Wealthy biggest winners from housing tax concessions, report finds

23 September 2009

The Brotherhood of St Laurence today called for an overhaul of the excessively generous tax treatment of the most expensive homes based on the findings of its joint report with AHURI (Australian Housing and Urban Research Institute) that the biggest beneficiaries of tax concessions on owner-occupied residences are the wealthiest in the community.

The report (PDF file, 470 kb), Tax Expenditures and Housing, by Associate Professor Judith Yates from the Faculty of Economics and Business at the University of Sydney, finds that:

• The tax system provides indirect assistance to owner-occupiers worth about $45 billion annually.
• Most of this ($30 billion) is due to the exemption of owner-occupied homes from capital gains tax.
• Individual property investors benefit from $5.4 billion in tax concessions each year, mainly due to the 50% tax discount on capital gains and to negative gearing.
• Tony Nicholson the Executive Director of the Brotherhood of St Laurence, said: “The tax concessions on owner-occupied housing are unfair, wasteful, actually help put home ownership out of reach for many Australians and are in dire need of reform”.

“We urgently call on the Federal Government to remove the capital gains tax exemption on homes worth more than $1.1 million, which at roughly 2% of all owner-occupied dwellings is at the very top end of the property market. 

“Over time, State governments should consider removing the exemption from land tax for very expensive owner-occupied dwellings while at the same time removing or reducing stamp duty on lower-priced homes. Any resulting revenue gain should be used to fund measures to make housing more affordable for those in need, including providing more public and non-profit housing and more generous support for those on rent assistance.

“A particularly disturbing finding of the report is that for households in the top 20% of incomes, the average annual benefit of the exemption from capital gains tax on owner occupied housing is worth $8,000. That is almost seven times the benefit of $1,200 for households in the lowest 20 per cent of incomes.

“Clearly the concessions are very unevenly distributed throughout the community, with the owners of the most expensive properties and with the highest incomes getting much more benefit than anyone else.”

“Another disturbing finding is that each year we give away more in tax breaks to wealthy property investors than is provided to disadvantaged Australians through rent assistance.

“For example wealthy negatively geared property investors in the top 20% of incomes are getting around $4,500 from tax benefits in relation to investment properties. However, people from the poorest households who receive the top rate of Commonwealth Rental Assistance gain an average subsidy of just $2420 a year.

“Finally, a wealth of evidence suggests that these policies actually increase the cost of housing for disadvantaged Australians. 

“The favourable tax treatment of property ratchets up what people are prepared to pay, and consequently leads to higher housing prices. While many of us enjoy generous tax breaks on housing, the sting in the tail is that these tax breaks are, very often, pricing our children out of the property market.

“A secure home is vital to personal wellbeing, yet problems in housing affordability disproportionately affect young people struggling to get into the housing market and people on low incomes. Housing ownership has declined among these groups over the last two decades.

“So not only are we giving away billions of dollars worth of tax concessions to people who don’t need them, we are also pushing up housing prices for those least able to afford it. It’s time we took some action to make the housing market fairer and less inflationary.”

The Brotherhood of St Laurence–AHURI report is based on estimates using 2005–06 data.

Read the report, Tax Expenditures and Housing, here (PDF file, 470 kb).