Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021
I rise to speak on the Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021, a bill that is making a number of changes to taxation legislation. I would like to focus my contribution on two elements of this bill in particular: firstly, the introduction of the windfall gains tax; and, secondly, the amendments to the Land Tax Act 2005 to create new tax incentives for the build-to-rent industry.
The former is a very welcome new tax measure in Victoria and one that the Greens have been calling for for years. A windfall gains tax was one of the policies that we took to the 2018 election when we called for a similar tax on wealth created when a piece of land is rezoned.
It is just the latest example of a good idea put on the table by the Greens getting picked up by the government. The Treasurer of course rejected the idea when it was first proposed by us, but it is always heartening to see the government change their mind and introduce good policy. Of course our proposal went further, with a 75 per cent tax rate on the unearned wealth generated by the difference between the officially assessed land value before the rezoning compared to the land value afterwards. But even at a lower rate and being even further watered down since the original announcement, a windfall rezoning tax is good public policy. This is a tax that seeks to capture the millions of dollars that can be made at the stroke of a pen when a property is rezoned to a higher use. It is also a significant anti-corruption measure.
The issue of rezoning and the massive profits property developers can reap from land banking is particularly an issue where farmland or ex-industrial land is rezoned into the lucrative residential zone. Fishermans Bend is a prime example, where overnight the landowners became millionaires. The rezoning decision by the now Leader of the Opposition was described as unprecedented and misguided. And yet the community saw none of that wealth, which was instead pocketed by private landowners and property developers. Fishermans Bend was just one in a long list of dubious rezonings—Docklands, Fishermans Bend, Ventnor and the urban growth boundary rezonings—where more and more property developers and landowners have been eyeing off the honey pot. Developers know that under our current system they can buy ex-industrial land or unused farmland on the cheap and then lobby councillors and planning officials to get them rezoned for residential development. We saw this in practice most recently in Casey, where a local developer allegedly used bribes and gifts to secure rezoning decisions in his favour. So we are really pleased to see the government agreeing to sensible, progressive taxation reform by lessening the honey pot and properly taxing the windfall gains that are created through rezoning decisions.
I do note though that in the bill we are debating today there are a number of additional exemptions from that policy that was announced earlier this year. For example, it seems likely that the Melbourne Racing Club has negotiated an exemption from having to pay the tax on the sale of Sandown racecourse, as rezonings that were sufficiently progressed will be exempt from the tax. While we understand the government’s logic here, it is disappointing that an already wealthy body and one that makes its millions from the destructive gambling and racing industries has managed to avoid its fair share of tax. It is especially disappointing because part of the rationale of the new tax is about returning value to the community, which can be used to fund the new things suburbs desperately need—new public transport, parks and open space and other community services. When we are creating new suburbs—whether it is Fishermans Bend or the new suburb that will be created on Sandown racecourse—we are not just building more homes for private sale; we are creating new communities, and communities need schools, hospitals, parks and trains. And right now the new suburbs that are created as a result of major rezoning decisions are sorely lacking in the necessary infrastructure and services that make Melbourne so livable. There are no public transport, shops, cafes or restaurants, and the nearest supermarket is a 20-minute drive away.
This is also what happened in Fishermans Bend, where the rezoning meant we suddenly had plans for multistorey—six-storey—apartment towers, with no plan for any parks or open space, community services or necessary infrastructure. It seems obvious to me that a portion of the enormous wealth created overnight should be returned to the community and used to create much-needed public services and infrastructure instead of lining the pockets of already wealthy developers—or, in the case of Sandown, a wealthy and exclusive racing club.
I also want to note that we do not agree with the arguments put forward by opponents of this bill that the new tax measures will limit housing development in Victoria or that it will make housing more expensive. This is a complete misconception based on the belief that our housing system is simply a vehicle to make a small number of people richer. There is something extremely broken in our housing system if developers are throwing a tantrum over the prospect of having to pay a portion of a billion-dollar overnight profit back in tax for the public good.
