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Housing; land

- eg, stamp duty; land tax; negative gearing; council rates; first home saver accounts; rental affordability   scheme
- see also Assets; Capital gains; Estates

Taxes on land rent

David Ingles, Tax and Transfer Policy Institute, Crawford School of Public Policy (September 2016). There is increased interest in land taxation in Australia and internationally, as reflected for example, in the Henry report on tax reform in 2010 and the UK Mirrlees Report in 2011. This interest stems from the immobility of land as a factor of production, which stands in contrast to other factors such as capital and labour. Logically, immobile factors can be taxed more heavily and with less efficiency cost than mobile ones. The interest in land taxation revisits the work of the 18th century reformer Henry George but in fact has antecedents going back to Ricardo and before. By making land more expensive to own, we can (somewhat paradoxically) make it cheaper to buy. At the extreme a 100 per cent tax on land rent reduces the capital value to the annual rental value; that is, to around 3-5 per cent of the untaxed value. A 5 per cent tax reduces the capital value of land by half, and a 1 per cent tax reduces it by 17 per cent. However the lump-sum nature of land taxes – and their high visibility to taxpayers – makes them politically very difficult to raise. The theoretical revenue available, which is one-third to one half of all Commonwealth tax revenue, may be practically unavailable.


Switching Gears: Addendum II – Why house prices won’t crash

The McKell Institute (May 2016). The McKell Institute’s Switching Gears report into negative gearing, released in June 2015, recommends a discontinuation of negative gearing allowances for existing housing stock, and a grandfathering of current allowances for those who are already negatively geared. Under
this proposal, negative gearing would still be allowed for newly constructed properties. These recommendations have since been adopted by the Federal Opposition in its housing affordability platform. Opponents of the changes have argued that under this proposal property prices would fall, thereby ensuring that the overall wealth of the 67 per cent of Australians who own property will decrease.
The McKell Institute has commissioned economic modelling to determine the likely outcomes in the property market if policy settings were left unchanged; and if policy settings were updated to reflect the recommendations originally tabled in Switching Gears. This addendum finds that over a 10-year period, house prices will continue to grow under both current settings and the proposed changes.
This report finds that under current arrangements, house prices across Australia’s 8 capital cities are forecast to grow at 3.09% per year, while under the proposed changes, house prices are also forecast to grow, albeit at a more modest 2.60 % per year across the same 8 cities.


The case for tax reform: stamp duties and land tax

ACOSS (April 2016). The reform proposed by ACOSS is to move away from reliance on stamp duties on property transactions for State and Territory revenue, and to move towards reliance on a well-designed broader land tax as a revenue base for States.


Hot property: negative gearing and capital gains tax reform

John Daley and Danielle Wood, Grattan Institute (April 2016). Long overdue changes to negative gearing and capital gains tax would save the Commonwealth Government about $5.3 billion a year. The interaction of a fifty per cent capital gains tax discount with negative gearing distorts investment decisions, makes housing markets more volatile and reduces home ownership. The two measures in combination allow investors to reduce and defer personal income tax, at an annual cost of $11.7 billion to the public purse. Other taxes, which often drag more on the economy than a capital gains tax does, must be higher as a result. And like most tax concessions, these tax breaks largely benefit the wealthy.


Distributional modelling of proposed negative gearing and capital gains taxation reform

Ben Phillips, Australian National University (February 2016) Around 330,000 persons included capital gains in their taxable income where a 50 per cent discount was applied.
Australian taxation law allows investors (including rental investors) to offset the losses from negative gearing against their other income, not just their rental income as is the case in some other countries. This effectively treats rental losses in the same way a tax deduction or business income loss would be deducted against other income.
A separate, although often related element of taxation law is that capital gains, once an asset is offloaded, are halved before being counted as taxable income. This provides a significant concession relative to other forms of income.
The Federal Opposition have proposed a number of new policies that would alter the taxation law in these areas and this research attempts to understand the distributional consequences of such changes.
For negative gearing the Federal Opposition proposes to quarantine negatively geared investments to newly constructed dwellings only. Negative gearing would no longer be allowed for existing dwellings or a range of other investment classes. There are a number of exemptions in this policy though for business investment classes.
They also propose to reduce the concessional treatment of capital gains taxation from 50 per cent to 25 per cent. The existing concessional treatment for small business and superannuation would not change.
The analysis here is considered over the ‘long run’ and does not attempt to model behavioural changes such as investors changing their investment portfolios, carrying losses forward or altering their taxation affairs and behaviour to minimise the impacts of these policies. As such we expect these estimates are upper limits with regard to total impacts for the policies modelled. The general pattern of the distributional modelling should not be greatly affected.


