- Over a long transition period, a land tax should be introduced on all land on a more efficient and uniform basis linked to unit land values, removing disincentives for institutional investment in rental property and integrated over time with property rate assessments.
- Over a similar period, transfer taxes on property should be reduced, and ultimately removed, with revenues replaced by efficient taxes, preferably annual land tax.
- Subject to transitional provisions, and following action to improve the current shortfall in housing supply, a more neutral personal income tax treatment of private residential rental investment should be introduced, with less volatile market effects, through a 40 per cent discount on all net residential rental income and losses, and capital gains.
Stamp duties on conveyances are inconsistent with the needs of a modern tax system. While a significant source of State tax revenue, they are volatile and highly inefficient and should be replaced with a more efficient means of raising revenue.
Conveyance stamp duty is highly inefficient and inequitable. It discourages transactions of commercial and residential property and, through this, its allocation to its most valuable use. Conveyance stamp duty can also discourage people from changing their place of residence as their personal circumstances change or discourage people from making lifestyle changes that involve a change in residence. It is also inequitable, as people who need to move more frequently bear more tax, irrespective of their income or wealth.
Reforming land tax and conveyance stamp duty arrangements, along with the proposed changes to the taxation of rental housing and Rent Assistance, will go some way toward improving housing affordability. However, to a significant extent housing affordability is a supply issue (see Box 6.1).
Media Reports:
"Likewise the second part of the Henry Review’s two “key directions for efficient land and resource taxation”. The first part is the idea of a 40 per cent resource rent tax, which was first leaked in January. The response to the leak was obviously sufficiently mixed for the thing to become the centrepiece of Mr Swan’s tax reform.The second part – and given equal weight in the review – is a national land tax of 1 per cent applying to all land regardless of use. Absolutely no mention of that in either leaks or today’s statement.
The Henry Review also recommends a 40 per cent discount to individuals for net interest income, residential rent, capital gains and interest related to listed shares. Also leaked, but rejected."
The review proposes a 40 per cent discount on all income from savings, as well as on all residential rental income and losses, and capital gains.
These recommendations were widely flagged prior to today's announcement, with critics saying the current system doesn't give enough incentives for workers to put money in savings accounts.
Currently, interest earned on all savings accounts and term deposits is taxed at a worker's top marginal rate.
It is far less generous than the tax treatment of other investments such as shares and property, which the review says encourages investors to take on too much debt.
"The tax advantages from borrowing to invest in a rental property, also relevant for shares, leads to investors taking on too much debt and distorts the rental property market," the review says.