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"Capital gains tax deductions for housing investment should be removed because they overstimulate the housing market, contributing to rising house prices."

Overview of poll results by Maria Yanotti

Supporters of the statement claim that the current CGT discount on nominal gains provides incentives to over-invest in property rather than other income-producing assets.

Those against the statement argue the timing may not be right as the housing cycle is currently at its peak, and the double digit house price appreciation rates are only seen in the inner-ring suburbs of metropolitan cities and only for houses and not apartments.

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NEP Q16 - Chart 1 (Responses)

NEP Q16 - Chart 2 (Responses weighted)

Panellist responses

Name Response Confidence Comment
Peter Abelson

ABELSON, Peter
Uncertain (neither agree nor disagree) 7 Arguably CGT should be less concessionary across the board (though not on CPI component of gain) but change should be general not discriminatory on one asset class.
Kym Anderson
ANDERSON, Kym
     
Gary Banks

BANKS, Gary
     
Gary Barrett
BARRETT, Garry
     
Harry Bloch
BLOCH, Harry
Agree 10 My reason for agreeing with removal of capital gains tax concessions for housing investments is based on equity considerations rather than the nebulous idea that the housing market is "overstimulated". I'd be surprised if the capital gains concessions have much impact on the quantity of housing available, although perhaps some impact on its composition. There is an important concession available to all investors in capital assets through not having to declare any income until the asset is sold. That benefit and the use of negative gearing likely have much more impact on individual decisions to invest in housing than does the capital gains tax concession. Paying a bit more tax when the houses are eventually sold seems a modest contribution from investors to the public purse.

Jeff Borland
BORLAND, Jeff

Agree 8  
David Butler
BUTLER, David
     
Matthew Butlin
BUTLIN, Matthew
Agree 6 In my view the case for increasing capital gains tax on investment in property is that by reducing returns to property investment it reduces speculative exuberance in the property market and moves closer to taxing the real return on property in a low inflation world.
Lisa Cameron
CAMERON, Lisa 
Strongly agree 9  
Fabrizio Carmignani
CARMIGNANI, Fabrizio
     
Bruce Chapman
CHAPMAN, Bruce
Uncertain (neither agree nor disagree) 10 I just don't know.
Deborah Cobb-Clark
COBB-CLARK, Deborah
Agree 8  
Max Corden
CORDEN, Max
     
Lin Crase
CRASE, Lin 
Agree 8 The rationale for removal of favourable taxation arrangements for specific assets is broader than concerns about high housing prices.
Kevin Davis
DAVIS, Kevin
Strongly agree 10 The issue should not be restricted to houses - in fact to do so would probably introduce other types of distortions. Rather, a return to full taxation of real capital gains would make sense. The practical problem is whether/how past unrealised capital gains could/should be grandfathered.
Brian Dollery
DOLLERY, Brian
Strongly disagree 9 The current capital gains tax regime predates the the present boom in house prices. It cannot thus be held responsible for the rapid rise in housing prices in Melbourne and Sydney. Instead other demand factors, especially high levels of international immigration which is concentrated in Melbourne and Sydney, are much more important.

Uwe Dulleck
DULLECK, Uwe

Strongly agree 9 Lower taxes on one form of investment over another will increase relative prices for the assets in question. Thus for reason of biasing investment decisions alone this is not a good policy (even when one ignores the public finance and distributional implications). Whether property prices are affected depends on the capacity of the construction industry and the elasticity of supply. I find it likely that the elasticity of supply is not sufficient to compensate for the overinvestment in this asset leading to increased property prices. The increase in supply may have beneficial effect on the rental market or at least in segments of the rental market. Unfortunately, given a shortage of supply, I do expect that rents have increased with the increase in housing prices.
Mardi Dungey
DUNGEY, Mardi
Agree 9 This area is complicated by the treatment of housing investment and owner-occupied housing for superannuation. Preferential tax treatment of capital in the form of housing creates a relative bias against other forms of capital investment, including that of small business premises. The argument that there will be insufficient property available for the rental market in the absence of an added incentive to invest in rental properties is spurious - this can be addressed in alternative and more directed ways.
Chris Edmond
EDMOND, Chris
     
Henry Ergas
ERGAS, Henry
     

Saul Eslake

ESLAKE, Saul
Disagree 9 I disagree with the question as it has been framed here. It asks whether capital gains 'deductions' (not 'concessions' or 'exemptions') for 'housing' (not 'all assets, including housing') should be 'removed' (not 'reduced'). I think there is a legitimate case for some concessional treatment of capital gains in order to avoid taxing that component of capital gains which is purely attributable to inflation (which the 1985-1999 regime sought to do), though I think that concession should also be extended to interest income (and denied to interest expenses). And I don't think housing should be treated either preferentially or more harshly than other investment assets.