Capital Gains Tax main residence exemption

Matt Grudnoff, The Australia Institute (January 2016). The largest tax concession in Australia is the capital gains tax (CGT) exemption for the main residence. Last year it cost the budget $46 billion and is predicted to cost the budget $189 billion over the next four years. Each year the cost of the CGT exemption on for the main residence costs the federal budget more than Defence, Education or Medicare.

With the government looking for budget savings that do not disproportionately impact low income households, it is appropriate to look at this very large tax concession.


Property Taxes

John Daley and Brendan Coates, The Grattan Institute (July 2015). Property Taxes, the second working paper in The Grattan Institute’s Budget Repair series, finds that a levy of just $2 for every $1000 of unimproved land value would raise $7 billion a year with an annual charge of $772 on the median-priced Sydney home, $560 on the median-priced Melbourne home, and lower average rates in other cities and the regions.
Shifting from stamp duty to a property levy would provide more stable revenues for states and add up to $9 billion in annual GDP.


Submission to the Inquiry into Home Ownership

Matt Grudnoff, The Australia Institute (June 2015). Housing affordability is a complex issue with many moving parts. While some parts of the problem are beyond the domain of the federal government, in particular the supply of land, the federal government can play an important role in helping make housing more affordable.


Moving Beyond Mansion Tax

India Keable-Elliott, Tom Papworth, Tom Frostick and Nikki Stickland, CentreForum (May 2015). This report argues that the Council Tax band system in Britain should be abolished and replaced with a flat rate levy set by individual local authorities. Revenue from homes valued at £2 million or below would be retained by councils to pay for local services, while revenue from properties worth more than £2 million would be pooled and distributed nationally.
The flat rate levy would end the regressiveness of the current Council Tax regime which, among other things, sees the lowest value properties charged the same amount of tax as the highest value homes in each band. The change would also strengthen the link between taxpayers and local services and be a fairer way of rebalancing UK property taxation than an annual Mansion Tax on £2 million homes.


Three solutions to housing affordability other than get a good job

Matt Grudnoff, The Australia Institute (June 2015). While the public are rightly outraged at the callous tone of the Treasurers ‘get a good job’ remarks in response to housing affordability, economists should be equally disturbed about the bizarre logic behind the government’s approach to the issue.


The Stabilisation Properties of Immovable Property

Hansjörg Blöchliger, Balázs Égert, Bastien Alvarez, Aleksandra Paciorek, OECD (29 May 2015).  This paper contributes to the scarce literature on the macroeconomic effects of property taxes, in particular on the relationships between property taxes, house prices and the wider economy. The paper first estimates a fiscal reaction function which analyses the reaction of property tax revenues to house prices. It then analyses a house price reaction function looking at the relation of how house prices react to changes in property taxes. For a set of OECD countries, the results suggest that property taxes tend to be a-cyclical or slightly pro-cyclical. They provide a stable revenue source for sub-central governments but do not stabilise the economy. The results also suggest that an increase in property tax revenues or in the tax revenue-to-GDP share slows down house price increases and that higher property taxation tends to reduce house price volatility.


Who’s getting negative? The benefits of negative gearing by federal electorate

Matt Grudnoff, The Australia Institute (April 2015). While a large number of people take advantage of negative gearing for residential investment properties in Australia, the majority of the benefits are more narrowly focused. A previous paper by the Australia Institute looked at how the benefit of negative gearing was distributed by income and aged groups. It also looked at how negative gearing and the capital gains tax discount was distorting the property market. This paper will focus on the geographic distribution of negative gearing by federal electorates.
An analysis of the data shows that taxable income and the proportion of people undertaking negative gearing are correlated. As income increases so does the number of people undertaking negative gearing. Taxable income and net rental loss are also correlated. As income rises the amount deducted because of negative gearing also rises.


