Tax

Government policies favour wealthy property owners

Alistair Walsh /

Government welfare and tax policies benefit wealthy homeowners leaving young renters and first home buyers disadvantaged, according to a Grattan Institute report.

Policies such as exemptions for the family home from land and capital gains taxes and the eligibility test for the aged pension benefit homeowners to the tune of $36 billion a year, or $6,100 for each homeowner household, according to the Renovating Housing Policy report.

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It found negative gearing rules and the capital gains discount provide residential property investors with nearly $7 billion a year, or $4,500 on average for each property investor.

It found help for first home buyers just pushed up prices and only benefitted sellers.

Author of the report Jane-Frances Kelly calls for the elimination of stamp duty and the introduction of a broad-based annual property tax. She says there should be reforms to tax arrangements that favour property investment.

And there should be an inquiry into the rental industry with possible reforms including extending the minimum duration of leases and increasing tenants’ freedom to make minor modifications and own pets.

The gap between those who own homes is increasingly generational and income based.

“Housing policy exacerbates, and could entrench, inequality between home owners and property investors, on the one hand, and households that don’t own, on the other,” the report says.

It found home owners have benefited from a significant largely untaxed increase in wealth due to the house price boom from the mid-1990s, particularly in the inner and middle ring suburbs.

Home owners captured most of that wealth for themselves due to the capital gains and land tax exemptions on the family home.

“But, on the whole, these households did very little to create this wealth – the value of improvements, including buildings and landscaping, determine a relatively small proportion of a  property’s price,” the report says.

“Rather, the wealth gain is largely determined by other factors like shops and parks, employment opportunities and government funded infrastructure investments and schools.

“While home owners benefit from increased house prices associated with these improvements, renters pay them through higher rents.”

 

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This article first appeared on Property Observer.

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