When we keep treating housing as a commodity and a tool for wealth creation instead of as a basic need we end up with the housing market we currently have, where prices are ridiculously inflated and an entire generation has been locked out of owning their own home. In fact this commodification of the housing system is also what we see in the government’s new build-to-rent (BTR) program, the other part of the bill I will address today.
Build to rent is a program where new apartments are created specifically for the purpose of being rented out and owned and leased by the developer. In an effort to grow the industry in Victoria the government is offering the tax incentives contained in this bill—a 50 per cent land tax concession for 30 years and a full exemption from the absentee owner surcharge. The government suggests that this is about improving affordability and supply, but a closer look at the parameters of the program show that it will do neither.
The guidelines say that eligible BTR developments will be new or substantially renovated buildings with at least 50 self-contained dwellings held within a unified ownership structure and managed by a single entity. These management entities will be major developers like Lendlease or Mirvac. Billion-dollar multinational developers will now also reap millions in tax benefits. The build-to-rent program is effectively handing developers a blank cheque for huge profits by allowing them to transform into corporate megalandlords like we see overseas. In the US the biggest corporate landlords own about 420 000 properties in total, and in Germany the single biggest landlord has over 330 000 properties. It is difficult to understand why we would want to replicate this failed megalandlord model in Victoria.
We also have serious concerns about the impact this program will have on housing affordability. The only rule about rental agreements offered in build-to-rent apartments is that they must be for a duration of at least three years, so there is nothing to stop developers from creating luxury, exclusive apartment complexes and then renting them out for enormous rents. In fact we know it is likely, because this is what we have seen in other build-to-rent developments. In Sydney the first fully private rented block, built and owned by Mirvac, opened in 2020. While they touted benefits like having a pet or hanging a picture on the wall—that is, basic rights that a renter should have in their home—the benefits came at a cost of as much as 20 to 30 per cent more in rent. Similarly in London the build-to-rent developments were on average 11 per cent more expensive than other rental properties nearby. So it is really disappointing that in this bill, which has measures to implement progressive taxation and properly tax profits, there is also a measure that seems totally designed to make developers richer and make renting more expensive.
But this is not what renters want. In Germany, where there are a number of major corporate landlords, voters recently voted to expropriate hundreds of thousands of apartments owned by megalandlords and return them to public hands. This happened in the face of housing becoming increasingly unaffordable and out of reach for everyday Berliners, something that is happening right around the world and becoming increasingly bad right here in Victoria—and something that this build-to-rent program will do nothing to address. In fact it is merely a transfer of public money to billionaire corporate property developers at the expense of everyday Victorians and their ability to have secure, affordable housing.
To address these problems, I will be moving amendments to add eligibility criteria before a build-to-rent project can access the very generous subsidies in this bill, and I would like my amendments to be circulated now.
Greens amendments circulated by Dr RATNAM pursuant to standing orders.
Dr RATNAM: My amendments will introduce three additional criteria. Firstly, the buildings must maintain an occupancy rate of more than 90 per cent; otherwise we could easily see corporate landlords sitting on empty apartments while getting a tax exemption while their asset increases in value on their books. Secondly, there must be a commitment to affordability if public funds are subsidising these developments, so my next amendment requires the rentals to be set at rates affordable to very low, low- and moderate-income individuals and families. And finally, there is an amendment to set a rent cap. We have seen other build-to-rent projects where rents may start out fair but are quickly raised well beyond what is reasonable. We believe rent caps should be introduced everywhere, but at the very least when public subsidies are being made there is a duty to ensure they work for the public good, not for private corporate profit. This government has to remember that housing is a public service. Instead of abandoning aspiring home owners to a future of perpetual renting from mega corporate landlords, the government should be looking at how to transform our housing system to make it fairer, affordable and livable so that everyone has a place to call home.
We should be engaging in more progressive tax reform—like windfall gains taxes, like shifting from stamp duty to land tax—and we should be removing the tax incentives that make housing so expensive, like negative gearing and capital gains tax, instead of creating more.