26 February 2011
The Henry Tax Review, released in 2010 by the Commonwealth, backed developers concerns on property taxes.
The review considered key issues that were dampening urban development and crippling Australias housing supply.
The Henry report had vindicated developers by finding problems in the way that infrastructure charges were being imposed on new development.
The report said levies that were complex, non-transparent or set too high, discourage investment in housing, lower the overall supply of housing and raise its price.
The report criticised planning rules that make development approval contingent on development charges of uncertain size, finding that the increased risk can affect project viability.
This report makes it clear that developer charges are undermining investment in new urban development.
The report exposed the fact that many so-called ˜infrastructure charges were in fact merely thinly disguised betterment taxes.
The report made a clear statement that infrastructure charges should not be about taxing the profit of development.
This will undermine many so-called infrastructure levies imposed willy-nilly by local councils.
Local councils have been loading up infrastructure levies with non-essential capital projects merely to ˜capture perceived developer profits.
This process has killed projects, because without profits, there is no incentive for the private sector to build.
If government acts on this aspect of the report, there will need to be a major re-think of the existing approach to development levies.
The admission that existing State stamp duties, on property conveyances are highly inefficient and that they distort both residential and business use of property, was inevitable.
The next step is for state and federal government to actually do something about it.
They can start by limiting stamp duty to land value only when off-the-plan sales contracts are entered into.
This has worked in Victoria, and in NSW where it has been introduced on a temporary basis, and would help reduce distortions across the rest of the country too.
State governments should take a hard look at themselves on the issue of land tax, following the findings of the Henry review.
The report finds that levying higher land taxes on larger holdings discourages investment in rental housing by institutional investors.
The report also finds that land tax rates should be based on the value of a given property, so that the tax does not discriminate between different owners or uses of land.
Developers holding land for re-development are bearing high land taxes, which are exacerbated by delays caused by the planning system.
The Federal Government was right to rule out the Henry reports proposals to reduce the value of negative gearing in securing investment in new rental properties.
Investment returns in the Australian residential housing market are likely driven by capital gains rather than by rental yield.
Reducing net rental losses and capital gains tax concessions would have reduced residential property investment.
Even the Henry review admits that changing the taxation of investment properties could have had an adverse impact in the short to medium term on the housing market.
The report concedes that in a market facing supply constraints, these reforms could place further pressure on the availability of affordable rental accommodation within the private rental market.
For more information (and source details) please read our fact sheet: