Tax experts: Unwind CGT discount, don’t use super for housing

By Leith van Onselen

The peak body for the tax profession has thrown its hat into the ring on housing policy, calling for the pre-1999 treatment of capital gains tax (CGT) to be reinstated and opposing the proposal to allow first home buyers (FHBs) to access their superannuation to purchase a home. From The AFR:

Robert Deutsch, the Tax Institute’s recently appointed senior tax counsel, said the 50 per cent discount had reached its use-by date…

“[The CGT discount] was designed to compensate for the move away from indexation but if one looks back over the last 10 years the rate of inflation has been remarkably low”…

“A blanket discount is probably therefore much too generous at this point. Computer technology makes cost base adjustment calculations to reflect CPI changes an easy two-minute task”…

“Super was originally designed with the intention that monies raised through the superannuation system would be made available for the purposes of peoples’ long-term retirement”…

“And with the aging population and advances in medical technology that is going to be for most people a very long retirement.

“They will need a large nest egg when they retire and with current rates of contribution at 9.5 per cent are probably not going to get us there.

“But if you now introduce a mechanism where people are allowed to withdraw money from super to pay for housing needs, we’ll diminish that nest egg substantially… To me it’s a crazy idea”…

Deutsch arguments are similar to the recommendations from Deloitte, which called for the CGT discount to be pared-back on the basis that it is “too generous”:

Our conclusion? The current CGT discount is too generous, to the extent that it undermines the very principles of this nation’s progressive personal income tax system. It’s time for a change. Reform of the concession is long overdue.

They also echo recent sentiments from Unisuper chairman, Chris Cuffe.

The Parliamentary Budget Office has previously estimated that cutting the discount to 40% would provide a four-year Budget saving of $2.3 billion, whereas cutting the discount to 25% would save $5.7 billion over four years, and removing it altogether would save the Budget $10 billion. In a time of deep Budget deficits such savings are money for jam.

By contrast, allowing FHBs to access their super for housing would not only be self-defeating from affordability perspective – since it would raise prices (other things equal) – but it would also put people’s retirement nest eggs at risk and could blow a massive hole in the Budget.

The Coalition would be wise to heed the Tax Institute’s advice.

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Comments

  1. While they’re at they should reduce the 2.5% building allowance to 1% for new dwellings only. This write off costs about $2 billion a year and is the main component of the loss making part of the negative gearing since most properties are geared to be cash neutral with the non-cash write off being the amount that makes up the loss.

    • I’ve been saying this for a while although I would scrap the building allowance entirely.

      But you make a good point, the total building allowance deductions claimed each year is a substantial component of the overall net rental losses.

  2. The CGT may be only one factor in the creation of the housing bubble, but If you look at the timeline for when it really took off, it’s introduction was like lighting the touch paper.

      • No he is not an idiot.

        Parsons though might say in the modern world most investments are on revenue account anyway.

      • …and that would be right as well. The notion of “capital gain” in quaint and antiquated.

        It’s just part of the return on investment.

      • Agreed. Finance theory has moved on since 1936!

        Hence why Henry’s 40% discount for all investments is sensible.

    • naturaltrustMEMBER

      Do you also agree with The Tax Institute’s desire to increase and broaden GST, Jason.

      The Tax Institute is a muddled group of supporters of accountants. The best system would remove GST and Capital Gains Tax altogether; but then a lot of accountants would lose their jobs, so don’t expect any real attempt to reduce the complexity of taxes by the Tax Institute.

      The Tax Institute is most interested in a complex tax system to employ more of their members.

      Re GST:

      “The Tax Institute urges the Government to adopt in its Tax Reform White Paper a policy of shifting away from being dependent on income tax for the bulk of revenue collections towards more simple and efficient consumption taxes such as the GST. ”

      “The Tax Institute is of the view that serious consideration needs to be given to a
      broadening of the base to which the goods and services tax (GST) applies and to
      whether the 10% rate is an appropriate rate to maintain going forward.
      By comparison, Australia has one of the lowest rates of GST among Organisation for
      Economic Co-operation and Development (OECD) countries and a smaller than
      average base (due to the number of exemptions) than other OECD countries with a
      GST or VAT51”

      That being said; Superannuation should probably not be used to buy homes unless we change other variables in the property demand, price and tax mix, and, CGT should be completely eliminated and other variables in the property demand, price and tax mix also adjusted dropped or introduced.

  3. mild colonialMEMBER

    nice try lobby groups but those ideas don’t have the ring of loon pond to them. Where’s the fun in evidence-based policy when you can scream and squawk while rending the social fabric. Move right along.

  4. “A blanket discount is probably therefore much too generous at this point. Computer technology makes cost base adjustment calculations to reflect CPI changes an easy two-minute task”…

    This. If there is a reason why we’re not doing this I’d like to know.

  5. Yep.
    Chris Cuffe

    Chris has many years of experience in building successful wealth management practices. Joining Colonial First State in 1988 and becoming CEO two years later, Chris took the company from a start up operation to Australia’s largest investment manager.

    Chris joined Challenger Financial Services Group Limited in 2003 as Chief Executive Officer and subsequently became Chief Executive of Challenger’s Wealth Management business.

    In 2006, he joined non-profit organisation Social Ventures Australia (SVA) as an Executive Director, a position he held until May 2009, when he became Chairman of the SVA Future Trust.

    Chris is now involved in a portfolio of activities including a number of directorships, managing public and private investments and in various roles assisting the non-profit sector. In particular, he is:
    • Chairman of UniSuper, the $55 billion superannuation scheme servicing the staff of universities and related institutions across Australia
    • Chairman of Fitzpatrick Private Wealth, a national wealth advisory firm
    • Chairman of Atrium Investment Management, an investment management firm
    • Non Executive Director of Global Value Fund, Antipodes Global Investment Company and Argo Investments, each of which are listed investment companies
    • Chairman and Founder of Australian Philanthropic Services, a not for profit organisation which inspires, facilitates and educates Australia’s high net worth community and the professional advisers that support them about effective philanthropy
    • Founder, Director and Portfolio Manager of Third Link Growth Fund (thirdlink.com.au), a managed investment scheme (investing in Australian shares) and available to the public whereby all management fees received are donated to charity; and
    • Director of Cuffelinks Pty Ltd.

    Chris holds a Bachelor of Commerce from the University of NSW and a Diploma from the Securities Institute of Australia. He is a Fellow of the Institute of Chartered Accountants in Australia, a Fellow of the Institute of Company Directors and an Associate of the Financial Services Institute of Australasia.

    In October 2007 Chris was inducted into the Australian Fund Manager’s RBS Hall of Fame for services to the investment industry.

  6. proofreadersMEMBER

    “The Coalition would be wise to heed the Tax Institute’s advice.”

    It’s not in the Coalition’s self-interest, plus they’re not long on common sense.

    • Lol. Increasing supply meaningfully takes years or decades. and it hasn’t happened in the last 2 decades despite prices quadrupling.

      Taking speculative demand out of the market can be done overnight.

      I’ll take the second best solution, thanks.

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