Tuesday, September 26, 2006
Fixing housing affordability, Liberal-style
Probably more than any other factor – including negative gearing, carte-blanche depreciation allowances, and infrastructure levies on greenfields blocks* – the introduction of the CGT 50% discount in 1999 has been a policy disaster, in fuelling land-price (and so house-price) inflation.
The discount comes with almost no qualifications – all but the most itchy-fingered of speculators are catered for indistinguishably from longer-term investors by the minimum 12 months property-holding rule. Indeed, relatively fast turnover is encouraged by the discount’s being in lieu of CPI indexation, in calculating the real capital gain. After holding a property through ten years of 3% annual inflation then, the first 30% of the nominal capital gain is illusory, but it is the nominal gain which counts, subject to the 50% discount.
Abolishing the 50% CGT discount, and returning to a CPI-indexation system would be a sound policy step. Not suprisingly then, the Liberal politician formerly known as Sophie Panopolous, now Sophie Mirabella, is proposing a move in the other direction.
Admittedly, Mirabella’s proposal does have the benefit of acting as a slight disincentive to shorter-term investors/speculators, by the 50% discount starting as a 30% (only) discount after the first year, and then rising in steps to 50% by (I’m guessing) the fifth year of ownership. I say this is a “slight” disincentive because waiting for an annual step will only result in a real reward of an extra 2% discount (assuming 3% annual inflation).
Then there’s the steps going in the other direction, with the discount rising to 70% after 10 years, and 100% (i.e. CGT-free) after 15 years of ownership, at least for retirees. It seems it is the latter’s vote that Mirabella’s overall proposal is being pitched at. Based on recent changes to superannuation, Mirabella won’t exactly be stampeded with retiree enthusiasm here, quite apart from inflation again eroding much of the headline discount.
The bar of fiscal indulgence towards retirees (in which category I include those presently aged 45-60) has already been set so high that a promise of “Free money!” would most likely be met with the jaded come-back: “We’re already swimming in it. So peel me a grape, would ya?”.
* The Housing Industry Association has recently been bleating about infrastructure levies being the main reason for first-home unaffordability. Which makes me laugh – can the HIA in 2006 really not have heard of the Reagan/Thatcher/Hawke user-pays/privatisation revolution of 1979-present? And if they haven’t, then surely tertiary students – also subject to an affordability crisis because (clearly, this time) of a user-pays system – have more a more legitimate call on the taxpayer for their education than home-buyers have for being subsidised to live in outer-suburbia. The former has public benefit; the latter doesn’t.
Probably more than any other factor – including negative gearing, carte-blanche depreciation allowances, and infrastructure levies on greenfields blocks* – the introduction of the CGT 50% discount in 1999 has been a policy disaster, in fuelling land-price (and so house-price) inflation.
The discount comes with almost no qualifications – all but the most itchy-fingered of speculators are catered for indistinguishably from longer-term investors by the minimum 12 months property-holding rule. Indeed, relatively fast turnover is encouraged by the discount’s being in lieu of CPI indexation, in calculating the real capital gain. After holding a property through ten years of 3% annual inflation then, the first 30% of the nominal capital gain is illusory, but it is the nominal gain which counts, subject to the 50% discount.
Abolishing the 50% CGT discount, and returning to a CPI-indexation system would be a sound policy step. Not suprisingly then, the Liberal politician formerly known as Sophie Panopolous, now Sophie Mirabella, is proposing a move in the other direction.
Admittedly, Mirabella’s proposal does have the benefit of acting as a slight disincentive to shorter-term investors/speculators, by the 50% discount starting as a 30% (only) discount after the first year, and then rising in steps to 50% by (I’m guessing) the fifth year of ownership. I say this is a “slight” disincentive because waiting for an annual step will only result in a real reward of an extra 2% discount (assuming 3% annual inflation).
Then there’s the steps going in the other direction, with the discount rising to 70% after 10 years, and 100% (i.e. CGT-free) after 15 years of ownership, at least for retirees. It seems it is the latter’s vote that Mirabella’s overall proposal is being pitched at. Based on recent changes to superannuation, Mirabella won’t exactly be stampeded with retiree enthusiasm here, quite apart from inflation again eroding much of the headline discount.
The bar of fiscal indulgence towards retirees (in which category I include those presently aged 45-60) has already been set so high that a promise of “Free money!” would most likely be met with the jaded come-back: “We’re already swimming in it. So peel me a grape, would ya?”.
* The Housing Industry Association has recently been bleating about infrastructure levies being the main reason for first-home unaffordability. Which makes me laugh – can the HIA in 2006 really not have heard of the Reagan/Thatcher/Hawke user-pays/privatisation revolution of 1979-present? And if they haven’t, then surely tertiary students – also subject to an affordability crisis because (clearly, this time) of a user-pays system – have more a more legitimate call on the taxpayer for their education than home-buyers have for being subsidised to live in outer-suburbia. The former has public benefit; the latter doesn’t.
