Increased land taxes taking toll on property owners and businesses | 7.30

Key Concepts

• Land Valuation: The process of determining the monetary worth of a piece of land.
• Land Tax: A tax levied on the value of land owned.
• Valuer-General: The government authority responsible for land valuations in Victoria.
• Easement: A legal right to use another person's land for a specific purpose.
• Battleaxe Block: A property with a long, narrow access strip leading to a wider parcel of land.
• Crown Land: Land owned by the state or federal government.
• State Revenue Office (SRO): The government agency responsible for collecting taxes in Victoria.

Property Valuation Discrepancies and Land Tax Burdens in Victoria

This report details significant issues with land valuations and the subsequent land tax bills in Victoria, Australia, highlighting cases of extreme overvaluation and the impact on property owners and businesses.

Case Study: Maui Property Valuation

• Property Details: A 9-acre property in the regional Victorian town of Maui, located approximately 135 km east of Melbourne. The property lacks power and water and is accessed via an easement, described as a "battleaxe block."
• Initial Purchase: The land was purchased by Emily and David Gridley in 2020 for $440,000, intended for storing cars for their small towing company.
• Shocking Land Tax Bill: In January, the Gridleys received a land tax bill of $32,000, based on a government valuation of over $2 million. This valuation was significantly higher than the purchase price and the property's apparent utility, which the owners suggested was "probably worth more money for hay than anything."
• Previous Overvaluation: This was not an isolated incident. The previous year, they received a $20,000 land tax bill based on a valuation of $1.6 million.
• Objection and Revaluation: The Gridleys lodged objections with Victoria's Valuer-General. An independent assessor subsequently determined the site's worth to be $770,000 for both years, a substantial reduction from the initial government valuations. Emily Gridley expressed disbelief at the claimed "100%" increase in value over two years, stating, "It just doesn't make any sense."
• Reason for Overvaluation: The Valuer-General's office attributed the initial overvaluation to "incorrect planning information."

Systemic Issues with Land Valuations

• Shift in Valuation Authority: Prior to 2019, local councils were responsible for land valuations in Victoria. However, the Valuer-General, within the Department of Transport and Planning, became the sole valuation authority across the state two years ago.
• Aggressive Valuation Practices: Tax experts and lawyers suggest a "sharp jump" in land tax bills since this transition. Tax lawyer Thomas Abraham noted that the Valuer-General's office has been "a lot more aggressive in terms of the values accorded for different properties here in Victoria." He also described the changes as "increasingly more daunting" and "hard for a taxpayer to just keep up to date with the changes."
• Client Discrepancies: Abraham shared instances of significant valuation discrepancies, including a client who purchased a property for $3-3.5 million but had its site value assessed at $5 million.

Changes to Land Tax Thresholds and Expansion

• Reduced Threshold for Second Properties: In 2023, the Victorian state government significantly reduced the threshold for paying land tax on second properties. It was previously $300,000 but has been lowered to $50,000, described by Abraham as "one of the biggest changes in my view for land tax here in Victoria."
• Geographic Expansion: Previously, land tax applied only to certain inner and middle suburbs. This has now been expanded to cover the "whole of Victoria."
• Government Debt Accumulation: The report suggests that the Victorian state government has expanded and increased various taxes to "claw back debt accumulated during COVID."
• Tripled Bills: Some individuals have experienced their tax bills "actually tripled over the course of one year."

Beach Box Tax Errors

• Context: Victoria has approximately 2,000 beach boxes, predominantly located on the Mornington Peninsula.
• Perceived Tax Grab: Many owners viewed the land tax as a "tax grab by the government" and expressed frustration and anger.
• Incorrect Billing: Last year, the State Revenue Office (SRO) incorrectly sent land tax bills to 71 beach box owners, with some bills reaching up to $5,000.
• Legal Basis for Tax: The beach boxes are situated on Crown land, meaning the government has no legal right to charge land tax on them.
• Lack of Explanation: Peter Clark, president of the Mornington Peninsula Beach Box Association, stated that the SRO has not provided an explanation for the error. He also contrasted the current system with the previous one, where local councils handled valuations for rate notices, deeming the current process "far less transparent."
• SRO Response: When approached by 7:30, a spokesperson for the SRO stated they are "unable to comment on individual taxpayer matters."

Impact on Businesses

• Sheet Metal Company: Matthew Fogerty, who runs a sheet metal company manufacturing air ducts in Dandenong, Melbourne, is facing significant challenges due to increased land taxes.
• Lease Negotiation Impact: The company rents factory buildings from Ray Cook, who originally started the business in the 1970s. Cook was hit with a $55,000 land tax bill across his Victorian properties.
• Forced Sale of Property: Due to the inability to pass on the increased tax through existing leases, Ray Cook has decided to sell his Dandenong factory. This situation leaves Matthew Fogerty and his employees facing potential displacement: "he's effectively forced to sell the properties, which would mean for us that we're basically out on the street."
• Business Viability Concerns: Matthew Fogerty cannot afford to buy the property and is considering relocating to a smaller, more remote location, which he estimates would be a "six-figure relocation." He expressed significant stress regarding the business's future, customer retention, and the overall viability of operating in Victoria.
• Competitive Disadvantage: Fogerty believes these long-term consequences will put Victoria "at a disadvantage compared to the other states." He has heard from clients who find operating "just not viable anymore."
• Government Statement: A Victorian government spokesperson stated that land tax "does not apply to homeowners or renters." However, Matthew Fogerty argues that his business, employing 20 people, is directly impacted by the system, which he feels is "unfair" and "targeted at businesses which is no good for anyone."
• Treasurer's Office Response: 7:30 requested an interview with Victoria's Treasurer, Jacqueline SS, but her office declined, stating she was unavailable to participate.

Synthesis and Conclusion

The transcript highlights a concerning trend in Victoria where the transition of land valuation authority to the Valuer-General, coupled with significant changes in land tax thresholds and geographic scope, has led to widespread overvaluations, disproportionately high land tax bills, and considerable stress for property owners and businesses. The case of the Maui property, beach box owners, and Matthew Fogerty's business illustrate the tangible negative consequences of these policy shifts, raising questions about transparency, fairness, and the long-term economic impact on the state. The government's stated aim of debt recovery appears to be creating significant hardship and uncertainty for many Victorians.