached to any improvements constructed on the land.(23) Taxing the unimproved value provides incentives to make productive use of the land to generate income to offset the tax burden.(24) _We recommend that assessment based on the unimproved value of land be retained for the above reasons._ However, practical problems have arisen with the High Court's interpretation of the meaning of "unimproved value". Calculation based on current market value less the value of improvements to land has been expressly rejected and as yet no practical alternative has been formulated.(25) Effectively, this excludes the only realistic device appropriate for assessment. _We recommend that the legislature clarify this issue by specifying a formula based on current market value less the value of improvements to the land._ Imposition of land tax liability on a fixed date does not take into account the fact that ownership may change during the following financial period. However, the administrative difficulties involved in proportioning liability are too great to make this a realistic alternative. _We recommend that liability imposed on ownership at 30 June is the appropriate method of fixing the tax burden._ In Western Australia the time lag problem(26) associated with long intervals between land valuations and land tax liability assessments(27) is currently being addressed. A Bill(28) is presently before the Western Australian Parliament which proposes the implementation of annual valuations to overcome the inequities that arise when there are long intervals between assessments.(29) _We recommend that a system of annual valuations be adopted.(30)_ _PROGRESSIVE RATES VERSUS PROPORTIONAL RATES_ At present in Western Australia, land tax is collected at a progressive rate. It can be categorised as a wealth tax, with the majority of tax being paid in the upper two value ranges. Commercial enterprises bear the majority of the burden of land tax. Under the current progressive rate system, based on 1991-1992 figures, the average tax per assessment for commercial properties was $2,389 compared to $752 per assessment for residential properties.(31) Here it can be noted that commercial enterprises are in the best position to pass the tax on to the general community, by factoring it into the prices of goods and services. The effect could therefore actually be regressive, as the economic incidence of the land tax is shifted on to the community.(32) The aggregation provisions under the Act operate to group land holdings thereby combining land values held under one specific ownership; thus facilitating maximum revenue collection, as the total value is taxed in a higher bracket. The problems inherent in this system are that landholders are encouraged to structure their affairs to attempt to create the illusion that their land is held in a number of different ownerships.(33) To achieve "real" vertical equity people with higher income levels should pay progressively higher rates of taxation. The progressive rate system would appear to satisfy this criteria if landholding is assumed to be an accurate and appropriate measure of the ability to pay. However, there are many methods of owning land and it is not true that the owners of the most valuable land have the greatest ability to pay tax. For example, property trusts and superannuation funds are among the largest owners of land, and the beneficial owners of these are not necessarily wealthy.(34) Assuming that landholding is not an accurate reflection of the ability to pay, a viable alternative is a system which adopts proportional tax rates. Introducing a flat rate means that owners with more valuable land still pay more tax, but it is attached proportionally to the actual value of the land rather than based on subjective assumptions of social and economic theory. This would achieve minimalist vertical equity with landholders of more valuable land paying more tax in absolute terms. A proportional tax rate system also satisfies the criteria of simplicity. Calculation of tax liability is simple, and therefore reduces administration and collection costs. Under the present progressive rate system the aggregation provisions make the determination of the applicable marginal rate a complex procedure. Given that the valuation process is already in place, converting to a proportional rate system will not require significant infrastructural change. It is acknowledged that implementing a proportional rate will result in windfall gains to those who currently pay land taxation under the progressive rate. The justification for sanctioning such gains is that the recipients have previously borne a disproportionate burden of land taxation, and the redistributive effects will promote equity in the system. Removal of the aggregation provisions helps to overcome the problems with avoidance associated with the progressive rate system, since taxpayers can not easily change their method of ownership to avoid tax liability. Avoidance introduces distortion by unevenly distributing liability throughout the tax base. Minimalising the incentive for avoidance by introducing a flat rate regime will improve the efficiency of the tax by preventing this distortion.