Fuel on the Fire: Negative Gearing, Capital Gains Tax and Housing Affordability

ACOSS (April 2015).  A vital goal for tax reform is to improve the affordability of housing. Australia has among the most expensive housing in the world. From 2002-12, average prices rose by 92% for houses and 40% for flats while average rents rose by 76% for houses and 92% for flats – well above the CPI.

The high cost of housing is caused by too much demand chasing too little supply. Since 2000 there has been an explosion of rental property investment. From 2000 to 2013 lending for investment housing rose by 230% compared with a rise of 165% in lending for owner occupied housing. But instead of improving affordability, it has made matters worse: Investors are bidding up the price of existing homes without building enough new ones.

Tax breaks for housing are not the only cause of high housing costs, but they are an important one. This report focusses on negative gearing arrangements and the 50% discount on Capital Gains Tax for investors. It explains how these tax breaks work, who benefits, how much they cost, and their impact on housing markets and the economy. It proposes reforms to improve fairness and efficiency of federal tax support for housing.


Submission – Senate Inquiry into Affordable Housing

The Australia Institute (March 2014). The Australia Institute’s submission addresses the effect of policies designed to encourage home ownership and residential property investment. More broadly this submission focuses on the theme of housing equality and examines the inequality that exists between generations and income groups. In doing so it considers the impact of not having a long-term, national affordable housing plan.


Congress Should Phase Out the Mortgage Interest Deduction

Eric Toder, Urban Brookings Tax Policy Centre (March 2014). The mortgage interest deduction is one of the most expensive federal tax preferences. Supporters claim it stimulates homeownership, which creates broad benefits to society beyond the benefits received by owners. But the case for these external benefits is unproven and the deduction is an ineffective way to promote homeownership. Instead, it provides an incentive for middle-income and upper income people to acquire larger and more expensive homes than they otherwise would. A uniform credit for interest or first home purchases would be a more effective subsidy for homeownership. The deduction, however, should be phased out gradually to minimize market disruption.


New Perspectives On Homeownership Tax Incentives

Amanda Eng, Benjamin H. Harris, C. Eugene Steuerle, Urban Institute and Brookings Institution Tax Policy Centre (January 2014). This report presents three tax reforms designed to promote homeownership through a channel other than the deductibility of mortgage interest. These reforms include a first-time homebuyer tax credit, a refundable tax credit for property taxes paid, and an annual flat amount tax credit for homeowners—all paid for by limiting current tax expenditures for housing. Although far from perfect, these reforms would provide a more efficient and equitable allocation of housing subsidies. Our simulations show that relative to existing incentives, each policy would raise home prices and make the tax code more progressive.


Residential Property Taxes in the United States

Benjamin H. Harris and Brian David Moore, Urban-Brookings Tax Policy Centre (November 2013). This brief presents an overview of residential property taxes in the United States. The brief considers recent trends in aggregate property tax revenues and examines the property tax at the county level. Property taxes are an important source of revenue for local governments, though effective property tax rates vary substantially by state and region. The counties with the highest property tax burdens tend to be in New York and New Jersey, while the counties with the lowest property tax burdens are located in Alabama and Louisiana. Most counties levy property taxes that are around $1,000 per homeowner and below 1 percent of house value.


Submission to the Work and Pensions Committee’s inquiry on support for housing costs in the reformed welfare system 
Stuart Adam, James Browne and Robert Joyce (September 2013).  This paper focuses on the likely effects and merits of the specific reforms introduced under the current UK government, which include changes to the local housing allowance, uprating of local housing allowance rates capped at CPI inflation, cuts to housing benefits for working-age tenants ‘under-occupying’ social housing, the benefits cap, and the localisation and funding cut for council tax support.


Renovating Housing Policy Jane-Frances Kelly, Grattan Institute (October 2013).  Housing policy in Australia is overdue for a major renovation. Government tax and welfare policies, by favouring homeowners and property investors over people who rent, are increasing the divide between Australians who own housing and those who do not. The divide is income-based and it is generational. While home ownership is stable or declining slightly in Australia, there are sharp falls in ownership rates among households with low incomes or aged under 45. This report quantifies major government outlays on the private housing system to reveal the cumulative impact of tax and welfare policies on housing, economic productivity and inequality in our cities.

