Foreign Investment Fee

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The Abbott government’s lurch at a foreign investment fee to fund the Foreign Investment Review Board will be a minor inconvenience.

The AFR:

Mr Abbott said the fee structure was comparable with a system in New Zealand but less punitive than regimes in Singapore and Hong Kong.

“We are open to foreign investment but its got to be foreign investment that is in our national interest,’ Mr Abbott said.

The Treasury paper proposes fees equal to 1 per cent of property values over $1 million.

For residential real estate proposals and rural land acquisitions, a fee of up to $5,000 would apply to properties valued under $1 million.

Applications to purchase a property equal to or greater than $1 million would be subject to a fee of up to $10,000. “This would then increase in increments of up to $10,000 for each additional $1 million in property value,” the discussion paper says.

The response from the real estate sector has been typical.

CBRE residential projects chairman Justin Brown said the new taxes were counterproductive and ill-thought through.

“There is significant global evidence from recent times including Canada, Singapore and Hong Kong where these types of taxes on foreign investment have been totally counterproductive, caused significant corrections within the markets and harmed the construction industry,” Mr Brown said.

Whilst we are supportive of some traction towards the taxation of excessive real estate profits, the 1% charge will mean little in comparison to last years capital gains. As outlined in the foreign investment future, the average $3.375m FIRB approved investments last year would pay a foreign investment fee of $33,750. The capital gains were running at $229,500. Such a fee will not break the bank.

In that same post I mentioned how effective Singapore’s foreign investment fee of 18% was in maintaining the public interest – low land prices. The CBRE quote above must be taken in that context, the property lobby have convinced the news cycle that rising property prices are a good thing. They are if you are a property seller or a bank. For the public this means rising debts and thus interest payments.

We do however see merit in the commentary of Ray White chairman Brian White in comparing such a charge as a stamp-duty like charge. Such a foreign investment fee will curb some demand, impeding turnover.

However, it is likely to be minor as the above capital gains to foreign investment fee comparison demonstrates. Treasurer Hockey was adamant the fee was purely an administrative one so that the FIRB could do its job. Only $200m is needed yearly to fund an expanded FIRB. Will we get a new website for that? The relative size of such fundraising is again minor to the $418bn in land price increases in the 13-14 year.

After a minor skirmish, we expect this will have little imposition on the global land bubble. The fact it is set at a much lower rate than Hong Kong and Singapore ensures global investors will still be set upon buying up locations of inspiring natural beauty.

If the government knew what they were doing, a Federal Land Value Tax would be reimposed nearly 100 years since our first federal tax was announced. Accompanying this would be a significant 5 – 10% income tax deduction and a doubling of the pension. The LVT would curb speculative foreign investment, reigniting the Australian creative spirit alongside lower land prices and a lower tax burden for all.

 

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https://prosper.org.au/2015/02/26/foreign-investment-fee/