Queensland land tax grab a dangerous precedent

The cash-strapped Queensland government’s decision to tax both Queenslanders and non-Queenslanders holding investment or holiday residences in other states may trigger a national land tax over and above state taxes.

In essence, if you own property in Queensland you will be taxed at a rate that takes into account the properties you own around the nation, even though those properties may already be subject to state land taxes.

Everyone knew this tax would hit the value of Queensland residences, including the Gold Coast, as many interstate investors flee the sunshine state’s new tax.

But it comes at a time when global and Australian interest rates are rising sharply, so hapless investors in Queensland holiday and rental property now know they face new dangers.

But longer term, the implications for the national residential property investment sector are even more serious.

Most of the other states are also desperate for cash and every state premier and treasurer will look at the Queensland experience and, once the Queensland property market settles down (albeit at a lower level), will be greatly tempted to follow its revenue harvest.

Accordingly, this is going to make property less attractive for investors and will push up rents because the supply of investment capital will decline.

Under the Queensland plan, if a person is a resident of any other state and owns Queensland holiday or investment properties then all their nationwide investment properties will be taken into account in assessing the tax on their Queensland property.

Queensland Premier Annastacia Palaszczuk’s new land tax has been slammed by some as ‘theft’. Picture: Jerad Williams

And of course, Queenslanders also holding properties in other states will, in reality, be taxed on their interstate properties.

There does not appear to be any credits available for land taxes paid in other states.

I know a large number of people with holiday houses in places like Byron Bay and Portsea that also own a property in Queensland.

They are suddenly waking up to the realisation that, starting in 2022-23, their Queensland property will effectively trigger additional taxation on their Byron Bay and Portsea holiday homes.

Many took advantage of the token interest rate bank lending spree in recent years and are heavily borrowed on the combination of their residential and investment property investments. Recent entrants to the market are facing the prospect of owing more on the investment/ holiday properties in Queensland than they are worth.

The Brisbane property market is falling so it would seem that interstate property owners are voting with their feet when it comes to investment property in Queensland.

That is bad news for those developing Queensland apartments hoping to sell them to big property investors.

When Queensland devised its tax system, the property market was booming.

But now properties in most states have fallen 10 per cent and the Reserve Bank has revised its house price fall prediction to 15 per cent, while others are predicting 20 and 25 per cent declines.

There couldn’t be a worse time to introduce such a nation-changing tax.

Of course, for first-home residential buyers in Queensland it is good news because prices are coming down.

But the higher interest rates are slashing the amounts banks will lend on houses and they suddenly are becoming increasingly nervous about Queensland.

Developers looking at pre-selling apartments are aghast.

But the impact goes down the property chain.

Among the hardest hit are those that pay rent because the reduction in housing for investment is causing a squeeze on the market.

To make matters worse, Queensland has followed Victoria in introducing legislation that gives renters much greater rights, which increases the risks faced by landlords.

Accordingly in both states, landlords are seeking greater rents to cover those higher risks. They are particularly nervous about allowing lower income people into their investment homes.

Queensland’s tax legislation and high interest rates further change the landscape.

There is a lot of pressure on the Queensland government to reverse the tax, but the government needs the money.

While the impact on Queensland will be severe, that will not stop other states saying that if Queensland is harvesting national property then we should join the game.

Almost all states outside WA have a debt problem and desperately need money.

I have no inside knowledge, but my guess is that if Daniel Andrews wins the Victorian November election and retains his position as Premier, he will be looking to join his Queensland compatriots.

Others will follow.

If every state follows Queensland, then in essence we will have multiple taxes around the country and that will force some form of rationalisation driven by the Commonwealth, but the end result will be a completely new tax – a national land tax that goes over and above state taxes.

The Queensland decision represents the first long-term tax change and it comes as states face the horror of what they have done to their balance sheets.