The report by the Australian Housing and Urban Research Institute (AHURI), Pathways to housing tax reform in Australia, has laid out several recommendations, including the reduction of CGT discounts, a cap on housing-related tax deductions, and the replacement of stamp duties with an annual property value tax.
The research, undertaken by researchers from the University of Tasmania, the University of New South Wales, the University of Sydney and Curtin University, is the final report of the AHURI Inquiry.
Specifically, the report calls for CGT discounts applying to residential property investments to be reduced incrementally over a 10-year period, with the rate being cut by approximately two percentage points each year until it reaches 30 per cent.
Such a move has been tabled by Labor, as it seeks to halve the CGT discount down to 25 per cent and a prohibition on negatively gearing investment properties other than newly built properties.
The Tax Institute’s senior tax counsel, Professor Robert Deutsch previously told Accountants Daily that he was not opposed to a reduction in the CGT discount and that the current rate was “overly generous”.
Mid-tier firm RSM Australia had also previously proposed cuts to CGT and the removal of negative gearing as measures to ease housing affordability.
Conversely, the report suggests a cap on housing-related tax deductions to be phased in over a 10-year period, with an initial $20,000 cap to be reduced by approximately $1,500 per annum, depending on market conditions, until it reaches $5,000.
“One of our key findings is that gradually reducing the generosity of capital gains tax and negative gearing provisions over a decade long timeframe would result in only a modest impact on the after-tax return from housing investments for most “mum-and-dad” investors, with the exact figures depending on wage income, interest rates and capital growth,” said lead author of the research, Professor Richard Eccleston.
The modelling suggests that in the first year, with a $20,000 cap, only 6.3 per cent of all property investors would be affected, with such reform saving the government more than $1.7 billion from the annual $3.04 billion cost of negative gearing deductions each year — a 57.3 per cent saving.
Further, the reports that in the medium to long-term, to see a gradual tax mix shift from transfer duties to broad-based recurrent tax on residential property.
“In the long-term, establishing a broad-based property tax is more efficient and fairer than state governments continuing to rely on stamp duty,” said the report.
“To bring in such changes, the research proposes a multistage process whereby a short-term simplification of stamp duty evolves through a medium term (3–5 years) increase in stamp duties for investors in higher value properties to a long-term (5–20 years) shift to a broad-based property tax.”
Last year, The Industry Super Australia Assisting Housing Affordability Discussion Paper 2017 called for current stamp duties to be abolished in place of a mix of land and betterment taxes.
According to the report, stamp duties disincentivise older Australians looking to downsize, limiting younger families from accessing the stock of larger houses.