Tax Too Blunt To Ease Housing Affordability On Its Own: BDO

Tax advisory firm BDO has called for a holistic approach to tax reform in relation to housing affordability rather than ‘tinkering at the edges’ and changing negative gearing incentives or capital gains tax concessions.

BDO National Tax Leader Marcus Leonard said ahead of delivering the budget in May, Treasurer Morrison is under increased pressure to make changes to solve the housing affordability crisis.

“The temptation is certainly there to tinker with the tax system and try and put downward pressure on rising housing costs,” Mr Leonard said.

“However tax is too blunt an instrument on its own and shouldn’t be the used as the main tool to enact change.

“Tax shouldn’t drive incentives for the investment criteria for residential property and removing or changing taxes and levies charged on housing and development doesn’t solve the problem.”

BDO surveyed 1,215 people on their expectations for the 2017 budget and the need for tax reform had come through strongly in the poll.

“Close to 85% said the Government should reintroduce a broad tax reform process that covers both Federal and State taxes," Mr Leonard said.

“Over 70% of respondents want tax changes to relieve the pressure of housing affordability but generally speaking don’t want those tax changes to be in the form of negative gearing or capital gains discount changes.

“This apparent inconsistency points to the complexity of the factors that contribute to housing affordability. These factors are very broad and, although there may be tax aspects involved, they may be ancillary to the major economic factors of supply and demand."According to BDO's survey, the demand side the factors that restrict housing availability include:

"There may be tax incentives that Federal and/or State Governments could provide to encourage this, such as reductions in payroll tax, land tax, stamp duty and CGT rollover relief for businesses and workers to relocate to such decentralised areas.

“The other major factor restricting supply is the disincentive for home owners to downsize when family members move out. The stamp duty on changing residences is now so high that many people are discouraged from moving to more appropriate accommodation even though their family situation has changed," he said.

"While the best option would be to remove stamp duty completely from residential housing, the provision of stamp duty concessions for older persons when they downsize their houses may have some effect in providing some more supply to the system.

“It is interesting to note that, while negative gearing changes and a reduction in the CGT discount have been rejected by a large majority of poll respondents, these two tax changes would potentially increase the supply of housing for home owners by restricting the demand from investors, and therefore may have some effect on housing affordability," Mr Leonard said.

"However, there is the argument that a reduced demand from investors could reduce the availability of rental accommodation. The counter argument to this is that the number of renters will be reduced as some of them will become home purchasers and thus offset the reduced supply of rental accommodation.”