(35) Determining land tax liability under a proportional rate system renders the aggregation provisions unnecessary because liability attaches to every parcel of land individually. The only valid reason for maintaining these provisions would be if a threshold level were introduced. If a threshold level is specified individual landholdings under the same ownership can be grouped together under the aggregation provisions, pushing them over the threshold level where they then become liable for land taxation. If assessed as individual landholdings then certain holdings may fall under this cut-off point and therefore be exempt from land taxation. However, there are still the inherent problems associated with landowners holding land in different legal ownerships to avoid liability over the threshold level. The attraction of a general threshold level is that it discriminates in favour of those taxpayers who hold less valuable land. The rationale for this is political, based upon the subjective assumption that these taxpayers fall within the lower income groups. Implementing a general threshold level is however both inequitable and inefficient. As an exemption it erodes the broad base of taxation and undermines horizontal equity. Inefficiency results from the influence on investment choices in land. Purchasers of land are discouraged in investing in land valued over the threshold level. _We recommend that a proportional rate of taxation be introduced, with no general threshold level. A minimum rate of 0.345 cents for each dollar of unimproved value should be applied.(36)_ _THE OWNER OCCUPIER EXEMPTION_ Residential land under the Western Australian Land Tax system consists of vacant, rental and owner-occupied homes, but excludes land used for commercial, rural and other(37) purposes. Land tax is currently levied on residential land which is vacant or rented while owner-occupied homes are exempted from the tax.(38) This exemption equates to approximately 83% of all residential land in Western Australia.(39) The unimproved value of the land contained within this exemption is $23.8 billion.(40) The exempted unimproved value corresponds to potential tax revenue foregone of $37.3 million.(41) On this basis the objective of broad-based taxation is significantly undermined when only 17% of the potential base is utilised. A broadening of the current tax base opens the possibility of two revenue options for the Government. The first is that more revenue can be raised.(42) The other is that revenue may be kept neutral but generated from a greater number of taxpayers. At present the legal and economic incidence of land tax does not coincide in the taxpayer who is the landlord of a rented property. While the legal incidence of the tax lies with the landlord, the economic incidence may be passed on to the tenant through the rent that is paid. If the exemption is removed then an owner-occupier would not only incur the legal but also the economic incidence of the tax. Therefore where there are owner-occupiers and tenants in similar economic circumstances, both would incur the economic incidence of the tax. In this way horizontal equity can be achieved, and the tenant is not discriminated against with the economic burden of land tax. Vertical equity would also be achieved with the removal of the exemption because owner-occupiers with dwellings of greater unimproved values than others will pay more land tax.(43) Where persons have a disproportionate percentage of their wealth invested in their owner-occupied dwelling,(44) assistance could come from the creation of a deferred land tax payment scheme, where payment is delayed until such a time as the owner-occupier is able to pay, or when the property is sold. It is envisaged that the outstanding debt would be registered as an encumbrance on the property in much the same way as a mortgage. Alternatively, a system could be devised whereby periodic instalments are made rather than a lump-sum payment. In addition, in cases of general hardship equity may be achieved through the establishment of a Land Tax Hardship Board.(45) This can be accomplished by incorporating appropriate hardship provisions in the land tax legislation.(46) It has been argued that the imposition of land tax on owner-occupied homes would depress the residential market and is therefore not efficient.(47) However, persons will require a residence to live in whether rented or purchased. In either case the economic incidence of the tax would fall on both groups. The effect of an imposition of land tax on all residences irrespective of their classification as owner-occupied or rented will not be to depress the residential market. In fact overall demand for residences will remain the same as it is only the classification of the residence which may vary. Therefore the argument can not be sustained. Nor can the issue of the non-deductibility of the land tax for owner-occupiers be used to support this contention. Land tax is a s.51 income tax deduction for owners of income-producing rental properties.(48) These properties however are subject to capital gains tax when sold. The capital gains tax therefore acts to offset the total benefit obtained from the deductibility of land tax for rental property owners. Owner-occupiers would not be able to deduct land tax primarily because no income is produced by the property. By the same token the absence of the deductibility is offset by the availability of non-taxable capital gains upon the sale of the owner-occupied dwelling.