ACT News

Development tax raises nowhere near amount predicted

The government continues to forecast increased revenue from its controversial lease variation charge, despite coming nowhere near budget in any year since it was introduced.

The tax is charged when developers change a lease to build extra houses or units on a block or to increase floor space.

The Labor government introduced the tax in 2011, replacing what was until then called a "change of use" charge, and dramatically increasing the amount charged for developers of units, townhouses and dual occupancies.

To help developers adjust, it said it would phase in the tax over four years, with a 75 per cent "remission" in the first year, so developers paid just 25 per cent of the amount in 2011-12, shrinking to a 25 per cent remission by 2015-16.

In fact, the success of the tax has been dented on two fronts – it never raised the amount it was supposed to, even from the start, plus early last year the government effectively halted the phase-in, leaving developers receiving a 55 per cent remission.

As a result, the lease variation charge is raising less than the former change-of-use charge. In 2011-12, the change-of-use charge raised $14.2 million; in 2014-15, the lease variation charge raised $11.4 million.

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But budgets nevertheless continue to predict rising revenue, with this year's budget anticipating $16.3 million in lease variation taxes, which would be $5 million more than it raised in the most recent year. The highly optimistic forecast remained in the recently released mid-year budget review, coinciding with the December decision to continue the freeze on the phase-in until mid 2018.

Despite the freeze on the phase-in and despite the amount of revenue falling in each of the past two years, the government is still budgeting for increases. It forecasts $16.3 million this year, then $17.6 million, and more than $18 million in each of the following two years.

The Liberals say the lease variation charge is a failed tax and have promised to scrap it in government.

Liberals treasury spokesman Brendan Smyth said the tax had been "big on promise, very very short on delivery" and was collecting less than half the amount expected.

"This is a tax that has slowed the densification of Civic and the town centres which is why Civic and the town centres are going so poorly, and it's a tax that leads to urban sprawl because it is so expensive to develop."

The Liberals would put a four-year moratorium on the lease variation change in the city and in town centres if they won government, he said.

He said Mr Barr's continued unrealistic forecasts of revenue were "simply pride". "This is sheer bloody-mindedness on behalf of the Chief Minister and Treasurer – he won't admit that he got it wrong," Mr Smyth said.

The amount charged is different in every suburb, but in Ainslie the full lease variation charge can add more than $100,000 per dwelling to the cost of development, and in Amaroo the full charge is up to $50,000 per dwelling. In town centres, the full charge can add between $300 (in Gungahlin) and $800 (in the city) for every square metre of extra floorspace. But with the remissions, the actual amount charged has never reached these levels.

Asked why the budget kept forecasting so much more than was collected, a government spokesperson said the tax was difficult to predict. The forecasts for the current and coming year were based on the previous year and an evaluation of applications for which the tax was yet to be paid, but timeframes could vary significantly depending on the project.

- with Markus Mannheim

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