 

 


Submission to the Work and Pensions Committee’s inquiry on support for housing costs in the reformed welfare system 
Stuart Adam, James Browne and Robert Joyce (September 2013).  This paper focuses on the likely effects and merits of the specific reforms introduced under the current UK government, which include changes to the local housing allowance, uprating of local housing allowance rates capped at CPI inflation, cuts to housing benefits for working-age tenants ‘under-occupying’ social housing, the benefits cap, and the localisation and funding cut for council tax support.


New Estimates of Tax Reform’s Effect on Housing Prices

Benjamin H. Harris, The Urban Institute and Brookings Institution Tax Policy Center (September 2013).  The impact of tax reform on housing prices has traditionally been studied by examining the user cost of capital – the after-tax cost to the homeowner per unit of housing. This brief summarises findings from a new “discrete period” approach which considers the time element of housing investment and accounts for one-time transaction costs, such as transfer taxes, settlement fees, and realtor commissions. Under this framework, tax reform yields much smaller estimated house price declines and some reforms are estimated to actually boost housing prices.


Henry on housing: the Australia’s future tax system reports
Shelter NSW (24 September 2010).  An analysis of the Henry Tax Review recommendations regarding housing and the outcomes of the Government’s possible responses to them.


Issues from the Henry report on Australia’s future tax system for housing policy
Craig Johnston, National Shelter (15 Dec 2010).  A report reviewing aspects of the Henry Tax Review in relation to Housing, as a discussion point in the leadup to the National Tax Forum in October 2011.


Jobs Australia’s Statement of Reform Priorities
David Thompson (September 2011).  Jobs Australia’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.


Taxation of Native Title and Traditional Owner Benefits and Governance Working Group Report to Government
Australian Government Treasury (July 2013)

The Taxation of Native Title and Traditional Owner Benefits and Governance Working Group was established to examine existing arrangements for holding, managing and distributing land related payments, and to identify options to strengthen governance and promote sustainability. Its particular focus was on the tax treatment of current arrangements and of proposed options for holding, managing and distributing land related payments.


Tax Reform, Transaction Costs, and Metropolitan Housing in the United States
Benjamin H. Harris, Tax Policy Center (June 2013)

This study analyses the effect of tax reforms on housing prices in selected cities in the US. Using a model that incorporates transaction costs, the study finds (1) the president's proposed limit on itemized deductions would have a minimal impact on housing prices; (2) eliminating itemized deductions altogether would cause housing prices to fall markedly; (3) limiting the mortgage interest deduction while providing a flat closing credit can boost housing prices; and (4) the higher 2013 tax rates are unlikely to substantially boost housing prices. Together, these findings suggest that plausible tax reforms will have only a modest impact on housing prices.


How Would Reforming the Mortgage Interest Deduction Affect the Housing Market?
Margery Austin Turner, Eric Toder, Rolf Pendall, and Claudia Ayanna Sharygin, Tax Policy Center (26 March 2013)

Opponents of MID reform warn that reducing the deduction would undermine the value of owner-occupied homes and impede the recovery of the depressed housing market. The best available evidence predicts far less dire effects and suggests that some reforms could actually bolster the housing market recovery. However, the results are far from definitive.


Options to Reform the Deduction for Home Mortgage Interest
Amanda Eng, Harvey Galper, Georgia Ivsin, Eric Toder (March 2013)

Taxpayers can currently deduct interest on up to $1 million in acquisition debt used to buy, build, or improve their personal residences and interest on up to another $100,000 of home equity loans. This brief estimates the effects on revenue and the distribution of the tax burden of proposals that would replace the current mortgage interest deduction with a non-refundable interest credit of either 15 or 20 percent of interest and reduce the ceiling on the amount of all eligible mortgage debt to $500,000.


Sharing the Wealth of the Lucky Country: What This Means for Housing
Judith Yates (April 2012)


Fair Share: The Tax Edition
VCOSS (September 2011)

Outlines how tax can change the way disadvantage is caused and addressed, and what changes VCOSS hopes for in the National Tax Forum.


Mission Australia Statement of Reform Priorities

Mission Australia’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.


Associate Professor Miranda Stewart Statement of Reform Priorities
Miranda Stewart (September 2011)

Miranda Stewart’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.


