Tax reforms will boost housing
Australia's housing affordability crisis would be eased by implementing some of the key recommendations of the Henry Review into Australia’s tax system, a seminar will be told this week.
The recommendations to change the way in which land tax is levied and the introduction of a 40 per cent savings income discount could help ease Australia’s critical housing supply shortage by boosting the construction of rental homes, according to Australian Housing and Urban Research Institute (AHURI) researcher Gavin Wood.
Prof. Wood will present his research at a seminar in Melbourne tomorrow (Thursday) as new data show private landlords in Melbourne have been earning returns of up to 18 per cent a year on rental properties - compared with 7 per cent returns achieved by super funds and 12 per cent by companies.
Prof. Wood has analysed the impact of the Henry Review’s recommendations on housing supply and affordability.
'Overall, the Henry recommendations should produce more equity. But the net effect would probably be just tinkering at the margins rather than a radical altering of the distribution of tax subsidies,' Prof. Wood said.
'The reforms will produce more equitable outcomes but because Henry hasn’t tackled the principle sources of tax subsidy, the present inequitable tax arrangements will remain in place.'
Prof. Wood said important parts of the Henry Review recommendations would lead to efficiency gains which will in themselves encourage the supply of affordable housing.
'Reducing the savings income discount will make for a more stable and resilient housing market and Henry’s recommendations on Commonwealth Rent Assistance are quite radical.'
He recommends removing eligibility for the CRA from a potentially large number of households – those who qualify because they receive only Family Tax Benefit Part A at more than the base rate and no income support payment. But he also recommends changes to the maximum thresholds for the CRA which would mean pensioners, disability pensioners and those on allowances would get more CRA if they were renting.
'Of course the losers would be some of those receiving a family tax benefit,' said Prof. Wood of the AHURI RMIT Research Centre.
He said the net effect of these reforms would be that those currently negatively geared would face an increased tax burden while equity financed landlords, with little or no debt, would be considerably better off under the savings income discount.
The overall impact on the supply of affordable housing depends on the number of negatively geared landlords.
'We believe the number is somewhere between 30 per cent and 40 per cent but there is uncertainty about this figure. The figures on rental returns are contained in a report commissioned by the Victorian Department of Human Services released this month.' Prof. Wood’s research will be revealed at a seminar in Melbourne on Thursday morning 17 March at Zinc @ Federation Square.
Background
Three main recommendations of the Henry Review in relation to housing:
- Reducing the attractiveness of negative gearing by reducing the savings income discount from 50% to 40%.
- Abolishing stamp duty and levying a broad-based land tax on property, including homes.
- Indexing the Commonwealth Rent Assistance to rental market shifts.
Additional information
Media contact: Laurie Nowell - 0467 073 132.
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