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Robber Barons.

The Labor state government under John Brumby, with Justin Madden as planning minister, introduced the "Melbourne 2030 and Melbourne @ 5 Million" plan. This plan slated high density development along all train, tram and bus corridors. The goal was for population growth to occur in the existing metropolitan area and remove pressure on green areas on the outskirts of the city.

As a result, large blocks of land along main roads in Manningham suddenly found themselves having 'strategic' importance under this plan.

Three such blocks of land have been sold in the last few years. They were: The Eastern Golf Club, Lamanna Nursery and Morrison Brothers Nursery.

What made these organisations decide to sell their land and move on, all in the span of a few years?

 

Morrison Brothers Nursery.

Morrison Brothers owned around 2.8 hecares (approximately 7 acres) on Williamsons Road north of Westfield. They decided to sell up after receiving a rates bill of $12,000 and land tax bill of $88,000. (Manningham Leader 26 June 2013).

On three sides of their property are normal residential homes. What would you expect to be a reasonable rates bill for 7 acres if it had residential homes on it?

Somewhere around 30 residential homes could be placed on that land assuming quarter acre blocks or less and not taking into account land needed for an access road.

My rates bill, for a house which is very similar to those surrounding the Morrison property, is around $1,600 per annum. So for 30 such houses a figure of $48,000 would appear to be reasonable.

This assumes off course, that the Morrison property were fully developed with roads, gas, water, electricity and a quality residential on each block. However their property was not developed to that level. If you have been to this nursery you would have noticed that most of the land was open space with garden beds on it, some sheds, a fernery and an office.

So a $12,000 for council rates bill may not be excessive.

The land tax however was $88,000 and this was the problem for the nursery. If you look at the State Revenue Office land tax rates, you will notice that land tax rate increases dramatically as the value of the property increases. This sliding tax rate has a significant impact on businesses and clubs owning large blocks of land.

Land Tax for properties valued at $3,000,000 and over is $24,975 plus 2.25% of the value over $3,000,000. Doing a bit of mathematics, that means the the State Revenue office valued the 7 acres the Morrison Brothers owned at $5.8 million dollars. Which is not an unreasonable valuation.

Doing a few more approximate calculations, if we get 30 residential block on this 2.8 hectares, each block would be 900 sq. mtrs. and valued at around $193,000. As I write this land the following land is currently for sale in Doncaster and East Doncaster: 256 sq. mtrs. for $250,000; 659 sq. mtrs. for $710,000. So the valuation used to calculate land tax may not be exorbitant.

So what is wrong? The land tax rates are the problem. These rates penalize larger, more valuable properties that are used for business and clubs. Look at how the land tax rates increase with the value of the property. This table is taken from the State Revenue Office website:

Land Tax Rates

The state government may say that these businesses were driven out by rising land prices. Which is true, but is only part of the story. The state government may also say that they have decreased land tax rates over the years. Which again is true, but again is only part of the story.

First the decrease in land tax rates have been tiny in comparison to the increase in land values. Rates have decreased typically by a fraction of a percent while land values have doubled, even trebled, over the decades. It appears that the state government's priority is not to ensure the viability of businesses or clubs that have larger land holdings in the suburban areas.

Second, notice how the land rates increase ten-fold from 0.2% to over 2% in the table above. An example may help see the impact this sliding tax rate has on the tax paid.

If the Morrison Brothers Nursery were subdivided into 30 lots each at $250,000 each and land tax needed to be paid on each lot, the total land tax for all 30 lots would be $8,250 which is a far cry from the $88,000 the nursery was billed for. This difference amounts to a significant financial pressure on businesses and clubs with sizable land holdings.

The land tax rates are designed to pressure people not to have large land holdings as the value of the land increases, i.e. as the land becomes part of the built up suburbs around Melbourne. These tax rates pressure land owners to subdivide large blocks of land into much smaller block sizes and then sell off their land holdings. On the other hand, high density development, even over-development, results in smaller blocks and lower land valuations which is rewarded by significantly lower land tax rates.

I think it is clear that the state government has structured and uses it's land tax rates to further it's own interests in terms of it's strategic plan to increase population density in built up areas.

It would appear that the state government does not want businesses like the Morrisons, the Eastern Golf Club and others to continue in Manningham now that their land has dramatically increased in value. The state government uses taxation to pressure these businesses out.

 

Eastern Golf Club

I have not been able to find how much the Eastern Golf Club paid in council rates. However I read that their land sold for around $100 million.

If (and this is a big assumption) the sale value is near the valuation used by the state government to calculate land tax, the Eastern Golf Club would have paid around $2.207 million in land tax per year. And that would be a lot of money for any club to find each year.

When the club was considering selling the land, it was reported in the Manningham Leader that the club was having discussions with the council regarding their 'cost structure'.

As usual, the public was misled about the truth. Costs were a problem but it was not the costs associated with the day-to-day running of the club. This is clearly demonstrated by the fact that the Eastern Golf Club has moved to a property in the Yarra Ranges. They have enough revenue from fees and services to run a golf course successfully. The problem they had was the value of their land. Or to be more precise, the problem they had with their 'cost structure' was most likely the state government land tax.

The council (and state government) has made no attempt to hide the importance of the Golf Club's land.

"The Eastern Golf Course is a key redevelopment site within Manningham and metropolitan Melbourne. The site has an area of around 47 hectares with significant cultural and environmental values. The site is strategically located on Doncaster Road and is well serviced by a comprehensive bus network and is in close proximity to the Eastern Freeway / Eastlink, the Doncaster Hill Principal Activity Centre and a range of neighbourhood and local activity centres. The vision for the site is to create a high quality and integrated environmentally sustainable development that supports a vibrant and diverse residential community comprising a range of dwelling densities and lifestyle opportunities." (Manningham Planning Scheme, Eastern Golf Course Policy, Sect 22.17)

The land is highly desirable to the council and state government if they were to fulfill their obligations under the Brumby/Madden plan. 

 

Lamanna Nursery.

This is a lesser known nursery that was hidden away at 117 Mitcham Road. It was sold some years back. I am not aware of the circumstances surrounding the sale however it is a sizable block of land on a main road. The council did rezone their land for higher density development and construction is already underway as I write this.

 

 

So all three blocks of open land were sold and the businesses have moved on or closed down. This all happened in a span of a few years. We can be reasonably certain that at least two of these businesses were driven out by high taxation.

Is the state government driving people and businesses off their land through excessive taxation so they can use it for their own strategic purposes?

This appears to be the case.

 

25 Sep 2013.

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