Press Release - Government Response to the Productivity Commission Inquiry Report on First Home Ownership [23/06/2004]
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GOVERNMENT RESPONSE TO THE PRODUCTIVITY COMMISSION INQUIRY REPORT ON FIRST
HOME OWNERSHIP
Recommendation 5.1: The coverage of the review to be held by 2005
under the 1999 Intergovernmental Agreement on the Reform of Commonwealth-State
Financial Relations should be extended to include consideration of how best
to reduce stamp duties on property conveyancing. In particular, the review should
examine the scope to replace stamp duty revenue with more efficient forms of
taxation or sources of revenue.
Recommendation 5.2: If the 2005 intergovernmental review (or another
mechanism) does not lead to reduced stamp duties on property transactions, a
further forum should assess the potential gains from addressing property-related
‘tax on tax’ and ‘multiple tax collection’ issues.
Response: The Government agrees with the Productivity Commission
findings that stamp duties are a relatively inefficient form of taxation and
impose an obstacle to first home ownership, and that State and Territory governments
need to consider how best to reduce their reliance on stamp duties. The Government
also welcomes recent actions undertaken by States and Territories in providing
stamp duty relief for first home buyers and urges continued reform of stamp
duty.
Reform of State taxes and stamp duties is an important part of the planned
2005 review of the Intergovernmental Agreement on the Reform of Commonwealth-State
Financial Relations (IGA), with numerous business related stamp duties currently
on the agenda for review. The Government is therefore not considering any interruption
to the much needed reform of business related stamp duties and will not be seeking
in anyway to divert the 2005 review.
The Treasurer will ask the Heads of Treasuries to consider the issues raised
in the Commission’s report given the reliance on stamp duties by the States
and report back to the Ministerial Council for Commonwealth State Financial
Relations.
Recommendation 5.3: The Australian Government should,
as soon as practicable, establish a review of those aspects of the personal
income tax regime that may have recently contributed to excessive investment
in rental housing. The focus of the review should be on the Capital Gains Tax
provisions. However, it should also assess ‘second best’ options
for addressing distortions in incentives to invest in housing and other asset
markets, including: restrictions on negative gearing and changes to the capital
works deduction provisions for buildings. Pending such a review, it would not
be appropriate to make housing-specific changes to negative gearing rules or
to capital gains tax arrangements.
Response: The Government will not be conducting a review of the
personal income tax system focussing on the Capital Gains Tax provisions. The
taxation treatment of investments, including housing, was recently reviewed
as part of The New Tax System and the Review of Business Tax.
The Government is currently implementing and embedding tax reforms from the
previous reviews.
The Government understands the importance of providing Australians with continued
certainty for their investment decisions. As previously announced, the Government
considers that it would be inappropriate to change existing arrangements relating
to capital gains or negative gearing. The Productivity Commission’s report
notes that the tax treatment of rental properties and other investments such
as shares are already broadly similar. The Government considers the current
tax arrangements provide the appropriate set of incentives in relation to investment,
whether it is in housing or shares.
There is no conclusive evidence that the tax system has had a significant impact
on house prices. Housing price booms have occurred recently in a series of Western
economies despite very different tax systems. Also, notwithstanding similar
tax treatment, Australian share prices have moved in a very different pattern
than house prices, indicating that other factors are of greater significance
in asset price cycles than the tax system.
As noted in the Commission’s Report, the Government has committed to
reviewing the appropriate tax treatment of capital works deductions for buildings.
The Government has indicated that if any changes in capital works deduction
arrangements are proceeded with, they will not commence until at least 1 July
2005. The Government has identified that this measure raises a number of extremely
difficult issues, including separating land value from that of buildings and
structures. There is also a risk that any change could create uncertainty in
the current market. Any changes in capital works arrangements will only proceed
if these issues can be satisfactorily resolved.
The Government will therefore not be considering specific changes to the tax
system which may disadvantage home buyers or those renting.
Recommendation 6.1: All state and territory governments should have
long-term land release strategies that are based on extensive public scrutiny
of projections and key assumptions. The trade offs between greenfield development
and urban consolidation should be a particular focus of such processes.
