WILL PROPERTY TAXES INCREASE?
How long can big investors enjoy small taxes?
Article originally published APRIL 13, 2004 –Reviewed and approved.
By Neil Jenman
On a cold wet January morning, more than 200 years ago, Louis XVI had his head chopped off.
Poor Louis, by all accounts he wasn’t such a bad bloke. But, as he faced the axe on that fateful day, he must have wondered what went wrong. From King of France, surrounded by luxury and opulence, to the chopping block.
What a shock. Louis barely saw it coming.
Today’s property investors are a little like King Louis – there’s a revolution brewing and most of them can’t see it. Chortling over their newfound riches and obsessed with making even more money, they are only now starting to see the rumblings of a looming revolution.
And yet, just like King Louis, the signs were always there. As more and more investors have leapt into the property market, lured by the promise of big profits for little or no effort, a large section of the community has been hurt.
First homebuyers have been elbowed aside by investors. Young couples, even those with two jobs, have found it almost impossible to buy homes that have risen in price faster than they can earn the money to buy those homes.
Today, the average wage earner cannot afford the loan repayment on the average home.
Meanwhile, many investors – and their Pied Piper property spruikers – have taunted the community by boasting about how easy it is to make huge profits. And they are still doing it.
One spruiker says he can show investors how to “generate an extra $4,000 to $5,000 a month for less than 5 minutes work”.
A New Zealand spruiker, who recently had one of his get-rich advertisements labelled “misleading and completely unacceptable”, is now claiming that investors can be “banking massive amounts of money on every deal, whether the market is going up, down or sideways” – provided, of course, that investors first pay this spiv and his cronies massive amounts of money.
One of the latest spruikers to flaunt easy wealth from property is Dymphna Boholt. “You can live the ultimate lifestyle,” she says. “Be wealthy beyond your wildest dreams.” But it’s a sure bet that the person getting most wealthy is Madam Dymphna, not most of those whose money she is stuffing in her purse for charging thousands of dollars for information that can mostly be accessed for free or from reputable writers and advisers in their books.
For years, we have been bombarded with how easy it is to invest in property, how we can make money easily – and, the most shocking boast of all, “Let the taxman pay for your investment property.”
Madam Dymphna boasts about the “tax secrets of the rich”. As a qualified accountant, she wants to teach you how to “massively slash your tax burden by 70 per cent”. All those deductions you can claim. “Once you discover the ‘do it yourself’ way to slash your taxes, you’ll have a ball making sure that nothing is left,” she brags. Nothing left for the taxman.
But the “taxman” is the community. And the community are millions of battlers working hard, paying taxes on their meagre wages, struggling to buy a home, whilst being trampled by tax savvy investors.
Nowhere in the world does the property tax system favour investors like it does in Australia.
So, is it any surprise that the NSW Government is now going to tax the profits of investors, while making it easier for first homebuyers?
And why should it be any surprise that the Productivity Commission is saying that our country’s overly-generous tax breaks should be reviewed?
Even the taxman himself has had enough. From July, the Australian Tax Office has made it clear that the depreciation rules for property investments will be reviewed. Even King Louis, as naïve as he was, would have picked up on such an obvious hint.
Just like in the years before the French Revolution, the gap between rich and poor is growing too wide. And the tax system is a major cause of this social inequity. Back in the days of King Louis, the net wages of the average worker were not enough to pay the basic living costs.
Home ownership is something all hard-working Australians should be entitled to achieve. But this great national dream has become a nightmare for millions of people – either they can’t afford to buy a home or, if they do buy, they have to struggle making enormous payments.
And so, of course, the governments should give battlers a hand. A tax system that penalises the poor and rewards the rich is not good for our country. As Melbourne University Law School Professor Cameron Rider says, the present tax arrangements are “money for jam” for investors.
Despite the denials coming out of Canberra (from both parties), that the sacred cow of property investors, negative gearing, will not be reviewed, well, that’s as believable as the claims of the typical property spruiker. The sacred cow is facing the guillotine, at least for those big-time investors who are openly chortling about how much property they own.
Take the comments of property investor, Steve McKnight. Since 1999, McKnight says he has bought more than 200 properties – many under a system known as ‘wrapping’ – a form of loan sharking. Most of McKnight’s properties have been in country towns, which, due largely to the influx of investors, has seen prices in these towns soar beyond the reach of average families.
Last week, Steve McKnight, who is from Victoria, accused the NSW Government of attempting to “steal the profits from property investors”.
“All I can say is that it is a good thing I don’t own any NSW real estate,” said McKnight. No, many of his properties are in Tasmania.
Well, the Australian Democrats are now urging the Tasmanian Government to follow the NSW housing lead. Senator Andrew Bartlett said the new method of taxation helps “dampen the rampant speculation” that has “driven up house prices more than anything else”.
Have a look at who’s doing most of the bleating about the new property taxes. It’s the large investors, their lobby groups and the myriad of people that profit from a rising property market.
The ultimate cheek is the claim that these new taxes will hurt “mum and dad investors”. One industry spokesperson said this new tax will “erode the retirement savings of 9 million Australians”. Really? There was no mention of the eight million Australians who depend on welfare payments to survive today.
As our nation’s battlers watch prices soar, their feelings of resentment grow stronger. The dream of home ownership has been stolen from many of them. And no one seems to care. To many of the big property investors of today, the battlers have become invisible.
These are the conditions that lead to all revolutions. Today, we are lucky enough to live in a more civilised country. A property revolution will not be physically violent. And, like Louis XVI, most property investors are not bad people, but are themselves hard-working who merely wish to secure their futures. Therefore, the governments will not be as hard on the ‘mum and dad’ investors as they will be on those who have been flaunting their wealth and boasting about how the taxman makes them rich.
When thinking about the new and upcoming property taxes, we should think about what happened to King Louis who believed it was his right to live in luxury and opulence with nary a thought for the less privileged.
Or perhaps, closer to home, we might consider the words of the Australian author Leonie Sandercock, who, in her book, The Land Racket, published in 1979, said, “What right does any individual have to reap huge profits from increases in land values which come about because of the general population growth and increase in city size?”
“What right do I have to such a profit? What have I actually contributed to earn it?”
Confronting questions.
As Gandhi once said, “Wealth without work is the first deadly sin.”
Soon, it will be time to share more of that wealth. The property revolution is coming.
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