Prosper Australia welcomes the opportunity to contribute to the 2018- 2019 Victorian budget.
This submission focuses on the role of State Land Tax (SLT) in the design of an effective policy response to the housing affordability crisis.
Prosper welcomes the Victorian Government’s emphasis on housing affordability. Efforts to dampen speculative demand, such as the Vacant Residential Property Tax, are to be applauded. These tackle the underappreciated effects of increased credit availability, low interest rates and federal taxation arrangements that favour property as an asset class.
We are concerned by the normalisation of private indebtedness. Given the current trajectory, Prosper expects lifetime mortgages in the not too distant future. Large mortgage debts represent an unacceptable level of vulnerability for families and individuals and pose a systemic risk. Increasing economic resilience means lowering debt.
Inevitably, any policy that remedies the structural causes of Victoria’s housing crisis must lower the cost of land.
The extension of First Home Buyer Stamp Duty discounting to all properties (under $600,000), the continued use of First Home Buyer Grants, and the introduction of shared equity will not make housing more affordable. The economic effect of these policies will be to increase the price of housing for those at the bottom end of the market.
State Land Tax has the potential to become the public’s first line of defence against the commodification of housing by reducing the utility of housing as a vehicle for speculative investment. SLT acts as a counterweight to land price as the market value will reflect the tax impost, reducing land prices.The higher the land tax, the lower the capitalised land value.
State Land Tax is inherently progressive if levied at an appropriate rate on the site value of property. We are alarmed by the proliferation of regressive, flat service charges such as the Emergency Services Levy. Policy that undermines local government rates must be curtailed.
Prosper’s recommendations, when implemented, will ensure that state revenue policy reflects the highest ideals of both economic efficiency and equality of opportunity. Building the political capital necessary to extend SLT is an urgent task for leadership. We urge the Government to highlight the efficiency and fairness of ‘beneficiary pays’ taxation.
As long as rent-seeking in property is tacitly endorsed by both progressive and conservative governments, Victoria’s housing crisis cannot and will not be resolved.