Taxes on housing unfair

The Prime Minister has announced that he has set up an inquiry into the affordability of housing, especially for first home buyers. That inquiry has been specifically directed to look at the impact of, amongst other things, State taxes. Owning your own home is the great Australian dream and the Federal Government is correct to focus on what appears to be a major impediment to that dream as the cost of new and existing housing climbs ever upwards.

There is no doubt that the quantum of both Federal and State taxes imbedded in the price of housing has a significant impact on housing affordability. A recent study by the Housing Industry Association has estimated that in Western Sydney, a house and land package worth $507,000 contains up to $130,000 in fees and taxes including $70,000 in State and local infrastructure fees, stamp duty of $18,000 plus GST of $16,000.

If the Western Sydney price is typical then taxes, charges and fees account for up a quarter of the cost of new housing. There are many things wrong with the income tax system and the Association continues to highlight those problems on an ongoing basis, but nothing compares with the inequitable tax treatment that applies to homes and especially new homes. For a start, the GST only applies to newly constructed homes. It does not apply to existing homes. The first home owners grant was introduced to offset the impact of the GST on the price of new homes, but that offset has been reduced from the original $14,000 to its current rate of $7,000. Further reductions would impact on already struggling new home entrants. There is no GST on existing homes, but first time buyers are entitled to the grant even though there is no GST imbedded in the cost of an existing property. Hence new home owners are slugged but buyers of existing homes are advantaged.

Stamp duty collections are at an all time high and State Governments are reaping windfall gains at the expense of both new and established home buyers. The worst state is Victoria which has the highest stamp duty rates in the country.

When GST was introduced in July 2000 one of its aims was to eliminate the cascading effect of taxes. Cascading occurs where taxes are paid on taxes. This was one of the worst elements of the previous wholesale sales tax system and it remains unchecked under the GST system. Stamp duty is raised on GST imbedded in the price of housing. Cascading is alive and well and is being used by State Governments to raise revenue and contributing to the rising cost of new housing.

The power rests in the hands of State Governments to exclude the GST from the calculation of additional State taxes and charges. To date, State Governments have failed to address this situation and stand condemned for deliberately rorting the tax system to their advantage. Stamp duties must be reduced. The cascading effect of State and local taxes, fees and charges must be eliminated to treat all home buyers fairly and equitably, and new housing should be GST free.

The Prime Minister's housing inquiry must address these issues, otherwise taxpayers will continue to be ripped off and housing will become increasingly unaffordable. The State and Federal Governments are bickering about who's at fault. The reality is both are to blame and it will require major concessions from both to restore fairness and equity to the great Australian dream.