Wealthy mansions are ‘on-shore tax havens’
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Leading affordable housing advocate professor Julian Disney has described Australia’s mansions as on-shore tax havens that suck resources from more productive investments, and called for an end to the “huge distortions” in the way housing is taxed. “If you have a spare million, the most tax effective way of spending it is to buy a much more expensive house than you need, or renovate it within an inch of its life,” Disney told Crikey this week. “If you don’t have a spare million, then the second best option is to borrow and negatively gear. Increasingly houses have become tax shelters, rather than real shelters.” A former president of the Australian Council of Social Service and currently chair of the National Affordable Housing Summit, Disney says “excessively generous tax concessions offer lavish benefits for wealthy buyers and speculators”, which have helped inflate house prices and contributed to the nation’s affordability crisis. The Housing Industry Association’s chief economist Harley Dale told Crikey he didn’t believe tax concessions were overly generous, and argued affordability could be improved by lowering the cost of new houses, which he described as being over-regulated. Australia is already one of the least affordable nations in the world in terms of housing costs, and reports this week suggested first-home buyers are being increasingly priced out of buying land blocks on city fringe estates. The median price of a house has risen from about three times median annual household income a few decades ago, to almost 10 times today, forcing many to abandon the dream of home ownership, and turn to the insecurity of the private rental market. Unlike Europe, Australia has no tradition of long-term rental leases, or large scale not-for-profit ownership of rental housing stock, a situation the National Rental Affordability Scheme is designed to address, with it’s federal subsidies for developments offering tenants rents at 20% below market value. A former economic adviser to federal governments, Disney has argued excessive house-price inflation has “greatly weakened” the national economy, causing dangerously high household debt levels, and diverting resources from activities that could improve our trade performance. He argues Australians are taxed more if they strengthen their financial position through their labour, than via speculation. Addressing last month’s well-attended Byron Bay public forum on the housing affordability crisis, Disney argued there was a “conspiracy of silence” between the major parties about the distortions in a tax system that helps exclude more and more people from home ownership. Also chair of the Community Tax Forum, a coalition of unions, consumer and welfare groups, Disney said he’d like to see an end to the land tax exemption for the top 5% of wealthy homes, a winding back of negative gearing, and an end to stamp duty for below average cost homes. He believes Australian dwellings are at least 20% overvalued, but he says he doesn’t want to see “a sharp or quick fall, which would be too disruptive to the economy and community, and would hurt too much those just who’ve just got into the market”. Interestingly, Harley Dale, from the Housing Industry Association, didn’t baulk at the 20% figure, telling Crikey he concurred with Disney that if there’s going to be relief to home seekers via a decline in prices, “we want to see that decline happen in an orderly way over an extended period of time”. As for tax reform, the association supports a reduction in stamp duty, and is open to the possibility of changes to land taxes. *Ray Moynihan chaired last month’s Byron Echo forum on housing affordability |
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9 Comments
Taxing the wealth more of those designated as “wealthy” will not improve the lot a single person.
Government should be positively encouraging people to become wealthier - because they spend more (probably not with Gerry Harvey) which encourages further production and employment. Oh, I forgot, the biggest item we produce is imports. The under privileged need an advocate, but it would be better if Professor Disney focussed his energies on improving the lot of the unfortunate, rather than depriving the fortunate. His answers seem like a lazy way out - the Poor will always be with us; everybody can’t be above average.
Some observations
1. first home buyers want to buy a great house - they need to lower their expectations
2. most price growth is from owner residents who renovate and then sell, tax free - that needs to change - today about a third of the price growth comes from investment properties changing hands
3.
opps, something happened - i will continue
3. NRAS isn’t working because it is not supported by the government in terms of manpower, explaination etc - most practioners don’t understand it al all - also the LVR for using such is 75%, so an investor needs to have a 25% deposit which isn’t competitive against other residential investments - the rental assistance is paid from both federal and state govt and at different times - it is way too complicated
4. and yet the complaints about first home buyers being locked out - 125,000 per annum buy and in 2009 190,000 did so - yes only 90,000 in 2010 but they were brought forward, and the % renting hasn’t moved in the last 20 years
5. over 90% of house price growth has been caused by two things - declining interest rates and increasing wages…very hard to reverse these two trends and most that whinge about low affordability don’t want to surrender cheap finance or their weekly pay pack
6. what stops new housing from being affordable is the time it takes to get and approval, the costs associated with such and the silly standards expected of it - i.e. sustainability, degree of finish, landscaping and so on
7. also NIMBYism stops housing development and often in inner and middle ring suburbs - and more often than not such campaigns against new development are lead by the middle-aged, who bemoan low affordability for their kids
i could go on and on, but i am now tied of this hypocrisy
no of us should want house values to fall - a slowdown in growth okay and needed and most the most likely outcome, until wage growth occurs and rental growth returns - if house prices crash, unemployment will rise and very sharply - it is easy to be righteous when you are employed but lets see now holy than thou one is when they cannot pay their bills
What a ridiculous article.
