Property investors may see themselves facing new levies on their properties to fund state services, according to a recently released government discussion paper.
A charge of up to $1.07 per $1,000 of land value may be charged on those owning New South Wales property if the changes in the Funding our Emergency Services July 2012 discussion paper are put into place.
This is to assist with funding fire, rescue and other NSW emergency services.
These changes could see investors facing an extra $299.60 on a $280,000 block (current median priced land in metropolitan NSW) under one of the proposed models for calculating the charges.
“Taxing the market value of properties provides a disincentive to make capital improvements on land, and thereby distorts investment decisions,” the paper states, explaining why land value should be taken over property value.
Different areas of the state may be set for different amounts of payment, however how this will affect investors with tenanted properties, of which 76.1 per cent were recorded as being without contents insurance in 2009/2010 (and previously reported on by Smart Property Investment), is unclear.
Mentioning that 36 per cent of households within the state currently do not have home contents insurance, the highest proportion of all the states, the paper claims that this makes the system ‘unfair’, with those who are uninsured avoiding paying for this necessary service.
“A wide range of alternative revenue sources have been considered, and it is apparent that if the current arrangements are changed, a property based levy would be the best alternative,” the foreword explains.
Currently, the insurance industry provides 73.7 per cent of the funds, while local governments and the state government contribute the rest, 11.7 per cent and 14.6 per cent respectively.
Taking this funding responsibility away from the insurance industry should result in substantial savings for those who currently pay for different forms of insurance.
This will follow suit with Victoria, which will see a shift to a property levy-based model in 2013. Queensland, Western Australia, South Australia, Tasmania and ACT currently have forms of property-based levies in place.
"Taxing insurance increases the price of insurance and can lead some people to under-insure and others not to insure at all," NSW treasurer Mike Baird said late last week.
“NSW property owners who insure their properties are subsidising the 36 per cent of households who don’t have home contents insurance."
The Property Council of Australia have welcomed the decision, said NSW-branch executive director Glenn Byres.
“The property sector recognises the inefficiency of taxing a pool of contributors that is limited by the amount of people electing to take out insurance,” Mr Byres said.
He also recommended that the tax be kept in line with the Consumer Price Index, rather than charging property owners extra due to any 'windfall' increases in land value.
A Deloitte report for the Insurance Council of Australia, ‘Property based funding options for the NSW Fire Services Levy,’ explained that 45 per cent of the presently insurance company-sourced funding would be sourced from residential property, and estimated a saving of $64 on properties in the City of Sydney with insurance currently in place.
The final decision about the levy will be made by the end of 2012, with the discussion paper currently open for submissions and comments until 8 October 2012.