(49) This analysis not only supports efficiency by removing the exemption but also helps to rebut any contention that owner-occupiers should have a concessional rate of land tax to offset the non-deductibility. Instead, the free capital gains can provide the offset for owner-occupiers. The application of a flat rate for land tax together with the removal of the owner-occupier exemption would make government collection and taxpayer comprehension simple, with a minimal increase in collection costs.(50) As the assessment for land tax would generate one assessment per property under our recommendations the opportunity would exist for the land tax assessment notice to be included on the water rates notice for each property. This has the potential to reduce collection costs further without increasing administrative complexity. There will be windfall losses suffered as a result of removing the exemption. The justification for this is that these groups have previously been afforded special treatment, and requiring them to pay land taxation merely distributes the liability more equitably. It promotes horizontal equity as it broadens the tax base. It is acknowledged that there are considerable political problems involved in removing this exemption. The family home has always been held sacred by the community, and given the percentage of the voting public involved in this change it would be politically unpopular. Notwithstanding this, from a tax policy perspective this move is warranted to achieve horizontal equity.(51) _We recommend that the exemption for owner-occupied dwellings be removed._ _THE PRIMARY PRODUCTION EXEMPTION_ The stated policy objective behind the initial introduction of land taxation was the breaking up of large rural estates thereby promoting the "best" economic use of the land by other income-generating operations.(52) However, it has been observed that by the 1950's the tax was no longer meeting this objective.(53) The implication of this is that the tax was being factored into costs by the landowners. Drought conditions and economic hardship in the late 1960's resulted in the abandonment of this policy with respect to primary producers. This blanket exemption remains in Western Australia(54) and is based on the recognition that income generated from primary production is subject to seasonal conditions and international commodity prices. However, the present economic climate has impacted equally as hard on other sectors in the community and this rationale must therefore be questioned. In particular the small business sector, which under present provisions bears a disproportionate land tax burden, is struggling for survival. It must be acknowledged that commercial enterprises are employment generating operations and as such play an important part in economic recovery. Primary production also has an important role to play, but as stated by the 1993 Land Tax Working Party: "[t]he recessionary environment experienced during the early 1990's has impacted on the economic performance of all small business, including the rural sector. As such, the rural sector can no longer be afforded special status in respect to land tax liability."(55) Revenue foregone as a result of the exempt status of primary production land amounted to $9.8 million in the 1991-1992 period. State taxation revenue provides externalities, such as roads in remote areas. Given that Metropolitan Regional Improvement Tax is imposed on urban land holders,(56) there can be no justification for special treatment of rural properties. The special hardships faced by primary producers can be dealt with under hardship provisions, such as suggested previously.(57) These can take into account variable factors such as seasonal fluctuations in providing relief, rather than maintaining a blanket exemption. Similarly, the fact that primary producers have a major component of their capital assets invested in their land(58) is no justification for exemption from liability. Rural operations, being income-producing, may claim a s.51 deduction under income taxation provisions(59) to partially offset the liability that would be imposed if the exemption was removed. Removal of the primary production exemption may be said to result in windfall losses to holders of primary producing land and windfall gains to those whose liability will be lessened. Given that equity is a major objective of taxation policy it may be argued that these losses and gains are actually a result of implementing a more equitable distribution of land tax liability and are relieving sectors who have long borne the legal and economic incidence of land tax, as opposed to implementing discriminatory measures against landholders who have been previously exempt. Calculation of land tax liability would be simplified by removal of the primary production exemption. At present, problems arise with regard to urban land that is used for primary production purposes. Holders of land must show that one third of their income is generated from this land and investigation into this gives rise to complexity that would be avoided if flat rate taxation was imposed on all land regardless of use. The opportunity for avoidance and for accruing the benefit of multiple exemptions(60) under the present system further supports the removal of the primary production exemption. Land speculation on urban fringe properties continues with the possibility that land will be used only to generate the necessary income to meet the exemption requirements rather than being put to its "best" economic use.