In April of this year, the Government released their tax discussion paper, which the Real Estate Institute of Australia (REIA) welcomed with open arms. The REIA was glad to see what promises to be the beginning of a long-awaited and sorely needed tax reform debate. The discussion paper appears to dispel common misinterpretations of tax distortions and concessions. This is a good thing since the REIA advocates for the retention of negative gearing as regards tax distortion and concessions, and any modification made to the current tax arrangement would have a significant impact on investors and renters alike.
It’s true that negative gearing is frequently misunderstood, and certainly should not be altered without a complete understanding of the housing system. Without negative gearing, which is perhaps the single biggest mechanism for providing housing stock to the Australian rental system, private investors would find it much harder to keep rent prices at levels affordable for tenants.
Also included in the 200-page discussion paper is the stamp duty issue. Proponents of the changes say that the states should abolish stamp duty and that it should be replaced with a modest land tax on all private property owners. Taxing all owners of property modestly may make more sense than imposing a huge stamp duty on new property investors. This change could be phased in over time and would most likely end up a fairer system than the one currently in place, providing state governments with a more predictable stream of revenue and make it more affordable to buy property – a win-win situation for all involved.
One thing is clear: the Australian economy demands tax structure changes, which can’t come soon enough. Reform to the current taxation arrangements are urgently needed, such as the abolition of certain state taxes like stamp duty which are inefficient and have adverse effects on the economy. Hopefully, the newly released tax discussion paper will set such changes in motion.