Many property owners face higher land tax bills - and every NSW property will have its value re-assessed - after an Ombudsman's report attacked a culture of bodgie valuations and cost cutting which has resulted in 650,000 properties being under-valued. Despite widespread criticism that the Valuer General had routinely inflated land values, the report actually found 80 per cent of errors were linked to properties being under-valued. About 35 per cent of 2.4million valuations investigated contained errors more than 15 per cent outside a proper valuation. However, the report may trigger a windfall for the cash-strapped State Government, which last year collected more than $1.3billion in land tax. The office of the Premier and Treasurer, Morris Iemma, was studying the report last night for budget ramifications. A spokesman for Mr Iemma, Ben Wilson, said it was too early to determine the precise fallout but added: "Obviously, if some properties are being under-valued [for land tax] this will have budgetary implications." The 1.7 per cent land tax is levied on residential investment properties and all commercial and industrial properties. However, from January a $330,000 tax-free threshold will be reinstated, meaning 350,000 property owners will escape the tax. In his special report to Parliament, the Ombudsman, Bruce Barbour, criticised almost all aspects of the land valuation process, saying no uniform standards applied. The report found the Valuer General's office failed to take enough time to check the accuracy of valuations made by contractors, which led to "an unacceptable risk of error". As a result, 35 per cent of valuations had a margin of error of more than 15 per cent. One in 10 valuations had discrepancies of more than 40 per cent, with 20 per cent of all errors involving over-valuations. Mr Barbour said it was likely the mass under-valuation meant land tax would rise but "people wanted to have a fair system in place". "People will have more confidence in the system, it will be fair and they will know it's a much more reliable valuation when they get it," he said. The errors had occurred because the Valuer General had failed to hold a systematic review of baseline valuations for 16 years, despite international standards recommending reviews every six years. Mr Barbour said a property-by-property review was "well overdue". The investigation also revealed a quarter of all objections to valuations had been upheld. "This reflects poorly on the general standard of accuracy currently being achieved through the mass valuation process," he said. Mr Barbour also criticised the objection process for not giving property owners clear guidelines on how to lodge a complaint, although he said the overall complaints handling procedure was fairer than many critics had suggested. The Valuer General, Philip Western, said he had accepted all the Ombudsman's 38 recommendations, and some changes had already been introduced. "The valuation system is sound but there needs to be more checks and balances and I'm in the process of implementing that." Mr Western said only 1 per cent of the 2.4 million valuations were contested each year. The Leader of the Opposition, Peter Debnam, said the report proved the system was flawed. "The Ombudsman has pointed out time and time again the land tax valuations were inaccurate." Unsound land valuations affect councils - and council rates - as well as individual property owners. Earlier this year, Hornsby Council was forced to buy a quarry it valued at $3million but the Valuer General said was worth $26million. Hunters Hill Council had a similar problem when a small piece of waterfront land was valued at $2.5million. The council expected it to be worth $1million, took the case to the Court of Appeal but lost. HOME TRUTHS - The worst-hit areas North Sydney: Valuations out by more than 25% on 44.1% of sales, and by more than 40% on 23.5% of sale