(61) This fails to meet the tax policy objective of efficient tax design. It must be stated that the political hurdles associated with the removal of the primary production exemption are by no means insignificant. Rural lobby groups in Western Australia have considerable influence at a political level and this fact may lead to difficulties in implementation. _However, if viewed purely from the objective of equitable and efficient tax design the recommendation made is that the blanket exemption of primary production land be removed and that hardship cases be dealt with under appropriate hardship provisions._ _EXEMPTIONS FOR LAND OWNED BY RELIGIOUS BODIES, EDUCATIONAL INSTITUTIONS, CHARITIES OR THE CROWN_ Under the present system the above classifications of land and various others(62) are exempted from paying land tax. This is subject to a qualification that the land not be used for business purposes. These exemptions are yet further examples of how a potentially broad-based tax is being reduced to narrow confines with a very limited scope. These exemptions create distortions in resource allocation, and may not necessarily reflect accurately the needs of the groups.(63) The only benefit they provide is on welfare grounds, where they give help where none might otherwise be available. However, in order to extend the tax base and increase efficiency, these groups should not be excluded, and any assistance required can be provided by the government on a needs basis.(64) It must be noted that some large educational or religious institutions own vast tracts of land which are currently not yet taxed while the institutions in question may in fact be extremely wealthy. It has been suggested that it is not productive to remove these exemptions as the exempt land is unlikely to be converted to alternative uses at a later date.(65) However, on revenue-raising grounds, and to prevent distortive effects, there are substantial reasons to include these groups in the tax base. Exemptions for crown land should also be removed. These induce investment distortions between the private and public sector which should be avoided. On general principle, there is also no reason why the public sector should be exempted from taxation, despite potentially leading to extra liabilities which would mean larger budget subsidies.(66) These exemptions have particular distortive effects where the government authorities are involved in land development. Homeswest, the State's public housing authority, is exempt from land tax which gives it an unfair advantage over private land developers.(67) It must also be noted that government authorities including local councils, are significant users of land and the exemption can lead to over-consumption of valuable land compared to commercial enterprises who pay land tax.(68) The additional land tax revenue gained if the exemption were removed can be used by the government to provide public benefits.(69) _We recommend that the remaining exemptions including religious and educational institutions, and Crown land, be removed._ _CONCLUSION_ Land tax is an ideal tax from a taxation policy perspective. It has the potential to provide a broad taxation base, and because the supply of land is fixed, liability attaching to the land can not be avoided by a change in ownership. However, as currently administered in Western Australia land tax fails to achieve the policy objectives of equity, efficiency and simplicity. Horizontal equity can be achieved by removing the present exemptions thereby broadening the tax base to encompass all landholdings in Western Australia. Additionally the introduction of a proportional rate system will ensure vertical equity is met from a minimalist perspective. Efficiency can be improved by the removal of the exemptions as investment choices will no longer be influenced by the availability of the exemption categories. Proportional rates will also reduce distortion within the system as landholders will not have the incentive to employ avoidance tactics to escape higher marginal rates. By implementing these measures, the liability for land tax will attach to every parcel of land in Western Australia, regardless of use and irrespective of ownership. Combining this with a singular rate will simplify calculation and collection for both government and taxpayer. The cost of implementing such a system will be compensated by the anticipated reduction in overall cost collection, given that most of the administrative machinery is currently in place. Windfall losses suffered due to these reforms are a result of the equitable redistribution of liability which necessarily accompanies the widening of the tax base. Any significant hardship arising from the change in incidence can be dealt with under appropriate legislative provisions. One option is to implement a deferred payment scheme where the liability is attached as an encumbrance on the land. Alternatively