We have long known the prickly issue of housing affordability will be a focus of the Federal Budget on 9 May 2017. The Treasurer last year tasked the House Standing Committee on Economics to conduct an inquiry into home ownership – however it’s December 2016 Parliamentary report failed to make any formal recommendations and supported no changes to negative gearing and the CGT discount.
In recent months, the Treasurer has made two landmark addresses; the first to the Urban Development Institute of Australia last October which examined the affordability of home ownership, and the second to the Australian Housing and Urban Research Institute in April to more clearly set out the issues and challenges in the housing sector. This latter speech highlighted the Federal Government’s focus on supply, with particular attention placed on social, disability and affordable housing programs rather than first home buyers.
Recently both the Treasurer and Prime Minister have played down announcements on housing affordability despite the Treasurer previously saying there will be a “very strong focus” on housing affordability and “it won’t just deal with the challenges faced by first home owners”.
The reality is first home buyer issues cannot be “miraculously fixed” by the Federal Government. Most of the levers in respect of supply such as land access, planning, development charges and stamp duty relief are in the hands of local and state governments. Monetary policy (or interest rates) is in the hands of the Reserve Bank of Australia and the Australian Prudential Regulation Authority has a regulatory role on investor loans and risks to the financial system. Any national solution put forward by the Federal Government will also affect housing sectors in markets other than Melbourne and Sydney and must be considered carefully.
Nevertheless, possible tax options may include:
- Lowering the CGT discount or limiting negative gearing deductibility – although in the past the Federal Government has rejected these options
- Encouraging saving possibly through a pre-tax savings account or tax free interest savings account
- Providing early access to superannuation – although in the past the Federal Government has rejected this option
- Incentives for older people to sell homes and not impact aged pension entitlements
- An empty premises tax and/or more foreign investment controls (we note an Empty Premises Tax has been announced by the Victorian State Government).
Our Mythbusting tax reform publication previously considered that a reduction in the rate of the CGT discount and/or a tapering of the discount according to the length of ownership are both sensible options open to the Federal Government.
A lower discount would remove some of the bias in the current CGT regime while still providing a benefit to those who save for the long-term. Plus it maintains the relative simplicity of the discount compared with the previous indexation approach. A tapering approach would also provide a benefit to those who invest and save for the long-term.
But we note, the Henry Review advised Federal Government back in 2009 that in markets facing supply constraints, reforms to investor tax settings could place further pressure on the availability of affordable rental accommodation. The review recommended investor tax “reform should only be adopted following reforms to the supply of housing and reforms to housing assistance”.
We therefore expect supply and support for social housing will be the priority areas of government announcements in this year’s budget. Adjusting the CGT discount, whilst sensible tax design may have to wait for future budget cycles.
Peter McFarlane is an account director in Deloitte’s Tax Insights & Policy Group, Peta has more than 25 years experience in the Taxation arena. Her current role includes writing/reviewing our taxation publications and thought leadership, tax related practice projects, and more.
David Watkins is a Partner at Deloitte in charge of tax policy and insights. He has worked in corporate and international tax for 25 years and his various roles have included secondments to Malaysia, Singapore and New York.
Roisin Arkwright is an experienced Chartered Tax Adviser (CTA) with over 22 years Big 4 experience in London and Sydney with a focus on tax technical policy issues, technical writing and training development roles.
Article originally published by Deloitte and has been republished on GovNews with permission.
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