If the question had been framed as "should capital gains be taxed less generously/concessionally/favourably relative to other forms of income" then my answer would have been "strongly agree" and I would have had a 10-level confidence in that opinion.

If the question had been asked as "should interest expenses and other deductions against capital gains income be treated less generously than under current taxation laws" then again my answer would have been "strongly agree" with a 10-level confidence.

However, these weren't the questions that were actually asked.
Allan Fels
FELS, Allan
     
Gigi Foster

FOSTER, Gigi
Disagree 5 The longer-run effects of implementing full capital gains taxation on housing investment are not obvious, but may well include upward pressure on housing prices due to weaker incentives to develop and supply properties to the market. If the policy goal is increased housing affordability, then other levers should be considered, such as government auctioning of the right to re-zone urban areas in order to build upwards.
John Freebairn
FREEBAIRN, John
     
Paul Fritjers
FRIJTERS, Paul
Strongly agree 9 This has been a no-brainer for years. Subsidise housing purchases increases the price of houses and distorts incentives. One probably would need to phase them out though rather than remove them in one go because so many people are heavily leveraged on the expectation that the subsidy would remain.

Lata Gangadharan

GANGADHARAN, Lata

     
Ross Garnaut
GARNAUT, Ross
     
Robert Gregory
GREGORY, Robert
     
Stephen King
KING, Stephen
Disagree 7 The deductions (negative gearing) cannot be considered in isolation. The problem is that the current tax mix (capital gains tax discount of 50% and 'negative gearing') allows wealthier individuals to move highly taxed income to lower taxed capital gains using housing as a vehicle. A better solution might be to remove the capital gains tax discount on housing (or more generally) to stop housing being used as a vehicle to reduce tax at low risk. It is far from clear that this will reduce housing prices in the long term, but it will close a tax loophole used by wealthier Australians.
Geoff Kingston
KINGSTON, Geoffrey
Disagree 6 There should be a level playing field for the tax treatment of capital gains across different investment vehicles. What is needed is a lower effective tax rate on investments in superannuation by people of middle means. That would take some pressure off housing prices, as well as reducing calls on the Age Pension.

Michael Knox

KNOX, Michael
Strongly disagree 8 The proposal to increase capital gains tax on housing investment is part of a proposal to increase capital gains tax generally.

Increasing capital gains tax reduces the return from investing. This would result in a reduction in the rate of private fixed capital investment. This in turn would decrease employment growth.

While superficially aimed at" the big end of town" this proposal in the end would damage ordinary workers jobs.
Rodney Maddock
MADDOCK, Rodney
Strongly disagree 9 Capital gains tax concessions represent good policy supporting patient investment in a world where asset prices are subject to inflation. Their removal would lead to inflationary gains being taxed, even when their have been no real increase in value: that would be bad policy.

The fundamental problem is not with the principle of concessions for capital gains but rather with the level: the current concessional treatment is excessively generous. Cutting the rate drastically would reduce most of the potential for abuse.

Singling housing out for a different treatment from other investments is also poor policy. It will create distortions and lead to a whole new industry whereby housing is repackaged so it attracts the capital gains concession.
Tony Makin
MAKIN, Tony
Disagree 8 Singling out housing investment for discriminatory tax treatment is at odds with the neutrality principle - that all sectors in the economy be treated the same. Higher capital gains tax would create distortions and induce existing investors to hold property assets for longer, thereby reducing available supply. A la Tobin's q theory, any tax related slowing of house prices would also limit growth of the housing stock.
Warwick McKibbin
MCKIBBIN, Warwick
     
Doug McTaggart
MCTAGGART, Doug
Strongly disagree 8 Capital gains tax deductions were introduced to replace the CPI adjustment to try and ensure only real gains were taxed. If there is a problem with supply or demand in the housing market, it should be addressed directly.
Menezes photo Flavio Menezes
MENEZES, Flavio
Uncertain (neither agree nor disagree) 9 Removing the capital gain tax discount on the sale of investment properties will reduce the demand for housing and may lead to a decrease in price – the overall effect will depend on the impact of the removal on supply. I note that as long as taxpayers still benefit from the CGT discount on non-property investments, their investment decisions will be distorted away from property. Thus, I favour instead a complete overhaul of the individual (and corporate) tax system, with a simpler structure, and the elimination or capping of deductions, rather than changing only one aspect of the existing tax regime, which will create distortions elsewhere. Sadly, the Henry Tax Review covered many of these themes, but got nowhere.
James Morley
MORLEY, James
     
