Land tax will be made fairer and less susceptible to sharp moves in the property market as part of the NSW State Government attempt to win over disgruntled voters for next year's election.
In his first state budget on June 6, the Treasurer, Michael Costa, will announce an overhaul of the land tax system that will include an averaging of land valuations over three years and a new, more transparent appeal process.
As some property owners are hit with steep rises in their land tax bills, Mr Costa is also considering making a small cut in the 1.7 per cent tax rate, giving the valuer-general more time to properly value property, and making sure assessments do not arrive at the start of the calendar year.
In an interview with the Herald, Mr Costa acknowledged that the broadening of land tax base by his predecessor, Michael Egan, had been very unpopular with small investors, who were forced to pay the tax for the first time.
Despite a reversal of Mr Egan's decision last year and a falling property market, valuations have risen sharply in some areas. In Manly, they have gone up by as much as 108 per cent. In the country, they have risen by as much as 200 per cent.
"The issue I am now dealing with is how we deal with the obvious concerns about valuation - because there are obvious concerns about that," Mr Costa said.
The Treasurer will also deliver an "intergenerational statement" in the budget that will explore the impact of an ageing population on future budgets, particularly on health spending, which accounts for 27 per cent of the $40 billion budget.
Hinting at his plans for reform, Mr Costa said: "How do you get a system that reflects the volatility of the market, and how you get a system of appeals that is fairer? [These] are the two things we will be looking at in the budget. It will be good news for taxpayers."
Although he admitted the Egan system was unpopular, "personally I thought a broader land tax was a more sensible outcome".
Before he resigned as premier, Bob Carr returned NSW to a system whereby only investment properties with a land value over $352,000 were liable for tax.
The NSW Ombudsman last year strongly criticised mass valuations - where sections of a suburb are valued by reference to one or two properties - warning they had led to chronic undervaluing of land and inaccurate valuations.
A report to Manly Council this week said total land valuation in Manly rose by almost 50 per cent - or almost $3 billion - in the three years to July 2005. In a street-by-street breakdown, the report identified the streets hit by the biggest rises, including Denison Street (up 108 per cent), Rolfe Street (89 per cent) and Smith Street (88 per cent).
Mr Costa said the Government was looking at new ways to deal with valuation and appeals - "We are looking at averaging" - and that it had accepted the ombudsman's recommendation of more resources for the valuer-general.
The NSW Property Council wants the Government to assess land tax either on the current year's valuation, or a rolling three-year average, whichever is lower.
This would smooth the sharp spikes in valuations when the market rises, but also ensure landowners pay on the lowest value when the market falls.
Mr Costa is also looking at a new appeals process. At the moment complaints are made to the valuer-general, who appoints an independent valuer to make a recommendation. The final decision lies with the valuer general, and if the taxpayer is not satisfied, he or she must go to the Land and Environment Court.
There may also be some scope for a rate cut or a further increase in the threshold, but any cuts to payroll tax will have to wait. "Any notion that we are about to reduce payroll tax ... is not likely to occur," Mr Costa said.
However, the budget will contain plans to cut taxes on mortgages, hire and lease agreements and other business taxes - but not until after July 1, 2007
