Last week Treasurer Troy Buswell’s State Budget announcements resulted in an anticipated surplus of $386 million for 2013-14 followed by a deficit of $147 million in the 2014-15 financial year which some have speculated may affect the State’s AAA credit rating.

Highlights from the State Budget released last week include:

• an increase in land tax rates
• payroll tax relief for small businesses
• deferral of the abolition of duty on non-real business assets
• farming project and regional community assistance
• school fee charges for children of 457 visa holders
• motor vehicle registration fee discounts halved; and
• a new housing supply package for first home buyers

Land Tax – Increase in rates

The Budget includes a 12.5% increase in land tax rates across the board primarily affecting property investors, superannuation funds investing in property and commercial tenants. The new land tax scales are shown below.

Land tax scales in the 2013-14 budget  

                                                                2012-13 Scale   2012-13 Scale  2013-14 Scale  2013-14 Scale  
                                                                Tax at                Marginal Rate  Tax at              Marginal Rate  
Threshold                                                Threshold          on Excess         Threshold       on Excess
 $                                                              $                        %                      $                     %  
     300,000                                                        0                  0.09                          0              0.10
  1,000,000                                                    630                  0.47                      700              0.53
  2,200,000                                                 6,270                  1.22                   7,060              1.37
  5,500,000                                               46,530                  1.46                 52,270              1.64
11,000,000                                             126,830                  2.16                142,470             2.43

Using a landholding with an unimproved value of $1 million as an example, land tax payable in Western Australia would rise from $630 to $700.

This measure is expected to raise $73 million in 2013-14 and total land tax revenue of $338 million over the four years to 2016-17. Despite the increase, land tax in Western Australia will remain significantly below that of other jurisdictions.

The majority of taxpayers will experience only a modest increase in their land tax bills as a result of this change. For around 80% of land tax payers, the increase will be no more than $70 per annum, with just over half expected to incur an increase of $30 or less per annum.

Payroll Tax – Increase in threshold

The Budget includes payroll tax relief for small businesses, which will see the payroll tax exemption threshold increase from $750,000 to $800,000 from 1 July 2014 and then $850,000 from 1 July 2016.

Using a business with taxable wages of $850,000 as an example, payroll tax savings of $2,750 would result in the 2015 and 2016 financial years and an additional $2,750 would result in the 2017 financial year.

This increase in the exemption threshold is expected to benefit more than 16,000 employers at a cost of $121 million over four years.

Payroll tax scales in the 2013-14 budget             2013-14     2014-15      2015-16      2016-17 
Payroll Tax Exemption Threshold ($)                  750,000     800,000      800,000      850,000
Payroll Tax Rate (%)                                                       5.5             5.5              5.5              5.5

Transfer Duty – Deferral of the Abolition of Duty on Non-Real Business Assets

On 15 May 2013, the Government announced that it was deferring the abolition of duty on non-real business assets (which was due to be abolished from 1 July 2013) until the cost of its abolition could be better accommodated in the State’s Budget.

The Parliament of Western Australia has since passed legislation to implement this measure. As a result, duty continues to be payable on the transfer of non-real business assets, which include goodwill, intellectual property and statutory business licences.

This measure is expected to raise $125 million in 2013-14 and total revenue of $527 million across the four years to 2016-17.

New South Wales, Queensland, South Australia and the Northern Territory have also announced the deferral of the abolition of this duty.

Farming Projects and Regional Community Assistance

The Royalties for Regions program will now fund around $300 million for farming projects. In addition to agricultural projects, funding will also be allocated to regional community, health, education, training and infrastructure initiatives over the next five years.

School Fees for Children of 457 Visa Holders

Parents working in WA on 457 visas, will be forced to pay $4,000 a year for each child to attend a public school.

The number of dependents of 457 visa holders attending government schools has increased significantly from 290 in 2005 to 8,600 in 2013, imposing substantial pressure on the State’s education system. This measure will raise an estimated $17 million in 2013-14 and total revenue of $120 million over the next four years.

This new measure has sparked fears that those students may desert the public system in favor of private schools as the fee gap between the two systems narrows. This change has also raised concerns that international work talent will look for employment elsewhere due to these increased living costs. Businesses will also need to be aware of this change where they choose to fund these costs for their employees.

Other States have also introduced similar fees.

Motor Vehicle Registration Fees – Halved Discount for Private Vehicles

From 1 January 2014, private motor vehicle registration fees will be halved from $72 to $36. This concession is currently available to anyone who nominates that their vehicle is used solely for non-business purposes.

In spite of this measure, Western Australia will continue to have the lowest vehicle registration fees and compulsory third party premiums (combined) of any jurisdiction. This measure is estimated to save $21.2 million in 2013-14 and raise $155.3 million over the next four years.

First Home Owners Grant

The Government will re-target the First Home Owner Grant to encourage first home buyers into newly constructed homes, by increasing the current grant from $7,000 to $10,000 for first-time buyers of new homes. At the same time, the grant will be reduced to $3,000 for first-time buyers of established homes. 

Providing a higher First Home Owner Grant for new homes is expected to increase housing supply as first home buyers will have a greater incentive to build rather than purchase an established home.

These changes are intended to take effect from 15 September 2013.

Post Budget Announcement – Households with Solar Panels and the Reversal of the Tariff Reduction

The State Government’s decision to reduce the residential net Feed in Tariff for rooftop solar panels was reversed in Monday’s State Cabinet meeting (12/08/2013) following intense public backlash.

The feed in tariff paid to households with solar panels will now remain at 40c per KW.