Treasury to Gillard: “Fix Housing.”

by on September 30, 2010

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Castle Tioram
Creative Commons License photo credit: itmpa

Last week Treasury made public its Red Book – the economic advice it gives to the incoming government.

In it, Treasury lays out a big, bold reform agenda.  On housing, the Red Book is scathing:

“Access to adequate housing affects all Australians and is integral to a decent life. It is part of what enables full participation in society.  However, the ability of many Australians to purchase or rent affordable housing has fallen over the past decade, and housing supply and allocation suffer from market inefficiencies and distortions.”

So, let me paraphrase: Treasury says many Australians are denied a decent life and full participation in society. That is clear.

It fingers Stamp Duty for abolition. Never mind Stamp Duty is a state tax and these are the feds talking. Never mind Stamp Duty is beloved by state governments for the giant licks of revenue that pour in when markets boom.

Abolish it.

Que Bono? Who benefits?

Removing Stamp Duty on housing helps some people a lot.  First homebuyers wouldn’t have to pay a lump sum tax just when they are desperately scratching money together for the largest purchase in their life.  Homeowners could move to take better jobs elsewhere more easily, improving job matches and productivity. Parents could shift as their families grow and shrink. Divorce would become less fraught, less bitter.

The government’s conservative opponents will argue removing Stamp Duty merely inflates house prices by exactly the tax removed. They would have a point, except Treasury also wants the principal residence exemption from Land Tax removed.

Land Tax would replace the revenue lost from a vile and distorting capital charge with an annual payment that rises and falls alongside the property market – a valuable automatic stabilizer.

Replacing a bad tax with a good one is a win-win.  It increases the velocity of the housing market, making change cheaper and easier.

If this helped only one household in a hundred each year, it would add substantially to national productivity.  But the change will probably help one household in five shift up, shift down or move around – every year.

I say, this change could usher in an economic Golden Age.

This valuable reform is not about giving government more money to spend.  It is about reengineering the tax system to stop waste and distortion.

Treasury understands the benefits of taxing economic rent.  They are well placed to convince the Gillard-Swan government to drag the state governments into the twenty-first century.

The push to replace inefficient duties with a fair and equitable Land Tax has been around for over a hundred years. Perhaps this time we can do it.

4 Comments

  1. Ned08-10-2010

    Question for Tax Commissioner 2010

    Q. Should I print L in the LOSS box at the right of Total income loss if I pay 85% of my income benefit which is below The Henderson Poverty line in rent?, unlike Landlords who no doubt fill in L in LOSS box every time under negative gearing and expenses, while receiving huge
    Transfer from government in ‘benefits’ as property welfare

  2. Ned08-10-2010

    ‘L’ in the LOSS box at ‘I’ means ‘LOSS THE PLOT’,
    or for young people ‘L’ for loss the ‘Aussie dream’, and a chance of owning Land.
    History books continue to show ‘You know your tax system is wrong when a foreign army turns up on your shores’.
    Enjoy the double dip; don’t say history has not warned us.

  3. David Collyer08-10-2010

    @ Ned: I have been screaming ‘BUBBLE’ at every friend, relative and journalist. Few are prepared to even listen to the arguments.

    When it bursts, I will point to the series of coherent credible warnings – by me and many others and say ‘We told you so.’

  4. shirley15-10-2010

    Just lose negitive gearing on rentals and apply it to your own home only.

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