Robin Hood taxes are invariably bad

There is a reason Robin Hood remains such a popular character.

On the surface, his strategy of robbing the rich to give to the poor seemed a great idea – and perhaps it was in the days of serfs and lords when there was severe disadvantage and wealth disparity.

The problem is that when you translate the deeds of Robin Hood into taxation policy you almost always end up hurting the poor much more than the rich.

A great example is the Victorian Government’s $800 million Social and Affordable Housing Contribution – a tax on property developers, which will be used to fund an extra 1,700 social and affordable homes a year.

Will the wealthy really pay?

On the surface it has its attractions – a small group of seemingly wealthy developers get slugged in the wallet and a whole group of low-income earners are assisted into housing.

The problem is that this is not what will actually happen when the new levy comes into play from July 2024.

As their name suggests, property developers are businesses which build real estate that is sold to customers.

The price of the tax will not stay with the developers, they will simply and inevitably build that cost into the price of the houses or apartments sold.

Bottom rung of the housing ladder gets more expensive

So, the immediate effect is that the price of units in new developments with three or more dwellings will rise – making it harder for buyers to get on to what is now the cheapest part of the property ladder.

Many of these buyers are low and middle-income households as well – they need housing because there has been about 30 years of government under-investment in social housing and inadequate maintenance of existing social housing.

Quite simply, the private real estate or rental market is the only realistic choice for very large sections of the community – the waiting lists for public housing are simply too long.

The cheapest part of the private real estate or rental market is the apartment market, which is specifically targeted with this tax.

Making that market more expensive for owners and landlords inevitably means higher costs for those that can least afford them.

Building taxes into loans compounds the problem

Making the problem even worse, those who do scale this extra barrier to home ownership will then have a larger mortgage than they otherwise would, adding years of extra costs plus compound interest well into the future.

That is already the case with stamp duty – an unreformed and relatively unindexed tax that imposes massive and increasing burdens on home buyers.

Another very damaging issue with this and the many other piecemeal Robin Hood taxes that have been introduced is that they have a very narrow base.

A narrow tax on just four ‘towns’

A broadly based tax such as the GST which raises around $70 billion a year would only need a tiny percentage change to raise this sort of money because it is spread so widely.

By contrast, this tax is very narrow and specific which is why it is a massive 1.75% on the total value of developments.

It also only applies in Melbourne, Geelong, Bendigo and Ballarat, which is bizarre but will produce the maximum funds raised with a minimum of effort, which is probably the main reason for the limited application.

Property ownership is now intrinsically linked with many such narrow and nasty taxes such as endlessly rising and unindexed stamp duty and a welter of taxes on leaving properties vacant such as the vacant residential land tax (Melbourne only), land tax, the absentee owner surcharge and the federal annual vacancy fee.

Developers and land owners have also been hit by the windfall gains tax, under which those who make “windfall gains’’ when their property is rezoned will be hit with a startling 50% tax if the gain is worth $500,000 or more from July 2023.

It is worth noting this tax is separate from and effectively in competition with federal capital gains tax, which would also apply on such a gain.

Another Robin Hood tax was the mental health levy announced in last year’s Victorian state budget, which charges businesses with more than $10 million in wages a 0.5% levy.

It is set to raise more than $800 million over four years, with the money destined for mental health.

Strong disincentive for councils to host social housing

Another bad feature of the latest Social and Affordable Housing Contribution tax is that as part of it, the Victorian Government has decided to stop paying rates on all of its stock of social housing.

It has simply decreed that social housing properties will be exempt from paying rates – the same as hospitals and schools – with the change to be phased in over four years from July 2023.

This is effectively stealing revenue from a different level of government – local government – and will hit some councils which include a large stock of social housing particularly hard.

Those councils still need to provide services for the people who live in their area, but will now be denied any revenue from a large chunk of them.

Bizarrely, this change will provide a very strong disincentive for any council to want to house any new social housing developments.

Andrews Government has form for diverting tax revenue

That is perhaps to be expected given that Victoria’s Andrews Government has proved very adept in grabbing tax revenue from other levels of government.

That is why it controversially decided to start directly taxing, and thereby discouraging, electric cars – noting that such cars don’t contribute to road funding, which is collected through fuel levies by the Australian Federal Government.

Without any further action that means that over time as electric cars become much more common, the Victorian Government will have effectively diverted a federal tax to its own coffers.

No sign of much needed tax reform

When the GST was introduced, we were promised that a raft of narrow and nasty state government taxes would be scrapped and some of them were – most notably the bank account taxes on transactions.

It is frustrating to now see such a welter of new, poorly designed and implemented taxes being introduced to ostensibly pay for services which are really standard obligations for state governments like mental health or social housing.

At the very least there should be another far-reaching round of tax reform to eradicate many of these taxes and reduce Australia’s over-reliance on income and company tax, although don’t hold your breath waiting to hear about tax reform in the looming federal election.