United Voice Statement of Reform Priorities
Louise Tarrant (September 2011)

United Voice’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.


Community and Public Sector Union Statement of Reform Priorities
Nadine Flood (September 2011)

Community and Public Sector Union’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.


Equal Rights Alliance Statement of Reform Priorities
Marie Coleman and Ruth Medd (September 2011)

Equality Rights Alliance’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.


Anglicare Australia Statement of Reform Priorities
Kasy Chambers (September 2011)

Anglicare Australia’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.


National Shelter Statement of Reform Priorities
Adrian Pisarski (September 2011)

National Shelters’ statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.


Uniting Care Wesley Adelaide Statement of Reform Priorities
Simon Schrapel (September 2011)

Uniting Care Wesley Adelaide statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.


Australian Council of Trade Unions Statement of Reform Priorities
Jeff Lawrence (September 2011)

Australian Council of Trade Unions’ statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.


Australian Council of Social Services Statement of Reform Priorities
Dr Cassandra Goldie and Peter Davidson (September 2011)

Australian Council of Social Services statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.


Summary of ACOSS proposals, Henry Review recommendations
Australian Council of Social Service (5 Apr 2011)

This is a brief summary of the Henry Review’s key tax reform proposals and compares them with those advanced by ACOSS, and the Government’s response.


The role of housing tax provisions in the 2008 financial crisis
Thomas Hemmelgarn, Gaetan Niodeme and Ernesto Zangari, European Commission (11 Mar 2011)

The 2008 financial crisis is the worst economic crisis since the Great Depression of 1929. It has been characterised by a housing bubble in a context of rapid credit expansion, high risk-taking and exacerbated financial leverage, ending into deleveraging and credit crunch when the bubble burst. This paper discusses the interactions between housing tax provisions and the 2008 financial crisis. In particular, it reviews the existing evidence on the links between capital gains taxation of houses, interest mortgage deductibility and characteristics of the crisis.


Housing and tax: the triumph of politics over economics
Judith Yates (June 2010)

An assessment of the current tax and transfer system and why this needs to be amended to take Australia closer to a fair and sustainable housing system.


Economic Policy Reforms: Going for Growth
OECD (7 Apr 2011)

The OECD’s latest Going for Growth report, which finds that Governments must reform the underlying structure of their economies to boost economic growth and create jobs. Recommendations include tax reform, with a specific focus on labour and housing taxes. Specific priorities for Australia are identified on page 70.


Housing Finance and Financial Stability
International Monetary Fund (6 Apr 2011)

Chapter 3 of the IMF’s ‘Global Financial Stability Report’, which suggests that subsidies to first-time home buyers, tax deductibility of capital gains on housing, and government provision of mortgage guarantees or credit tend to amplify house price swings by exacerbating both the boom and the subsequent bust.


Tax Increment Financing to fund infrastructure in Australia
PriceWaterhouseCoopers (Apr 2008)

A report commissioned by the Property Council of Australia on the viability of Tax increment financing (TIF) as an infrastructure funding mechanism.


Tasmanian State Tax Review discussion paper
Tasmanian Department of Treasury and Finance (6 December 2010)

A discussion paper by the Tasmanian Tax Review Panel, which describes current State taxation arrangements and provides questions to guide submissions to the Review. Includes chapters on land and property taxes, payroll tax, gambling taxes, motor taxes and taxes relating to climate change. More details on the Review can be found at: www.treasury.tas.gov.au/statetaxreview


Taxation, Social Justice and Economic Development
Julian Disney, Director – Social Justice Project (3 April 2009)

Paper delievered at the Australian Council of Social Service (ACOSS) National Conference. Includes workers, families, housing, transport, savings.


Debt Bias and Other Distortions: Crisis-Related Issues in Tax Policy
International Monetary Fund (12 June 2009)

Tax issues relating to the global financial crisis, including tax treatment of borrowing and housing.


Assets for All
Gerard Brody and Elizabeth McNess, Brotherhood of St Laurence (December 2009)

A brief overview of current tax concessions and other government support for savings, housing and other assets.


Community Housing Federation of Australia
Adam Farrar (September 2011).  Australian Community Housing Federation of Australia’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.