Federal Budget should deliver infrastructure for cities and avoid new property taxes

02 May 2011

The Federal government needs to keep faith with its past promises and use this years Federal Budget to support new urban infrastructure projects without imposing any new property taxes, according to the Urban Taskforce.


The Taskforces chief executive, Aaron Gadiel, said that city projects valued at $30.6 billion had been given priority by Infrastructure Australia, but were yet to receive federal funding.


The Federal Government had previously made it clear that it was going to move beyond funding ˜one-off transport projects, to a more enduring commitment, Mr Gadiel said.


The former Prime Minister, Kevin Rudd, had foreshadowed that the Commonwealth may foot a] significant part of the urban infrastructure bill.


Just as the Commonwealth allocates a pool of money for health and education, it should be annually allocating a pool of money to fund the transport infrastructure our cities desperately need, Mr Gadiel said.


So far, the Commonwealth has funded each major urban transport project with a one-off funding allocation.


There is no permanent promise of funding – adding significant uncertainty as to the Commonwealths long term commitment to this new area of federal responsibility.


Even if specific projects arent identified in the budget papers released next week, the government should be prepared to commit to an overall capital spend for new projects in the forthcoming financial year and forward estimates period.


This will give state and city governments greater certainty that federal money will be available for meritorious projects.


Mr Gadiel said that state governments can no longer afford to fund all of their cities infrastructure needs.


Its now widely accepted that the states need ongoing, sustained, federal assistance if they are to deliver on new motorways, new public transport services and expand outer suburban road networks. Mr Gadiel said the Federal Government should avoid any new taxes that would damage efforts to reduce the national housing undersupply. Were concerned at reports that the Federal Government is considering a new vendor tax for property investors and restricting negative gearing for investors in multiple properties.


Mr Gadiel said such tax changes would cripple Australias supply of new housing and have severe economic impacts.


Investors are an important source of funding for new home construction, Mr Gadiel said.


“Given that our national undersupply of housing now exceeds 200,000 homes, the government should be encouraging more investor participation in the residential property market, not less.


Investor activity in the residential market-place boosts the housing supply, by funding the construction of new homes that renters cannot afford to own outright.


Mr Gadiel said that higher density homes are preferred by many people because of their good locations and their relative ease to maintain.


But they are more expensive to build, he said.


Many people cant afford to fund these higher construction costs, and thats why investors have an important role to play.


Across the mainland state capitals, 56 per cent of medium and high density homes are occupied by renters.


Mr Gadiel said tax policy should not aim to force asset prices below their replacement cost.


If tax policy is used to deliberately engineer a collapse in prices for medium and high density homes, property owners, many renters and building workers will be left worse off, as new home construction dries up, he said.


Mr Gadiel said that investors are less likely to be purchasers of newly built detached houses, but said they did play an important role by purchasing the older stock of houses sold by families upgrading to newer and better stock.


Investors have an important role in making those older homes available to low and middle income families as rental housing, he said.


Upgraders may be unwilling to sell their older homes if tax changes significantly reduce prices in the market for these established houses.


Australia will lose out on the social and economic benefits of new housing, with lower and middle income families who need to rent a house missing out too.


The Urban Taskforce is a property development industry group, representing Australias most prominent property developers and equity financiers.


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