Australia's Future Tax System

Consultation Paper Summary

10. Tax and transfer impacts on housing

Overview

Housing plays an integral role in Australian society. It provides a source of shelter and a base for people to participate in communities and the workforce. It is the largest store of the nation's wealth and a major source of retirement savings for home owners.

The tax‑transfer system affects the housing market through a range of taxes, concessions and transfers, which in some cases are targeted at certain housing tenures or income levels. These aspects of the system influence the type of homes people live in, the way they save and invest, including for their retirement, and the affordability of housing. Through its treatment of housing, the tax‑transfer system also delivers significant assistance to particular groups of Australians, which affects the overall equity of the tax‑transfer system.

Consultation questions

Q10.1 What should be the objective of the tax‑transfer system in respect of housing? Should there be assistance for housing over other assets or services? Should assistance be based on housing tenures? Should assistance be focused on people on low incomes? Should assistance differ between public and private tenants?

Q10.2 What role, if any, should the tax‑transfer system play in respect of housing affordability? Should the tax‑transfer system be used to influence housing supply and/or demand to improve housing affordability? What changes, if any, should be made to housing‑related transfers that assist disadvantaged households to find housing?

Q10.3 Recognising the influence that some taxes and transfers have on the use of housing and residential land, what changes, if any, should be made to ensure the housing stock and residential land are used efficiently?

Key messages from submissions

Some submissions support tax‑preferred treatment of housing because of its social benefits. Others argue on equity grounds that housing should be taxed like other assets.

Submissions contain mixed views about whether property owners are paying a 'fair share' of tax. Several note that housing is subject to many taxes at all levels of government and claim that the sector is over‑taxed. Others argue that housing is favourably treated.

There is some concern that the principal residence from CGT encourages excess investment in housing. A number of submissions also question the land tax exemption for the family home, noting the significant narrowing of the potential tax base that this creates and expressing concern about equity between owner‑occupiers and renters. A number of submissions suggest that land tax encourages high‑value, commercial developments.

Other submissions claim that private rental investment is advantaged because of access to 'negative gearing'. Some submissions suggest that negative gearing for investors and owner‑occupiers' exemption from CGT benefit higher income Australians. Others argue that negative gearing supports the provision of affordable rental housing.

A number of submissions claim that negative gearing has reduced housing affordability by causing speculation in the housing market. Several submissions propose restricting negative gearing or directing it so that it promotes the supply of affordable housing. The housing industry argues for the retention of negative gearing on the grounds, inter alia, that the temporary removal of negative gearing lead to an increase in rents in 1987.

Developers and the construction industry argue that taxation is an important contributor to high housing prices. GST, developer charges and stamp duties are claimed to have increased strongly over the past 10 years. Some submissions argue that 35 per cent of the cost of broad acre development in north‑western Sydney is attributable to these taxes and charges. Other submissions suggest that tax plays relatively little role, arguing that recent low affordability is attributable to economic fundamentals boosting demand and institutional arrangements constraining supply.

Some submissions claim that investors have enjoyed systemic tax advantages and that this has decreased affordability for owner‑occupiers. Submissions raise concerns about housing affordability for low‑income renters, citing the level of Rent Assistance compared to the costs of renting, including variable rents in different parts of the country.

In terms of the transfer system, a number of submissions suggest that pensioners who own their own home are more favourably treated. Several submissions argue low‑income renters receive payments that are too low and do not keep pace with growth in rents.

Stamp duty is claimed to discourage people from relocating and to be unfair and inefficient. A number of submissions estimate the efficiency costs of state taxes, finding stamp duty to be among the least efficient and land tax among the most efficient. Many submissions propose abolishing stamp duty, perhaps replacing it with a modified land tax.