Equilibrium

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Carbon tax: the impact on property

The Federal Government has launched Securing a clean energy future: the Australian Government’s climate change plan.

The core of the plan is the introduction of a price on carbon pollution.
Treasury’s modelling shows that the construction industry is one of the few to shrink over both the short and long term.

The Government’s own analysis spotlights disturbing risks for the property and construction industry that should be addressed before carbon tax arrangements are finalised.

The Property Council has called for a joint government-business working group to undertake far more detailed modelling of the price impacts of the scheme for the residential and commercial property industries.

Comprehensive modelling should show how much abatement the scheme buys over its first three years, and provide a better understanding of the potential price impacts that will occur when the scheme transitions into its full Emissions Trading Scheme (ETS) phase.

Better targeted and designed incentives are also required to encourage building energy efficiency and improve affordability.

The positives are:
    •    a large commitment to renewable energy programs that could be tailored to promote embedded generation in buildings and precincts;
    •    an investigation into a national energy efficiency incentive scheme (‘white certificates’) that will tie together and expand existing arrangements; and,
    •    the potential to rationalise existing environmental reporting arrangements for large investors.

The negatives are:
    •    a shrinking construction industry (compared to other major economic sectors);
    •    the absence of any modelling on housing affordability – which is likely to decline as construction costs rise;
    •    the absence of transition arrangements for fixed price contracts, such as leases; and,
    •    the lack of protection from unwarranted energy price increases

Snelling’s Budget delivers few surprises

Treasurer Jack Snelling’s first Budget was one of consolidation that delivered few surprises.
And while it unwound some unpopular spending cuts and maintained infrastructure spending critical to the state’s growth industries, ongoing tax constraints on South Australia’s property sector remain a hurdle to investment and economic growth.

“This Budget has brought to light some stark fiscal and political realities about the state’s revenue raising capacity,” said Nathan Paine, Executive Director of the Property Council of Australia (SA Division)
“Despite the fact that the property sector is the largest contributor to the economy – with10 per cent of Gross State Product and the second largest employer, responsible for providing work for more than 10 per cent of the workforce – property taxes comprise around 40 per cent of South Australia’s own-state revenue.
“If we are to capture benefits of our growth industries, the state must move to a more competitive footing and create a better investment environment.

“Reforms to the property tax regime will also expedite development of the homes, factories, public spaces and commercial offices that will support the workforce spawned from growth in these industries.”

The Property Council has repeatedly drawn attention to the risks inherent in maintaining a shallow tax base and has long urged reforms that mitigate this risk and unleash investment potential in the state. The Government provided some tax relief in last year’s Budget, including an adjustment in thresholds that provided relief to mum and dad investors and indexation of land tax thresholds will provide an additional $170.7 million of relief when it commences on 1 July 2011.

“The Government clearly had a tough ask in this Budget, undoing some previous unpopular spending cuts, balancing declining GST receipts and maintaining a record infrastructure spend,” Mr Paine said.

“While we acknowledge how difficult this must have been, and that Mr Snelling faced growing pressure to allocate much-needed funds to critical social needs – property tax remains the elephant in the room.

“We’ve made it clear we want to partner with the Government in finding new ways of funding its commitments to economic and structural reforms, reforms that we steadfastly support.

“We have extended our hand to Mr Snelling and the Government to support them in this transition. We look forward to working with them in pursuit of an equitable, efficient and reliable tax system that helps us unleash the state’s pent-up economic potential.”