Anyone who had a spare million lying around, would know that there is no point in spending a dollar to get back 46.5 cents.
I think the part about a spare million was spending it on your own home that you live in - which is of course fully protected from CGT.
The whole debate about negative gearing is pure bullcrap. The idea that tax arrangements available to companies that invest should be denied to individual taxpayers is grossly unfair. Instead of rich people owning 10 houses - rich people will own companies that own 100 houses - with access to all the tax benefits needed to support a negative gearing arrangement. People owning 1 or few investment houses will then sell into a falling market that will simply enrich the already rich even more.
The only way to drive down housing costs is to flood the market with land releases and remove the premiums being paid for tiny blocks in the middle of some nowhere suburb of our capital cities.
A bigger equity to loan ratio might also help - but that’s beyond my pay grade to fully understand the economic impact of and has nothing to do with a shortage of land releases which is the main constraint on the operation of an efficient housing market in Australia.
Never forget that there are 25000 kilometers of coastline around Australia - not including rivers, lakes, and estuaries. Moreover, there are hundred’s of thousands of square kilometers of habitual land behind that coastline - and despite all that crap about food security the greens waffle on about - there is no shortage of land to grow food on for Australians and the millions more beyond our shores.
The land market is Australia is rigged with developers and governments - both local and state working hand in glove to make sure land releases are never enough to reduce prices - letalone several developers in the one release in competition with each other.
The idiot Greens of course provide all the moral coverage needed for this with their endless garbage about urban sprawl and food security. Hopefully Labor in NSW will figure out that there are more votes in having land rights for all Australians and not just the Waterfront Greens whose lifestyle might be disturbed if bogans were allowed to build houses nearby.
I’m glad to see that a Crikey blog has so many comments from people who aren’t at all impressed by Disney (still on the public payroll though it seems). I know plenty of people with a “spare million” in the sense of being able to invest a million one way or the other without it making a difference to their current consumption and the number who are serial owners of improvable expensive houses in which they live to avoid CGT and land tax is trivial. Also quite a lot lose money on resale of expensive houses. If they spend a lot of money to improve the house they are living in with the expectation of CGT free profit they not only spend a lot of time on it, they pay GST which is not recouped and they put up with the considerable inconveniences of renovations. Hardly likely to be a big part of the total fiscal picture.
I don’t know how many people actually do better out of negative gearing into investment properties than straight out, or geared, investment in equities but it is surely no worse as fiscal policy than public-private partnerships (which involve much greater amounts of money) for getting private savings into building residential properties that public policy requires. If negative gearing is abolished for residential property, what about other real estate and what about other investments? Note that negative gearing is already limited by disallowance of many business losses as deductions from other income.
Well what a bunch of w..kers we have on this blog today. I’m alright Jack, seems to be alive and well in our so-called aspirational country. I find it fascinating that not one of you challenged the proposition that tax is higher on labour than on speculative activities - I guess you all think that is smart. Frankly, I would like to see some of the shysters in the real estate/banking/investment industries put in jail - (and if that is any of you - WEAR IT!!)
You only have to listen to what the people are saying in Ireland, Portugal and Greece to know that they have woken up to what is going on. They are fed up with being presented with the bill for the excesses of the wealthy - talk about banking the profits and socialising the losses. Up the world-wide revolution, I say. And the sooner the better!
And lay off Julian Disney - at least he has spent a good deal of his career trying to help those less fortunate than himself. I totally agree with his suggestions, but I would go further and say that negative gearing should be abolished completely. It is just another sop to the wealthy, when so many people struggle to put a roof of any kind over their heads. But I have no doubt that our current government will attack the unemployed, the disabled and the disadvantaged in this coming “harsh” budget, leaving all the middle-class welfare totally intact. Gotta look after your mates first and foremost!!
Yes the Government needs to encourage wealth as it raises the collective tax revenue. By creating no incentive, money goes off shore. Pretty easy to figure out really.
Australia invests too little in productive activities partly because it invests too much in houses occupied by their owners which is partly because the tax concessions for owner occupiers distorts investment from more productive activities. Ending these tax concessions would increase Australia’s productivity as well as ending a policy which advantages the wealthy who can afford to own expensive houses and disadvantages the vast majority who can’t.