a payment by instalment programme can be established. Special hardship cases may be handled by a Land Tax Hardship Board which could provide relief in individual cases on a merits basis. An alternative that warrants consideration is the application of concessional rates to previously exempt groups. However, this would be inconsistent with the rationale behind the removal of those exemptions, and would go no further to achieving effective taxation design. It must be acknowledged that implementation of these recommendations may meet with political obstacles. The political ramifications of such a move are outside the scope of this discussion from a tax policy perspective but these issues would need to be considered in detail. Nevertheless, it is submitted that these obstacles could be addressed if emphasis is placed on the equitable arguments canvassed in this paper. Implementing these recommendations will provide the government with an ideal mechanism to control revenue raising. A ceiling may be imposed to fix revenue at a pre-determined level and the proportional rate may be adjusted accordingly. If additional revenue is sought a relatively small change in the rate will bring in a large increase in revenue due to the equitable broad base. This mechanism will already be in place to maintain total State taxation revenue in the event that the taxation mix is altered. Current debate over the Liberal Government's proposed abolition of Payroll Tax combined with the fact that the High Court of Australia may hold licence fees unconstitutional makes such a change in the taxation mix a real possibility. _SUMMARY OF RECOMMENDATIONS_ o We recommend that assessment based on the unimproved value of land be retained. o We recommend that the legislature clarify the meaning of "unimproved value" by specifying a formula based on current market value less the value of improvements to the land. o We recommend that liability imposed on the 30 June is the appropriate method of fixing the tax burden. o We recommend that a system of annual valuations be adopted. o We recommend that a proportional rate of taxation be introduced, with no general threshold level. A minimum rate of 0.345 cents for every dollar of unimproved value should be applied. o We recommend that the exemption for owner-occupied dwellings be removed. o We recommend that the exemption for primary production be removed. o We recommend that the remaining exemptions including religious and educational institutions, and Crown land, be removed. _BIBLIOGRAPHY_ "Call for Land Tax Changes", Law Institute Journal, June 1991, 481. [Briefly looks at the Law Institute's call for changes to land tax, in particular at the discriminatory effects of the exemptions.] CHONG, F., "Land tax makes investors reconsider", Business Review Weekly, October 1989, 121-122. [Looks at how investors are turning overseas as land tax is too high in Australia.] GARLAND, J.M., Economic Aspects of Land Taxation, Melbourne University Press, Melbourne, 1934. [Examines the economic rationale behind the introduction of land tax in Australia.] GIUGNI, P.D., "A Practical Approach to ownership in land tax", Taxation in Australia, vol.23, May 1989, 668-672. [Examines the land tax legislation in NSW.] HUTCHINSON, A.R., Land Rent as Public Revenue in Australia, Land Values Research Group, 1968. [Looks at how land tax stimulates re-development, and is a useful source of revenue for the States.] INDUSTRY COMMISSION, Taxation and financial policy impacts on urban settlement, Volume 1 Report, 1992. [Analyses land tax from the perspective of urban settlement - very thorough in its analysis, and provides useful insights into the urban perspective.] LAND TAX WORKING PARTY REPORT TO THE SMALL BUSINESS COALITION, Land Tax - Options For Reform, April 1993. [Looks at the impact of land tax on industry, particularly small businesses, recommends change in line with tax policy criteria.] MUSGRAVE, R.A., & MUSGRAVE, P.B., Public Finance in Theory and Practice, 5th rd., Mcgraw-Hill Book Company, 1989. [Excellent on economic and legal incidence.] NEW SOUTH WALES TAX TASK FORCE, Tax Reform and NSW Economic Development: Review of the State Tax System, August 1988. [Very useful and detailed report of the NSW situation; despite the differences in the two States, shows which issues need to be addressed.] PREST, A.R., Some Issues in Australian Land Taxation, Centre for Research on Federal Financial Relations, ANU, 1983. [Good discussion on externalities.] REAL ESTATE INSTITUTE OF AUSTRALIA LTD., Property Taxes and Charges in Australia - A Discussion Paper, Professional Series No. 1, October 1988, Canberra. [Looks at land tax and at stamp duties relating to the conveyance of land - gives graphs and figures for each State.] Report of the Committee of Inquiry into Revenue Raising in Victoria, Vic. Govt. Printer, Melbourne, 1982 sic. for 1983. [As in the NSW Report useful for showing which issues need to be addressed.] WALSH, C., (ed.), Issues in State Taxation, Centre for Research on Federal Financial Relations, ANU, 1990, Canberra. [Useful for exploration of legal and economic incidence of land tax; briefly looks at effect on investment decisions and capital gains implications.] WESTERN AUSTRALIAN STATE TAXATION DEPARTMENT, Annual Report 1991-2. [Shows how the State Taxation Department is organised, and provides applicable figures for the period.] 