Margaret Nowak
NOWAK, Margaret
Uncertain (neither agree nor disagree) 10 I am certain I am uncertain about this because I am really not sure about the question!! Does it mean that the 50% discount (not a deduction?) on capital gains from housing sold after at least one year should be removed? Or is it talking about the availability of negative gearing, especially the option of deductions enabling offsetting losses on housing property against other income?

The 50% discount on capital gains available for capital gains made after holding an asset for more than one year should revert instead to the original legislation where the capital gain was discounted for the inflation over the period the investment was held. The current situation is extremely distorting to markets, not only the housing market, since it favours the short -term. Yes, it stimulates demand and pushes up housing prices.

The ability to offset losses on investments against earned income is also distorting the housing market. Aside from its impact on pushing up housing prices, the option of negative gearing is a disincentive to the optimal use of the housing stock and likely results in a distortion of the prices of different asset classes in the Australian market. The two in combination have been very detrimental to housing affordability for non-owners and have contributed in over-investment in housing in Australia relative to other assets.
Adrian Pagan
PAGAN, Adrian
     
John Piggot
PIGGOT, John
     
John Quiggin
QUIGGIN, John
Strongly agree 10 The subsidisation of owner occupied housing is one of the biggest distortions in Australian public policy, and leads to severe contradictions. Policymakers want both to increase the affordability of home ownership and to maintain high and rising house prices. Clearly, they can't do both.
Rana Roy
ROY, Rana
Strongly agree 9 Yes, this is a highly distorting subsidy that should be removed, as should every other subsidy that serves to inflate house prices. But the withdrawal thereof will not suffice to deliver a full correction to the distortions in this market. The increase in land values, which is the main component of the increase in house prices, is pure economic rent accruing to some at the expense of others. It should be subject to a land value tax at an appropriately high rate. This would serve simultaneously to constrain the increase in house prices; to discourage land hoarding and encourage its most efficient use; to transfer any economic rent generated to society as a whole; and to enable government to use these revenues to replace all manner of distortionary taxes. However, I don’t expect any of this to obtain so long as our Ministers continue to spend their time and energy buying up investment properties (though not of course the time and energy required to make the necessary entries in the Parliamentary register).
Peter Sheehan
SHEEHAN, Peter
     
Jeffrey Sheen
SHEEN, Jeffrey
Strongly disagree 8 In general, there is currently excess demand for new housing in Australia, and incentives to encourage investment in housing construction will remain vital for some time. Owner-occupied housing has a 100% capital gains deduction, while investors in housing only get 50%. Yet investors serve 30% of the market for housing, vitally accommodating people who need to rent. Making the deductions uniform may be a better idea, though politically impossible. Further, it should be noted that every year, investors also pay land tax, and the discounted present value of this over the life of the investment can be significant.
Hugh Sibly
SIBLY, Hugh
     
stepledon photo (2)Nigel Stapledon
STAPLEDON, Nigel
Disagree 7 Not clear whether this question relates to investors or owner-occupiers or both but I assume the latter. It is obviously true that if the cost of capital is raised for buyers it will dampen demand. But housing has and always will be cyclical, the key being that it is a leveraged investment by both investors and owner-occupiers, and we observe this volatility across countries with a range of different tax treatments. There is an inflation tax component to capital gains and if we look at the equity market experience since 1999, the effective tax rate has been high. Tax changes need to be made with all asset markets in mind not just the housing market and not just the short term. The origins of the current boom (in Canada, UK, NZ, coastal markets in the US, and Australia) are interest rates which now appeared to have passed their low, so the probability is that tax changes will hit a market on the way down.

The other point is that, beyond the short term, the real issue with housing is and remain supply constraints. I might just mention that Hilber (2016) estimated that regulatory controls add 35% to the cost of housing in the UK - rough estimates suggest that the impact is also very significant for Australian cities. That too may economists appear to support the populist view that tweaking the tax system is the answer rather than fundamental reform on the supply side is disappointing.
John Tisdell
TISDELL, John
     
Joaquin Vespignani
VESPIGNANI, Joaquin