A new report by the Australia Institute highlights how low income households get no direct benefit from the CGT exemption, that is a tax concession that sees the primary place of residence (PPOR) exempt from paying any capital gains on any price appreciation at disposal. Combined with the 50% discount on CGT for investment properties (and other assets held more than 1 year), this concession is dearly costing the budget bottom line with nearly $50billion written off in 2015/16 alone.
The report aims too low by only trying to remove the exemption on sales above $2million, which constitute less than 1% of all owner-occupied homes. It should apply to every home regardless, alongside the removal of State stamp duty.
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The report argues for the removal of the exemption for homes worth $2 million or more. Modelling in the report shows removing the capital gains tax exemption for these homes would boost the budget by $12 billion over four years.
According to the AFR, Australia Institute executive director Ben Oquist said the 50% capital gains tax discount should also be looked at.
“The discount and exemption are costing the budget tens of billions of dollars and while many other areas of tax reform would require compensation for the less well off, such as raising the GST, limiting or reducing the discount or exemption would affect only the very wealthy, be good for the economy and potentially be a multi-billion-dollar budget boost.”
The report claims the capital gains tax exemption on the main residence costs the federal budget more than defence, education or Medicare. It is also a big factor in housing affordability in Australia.
“Reducing the concession is likely to have a positive impact by reducing distortions in the economy,” the report says, according to the AFR.
“At present the exemption encourages over capitalisation in main residences since any increase in their value is tax free. This has the effect of pushing up the value of housing and therefore making that housing less affordable.”
Exactly. Housing is a utility, nothing more, nothing less. A prosperous country is one where the cost of utilities fall and/or remain stable as their deliver increases in value. Regulating behaviour is the primary goal of taxation, and installing a tax on speculating or more precisely, relying upon capital gains is long overdue. . Its not just about shoring up the budget after Howard’s profligate and irresponsible “stewardship” either.