Fairfax Spin on Land Tax

Spin: The venerable D&J Evans Hardware store was unable to pay its $120,000 land tax bill. So it would be forced to close and 32 employees would lose their jobs [Russell Skelton, “Soaring Land Tax Costs Jobs, Investment”, Sunday Age, Nov.21, 2004].

Reality: The big news was buried in a subordinate clause further down the page: “Although the site was sold to Woolworths for a record $15.25 million…” Oh. So the land tax was so onerous that Woolworths volunteered to pay $15,250,000 up front for the privilege of paying the land tax in perpetuity! The article said nothing of the number of jobs that would be created by Woolworths, or re-created by Evans Hardware when it reinvested the money.

Spin: The Whitehorse Inn of Hawthorn (Victoria) was forced to close because the lessee, Jim Ryan, was unable to pay the land tax bill which had increased from $1440 (in 1998) to $40,000. Some 15 staff would lose their jobs. Mr Ryan was liable for the land tax because he had signed a contract containing a tax-increment clause, whereby the owners could charge their land tax to the lessee [according to Farrah Tomazin in The Age, Feb.15, 2005].

Reality: By the time Mr Ryan got into trouble, tax-increment clauses in rental contracts had been banned in Victoria, but contracts signed or renewed before the ban were grandfathered. The Parliament could have capped land tax increases for lessors in grandfathered tax-increment contracts in order to protect the lessees, but failed to do so. So the fault lies not with land tax as such, but with the legislators, who botched the initial implementation and then botched the correction.

Horror story: John Ribbands of the Metung Hotel faced a land tax bill of almost $81,000, which had doubled in a year [according to Kirsty Simpson in The Age, Mar.6, 2005].

Reality: Actually the land tax bill was for the hotel site plus the adjacent vacant site, not just the hotel site. But because of this “usurious” tax, poor Mr Ribbands sold the hotel and the adjacent site to David Strange for more than $4 million [Christopher Webb, “Strange Metung spot is a real little boaty”, The Age, July 19, 2005]. Mr Strange’s plans to develop the adjacent site [www.metunghotel.com.au/land.htm] are a textbook example of how site-value taxation encourages investment and creates jobs. The new owner acknowledged as much when he said that the income from the existing hotel alone “wouldn’t support the land value” — that is, it wouldn’t cover the tax on the combined land value.

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