15 Western Australian State Taxation Department, Annual Report 1991-92, p.9 16 New South Wales Tax Task Force, Tax Reform and NSW Economic Development: Review of the State Tax System, August 1988, p.239 17 Section 13 18 Section 15 19 A.R.Prest, Some Issues in Australian Land Taxation, Centre for Research on Federal Financial Relations, The Australian National University, 1983, p.2 20 State Taxation Department of Western Australia, General Information on Land Taxes, 1992 21 Op.cit., Prest, pp.11-14 22 Report of the Committee of Inquiry into Revenue Raising in Victoria, Vic. Govt. Printer, Melbourne, 1982 sic. for 1983, P.285 23 Op.cit., NSW Task Force, p.237 24 Industry Commission, Taxation and Financial Policy impacts on urban settlement, vol.1 Report, 1992, p.7 25 Toohey's Ltd. v. The Valuer General (1924) 25 SR (NSW) 75; [1925] AC 439 26 This problem refers to the situation where the assessed value may not accurately reflect the actual value, because the value has changed in the interim period. The more frequent the assessments the more likely the two values will coincide. 27 Op.cit., Industry Commission, p.8 28 Act Amendment Annual Valuation and Land Tax Bill 1993 29 It is acknowledged that there will still be a timelag but from an administrative point of view more frequent assessments will prove to be too resource-intensive. 30 Assessment costs will increase, however this will be compensated for by the benefits (increased tax yield ) associated with more up to date valuations of land. This is evidenced by the new rates in Schedule 3 of the Taxation Legislation Amendment Act 1993 which are fixed at a lower level to partially compensate for the increased yield. 31 Residential properties in this context consist of rental properties and vacant residential land (owner-occupied dwellings are exempted). 32 Op.cit., Victorian Report, p.297 33 Op.cit., Industry Commission, p.6 34 Op.cit., NSW Task Force, p.256 35 Ibid., p.255 36 This rate is calculated by dividing the total tax assessed by the total unimproved value of assessments, and expressing that result as a percentage. The figures used are found in Appendix B: Total tax assessed: $136,000,000 Total unimproved value of assessments: $39,439,000,000 It should be noted that this rate: 1) maintains revenue neutrality 2) is still less than the minimum progressive rate of 0.350 cents for each dollar of unimproved value corresponding to land valued between $5,000 and $10,000 3) can be adjusted upwards to increase revenue from land tax. For example, a 0.100 cents increase would result in nearly a 30% increase in land tax revenue. 37 Religious, educational, charitable institutions. 38 Land Tax Assessment Act 1976, s.21 and Part 1 of the Schedule 39 17% of all residential land is currently taxable. 40 Figure is derived by using the total unimproved value of assessments for the current and broad tax bases - Broad Tax Base 28,653,000,000 -Current Tax Base 4,871,000,000 23,782,000,000 = $23.8 billion 41 Figure is derived by using the total tax assessed for the current and broad tax bases - Broad Tax Base 98,806,000 -Current Tax Base 61,532,000 37,274,000 = $37.3 million 42 R.A. Musgrave & P.B. Musgrave, Public Finance in Theory and Practice, 5th ed., McGraw-Hill Book Company, 1989, Chapter 12 43 Op. cit., NSW Task Force, pp. 245-246 44 Those who are asset-rich and income-poor. 45 Op. cit., NSW Task Force, pp. 245-246 46 The nature and scope of these provisions must be the subject of further consideration in order to ensure that relief will be granted where needed. 47 Real Estate Institute of Australia Ltd., "Property Taxes & Charges in Australia - A Discussion Paper", Professional Series No. 1, October 1988, Canberra, p.4 48 Income Tax Assessment Act 49 This is working on the assumption that the property will realise a real capital gain when sold, once consideration has been made for cost of borrowing, where applicable. 50 Op. cit., Victorian Report, p.163. The costs to assess exempt owner-occupied dwellings are estimated as- $1.5 million to establish $2 million per annum to maintain 51 If this recommendation is too politically unpalatable then an alternative would be to introduce a threshold which would exempt owner-occupiers holding land valued below a pre-determined level. This may improve the political feasibility of including owner-occupied land in the tax base. However, this does not overcome the problems involved with exemptions as previously discussed. 52 J.M. Garland, Economic Aspects of Land Taxation, Melbourne University Press, Melbourne, 1934, p.32 53 Land Tax Working Party Report to the Small Business Coalition, Land Tax - Options For Reform, April 1993, p.8 54 Land Tax Assessment Act 1976, s.21 and Part 1 of the Schedule 55 Op. cit., Land Tax Working Party, p.8 56 See Appendix E for current MRIT 57 See p.11 58 Op. cit., Industry Commission, p.15 59 Income Tax Assessment Act 60 Op. cit., NSW Task Force, p.250 61 Op. cit., Industry Commission, p.15 62 Land Tax Assessment Act 1976, s.21 and Part 1 of the Schedule 63 Op. cit., Victorian Report, p. 294 64 Ibid., p.313 65 Op. cit., NSW Task Force, p.252 66 Op. cit., Victorian Report, p.294 67 Op. cit., Industry Commission, p.13 68 Ibid., p.14 69 Ibid., p.13