Recommendation 6.2: State and local governments need to give priority
to the scope to:
- achieve greater separation of policy making and administration;
- streamline permit approval processes to enable minor or uncontentious
developments to by-pass unnecessary informational or consultative requirements;
- improve or expand “as of right” development provisions, without
detracting unduly from the property rights of existing residents; and
- reduce delays in appeals while maintaining the protections of due process.
Response: The Government supports these recommendations.
The Commission found that constraints on the supply of land at the urban fringe
have contributed to housing price pressures in some areas. There was broad agreement
that to avoid speculative pressures and to promote efficient production, it
is desirable that sufficient undeveloped land be designated for future residential
use to meet around 15 years’ projected demand. Such planning should involve
public scrutiny of key assumptions and tradeoffs. In addition, the Commission
found that there is an overwhelming view that development approval processes
are deficient and have become increasingly so. The Government encourages all
levels of government to work cooperatively to resolve many of the impediments
and inefficiencies identified by the Commission, and will facilitate dialogue
through the Local Government and Planning Ministers Council.
Recommendation 7.1: Developer charges (and charging for infrastructure
generally) should be:
- necessary – with the need for the services concerned clearly demonstrated;
- efficient – justified on a whole-of-life cost basis and consistent
with maintaining financial disciplines on service providers by precluding
over-recovery of costs; and
- equitable – with a clear nexus between benefits and costs, and
only implemented after industry and public input.
Recommendation 7.2: Investments in items of social or economic infrastructure
that provide benefits in common across the wider community should desirably
be funded out of borrowings and serviced through rates, taxes or usage charges.
Recommendation 7.3: Authorities and utilities imposing developer
contributions and charges should:
- follow guidelines based on the principles set out in recommendations
7.1 and 7.2 and be subject to independent regulatory scrutiny;
- provide for ‘out of sequence’ development if developers
are prepared to meet the cost consequences;
- be open to proposals for alternative infrastructure arrangements that
meet the needs of the households concerned;
- allow appeals on the amount charged, or their coverage; and
- be accountable for how money raised from charges is spent.
Response: The Government supports these recommendations and encourages
State and local governments to accept these recommendations. Compliance with
some general charging principles will help promote more efficient and equitable
outcomes.
Recommendation 10.1: A national public inquiry should be established
to examine the housing needs of low income households across Australia, including
in Indigenous communities, and the nature and extent of assistance to help meet
those needs.
Response: The Government does not support this recommendation.
Work is already being undertaken under the auspices of the Housing Ministers’
Conference, looking at ways to enhance the affordability of housing for low
income households. The Australian Government already provides significant resources
to address the housing needs of low income households.
In recognition of the affordability challenges of housing needs for some families,
the Australian Government provides targeted assistance to low income households
through the $4.75 billion Commonwealth State Housing Agreement (CSHA)
and $1.9 billion annually for Rent Assistance to help nearly one million private
renters.
Most of the CSHA funding is for the provision of public housing, which is managed
by, and is the responsibility of, individual State and Territory Governments,
with the Australian Government providing funds and negotiating the strategic
directions for housing assistance. Housing Ministers also agreed to promote
a national, strategic, integrated and long-term vision for affordable housing
in Australia through a comprehensive approach by all levels of government.
Recommendation 10.2: If the First Home Owner Scheme continues:
- assistance should be targeted to the housing needs of lower income households
by restricting eligibility to homes below (regionally differentiated) price
ceilings; and
- there should be a commensurate increase in the average size of the grant.
Response: The Government does not support this recommendation.
The Government will continue to support the First Home Owners Scheme and will
not restrict or means test the current grant.
The First Home Owners Scheme was introduced to offset the impact of the GST
and tax reform on the price of new homes (excluding land), that is, to compensate
all first home buyers for the increased construction costs of new homes and
any associated price increase in the established housing market. Indeed, the
Intergovernmental Agreement on the Reform of Commonwealth-State Financial
Relations states that in relation to the First Home Owners Scheme, that
“assistance will not be means tested” (Principle D1(viii)).