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ABC News
12 minutes ago
- ABC News
As bold economic reform ideas go, an 'imputed rent' tax on home owners has precedents
As industry leaders and the federal government prepare for next week's economic summit, two economists have started a national conversation by arguing that, to make Australia's tax system fairer for all, we should consider taxing home owner-occupancy. This week, Peter Siminski from UTS Sydney and Melbourne University's Roger Wilkins said Australia's tax-free treatment of owner-occupied housing was allowing home owners to derive untaxed income from their homes, and it was an unusual privilege in our tax system. They said that, to make Australia's tax system work more fairly for everyone, we should consider taxing owner-occupied housing in some way (and cutting taxes in other areas of the economy). But how do home owners derive income from their homes? They were talking about two specific concepts: "Imputed rent " and "accrued capital gains". Imputed rent was part of Australia's income tax base from 1915 to 1923 and its reintroduction for taxation was proposed in 1975, although it didn't go ahead. What does "impute" mean? It means to assign a value to something by inference. In the case of imputed rent, that's the estimated rental value of your residential property. In 2022, the OECD published a useful paper surveying the different ways family homes were taxed in OECD countries. lt explained imputed rent this way: Part of the return to an owner-occupier housing investment accrues to the taxpayer in the form of living in the property rent-free. This in-kind return is known as imputed rent. The concept of imputed rent on owner-occupied property is motivated by the idea that the owner-occupier could rent out the property on the market to earn a rental income. However, refraining from doing so indicates that the value of the housing service to the owner-occupier must at least be equal to the forgone rent. While the property owner (making the investment) and the dweller (paying the rental income and consuming the housing service) are two separate individuals in the case of rented housing, they are one and the same person when considering owner-occupied property. Imputed rent is commonly exempt for tax purposes. This has been found to be one of the most significant drivers of the preferential tax treatment of owner-occupied housing. While mortgage interest relief for rental property allows owners [i.e landlords] to deduct costs that are associated with generating taxable rental income, mortgage interest for owner-occupiers is deducted without a corresponding taxation of imputed rental income [NB: Australia does not allow tax-deductibility of mortgage interest payments for owner-occupiers]. This generous tax treatment of owner-occupied housing results in negative marginal effective tax rates in some countries, effectively providing a tax subsidy for owner-occupied housing. To remove distortions in housing investment decisions and eliminate the homeownership bias, the taxation of imputed rents combined with mortgage interest relief has often been suggested as a 'first-best' policy approach. In practice, a range of conceptual, administrative and political considerations have made the taxation of imputed rental income difficult to implement in practice. Only four OECD countries (Denmark, Greece, the Netherlands and Switzerland) tax imputed rents, although at comparatively low rates and only under certain conditions. The OECD report shows how residential housing is taxed in different ways globally. It says property is taxed when it's purchased (acquisition of asset), when someone is living in it (holding of asset), and when it's sold (disposal of asset). All OECD countries levy recurrent taxes on immovable property. The report says owners of rental properties (that is, landlords) are taxed on their rental income, but in a minority of countries owner-occupiers are also taxed on imputed rent. Transaction taxes are commonly levied on housing purchases (eg: stamp duty). Capital gains taxes are levied on the disposal of housing (when a house is sold), although many countries (including Australia) exempt capital gains taxes on the sales of main residences. Inheritance and gift taxes may also be levied when property is transferred to heirs. The report also has a table of 38 countries that show how every country in the OECD taxes residential property (as of January 1, 2022). Here's a shorter version of the table: Of the 38 countries, only four countries tax owner-occupiers' imputed rent. They're included in the list above: Denmark, Greece, Netherlands and Switzerland. Notice how countries can use very different combinations of taxes on residential property. Professors Siminski and Wilkins did not say we should try to directly tax imputed rent in Australia. However, they said its existence, combined with the accrued capital gains that home owners receive from rising property prices, was contributing to growing inequality between renters and home owners. They said when we include owner-occupiers' imputed rental income and accrued capital gains in measures of household income, inequality is much higher in Australia than we think, and it's rising more strongly. They said it makes Australia's tax and transfer systems less "redistributive" than we think. For its part, the Australian Bureau of Statistics (ABS) also says that including imputed rental income in an analysis of Australian household income would allow for "more meaningful comparisons" of the income of people living in different housing tenure types. It says it would also better-capture how income levels and the distribution of income changed over time as people moved in and out of different tenure types. The ABS says net imputed rent is estimated this way: Net imputed rent is estimated as gross imputed rent less housing costs. For owner-occupiers, the housing costs subtracted are those which would normally be paid by landlords i.e. general rates, water and sewerage rates, mortgage interest, building insurance, and repairs and maintenance. When Professors Siminski and Wilkins said policymakers should consider taxing the family home to make housing more affordable and to remove the distortions in our tax system that were encouraging Australians to pour so much money into housing (which is a non-productive investment), they weren't necessarily calling for a direct tax to be whacked on residential properties. They were suggesting something more subtle. They were saying that, when we think about household income, if we make conceptual space for the existence of imputed rental income and accrued capital gains that Australia's home owners enjoy (both of which are untaxed), it would allow us to re-jig our tax system to make the system work more fairly for everyone, rather than its current heavy privileging of property owners. They said there were plenty of ways to fairly incorporate owner-occupied housing into our tax and transfer systems too, while simultaneously cutting taxes in other areas of our economy (eg: personal income tax). For example, we could use a broad-based land tax, or a broader wealth tax, or an explicit tax on owner-occupied housing wealth. And there was a "strong case" to reconsider the exemption of owner-occupied housing from pensions means tests. "We should have a national conversation on whether the current tax treatment of owner-occupied housing is sensible," they wrote. "Moving away from complete [tax] exemption would open up opportunities for reduced reliance on income taxes and more food on the table for renters and owners of modest homes."
ABC News
42 minutes ago
- ABC News
$110b 'red tape burden' slowing productivity, says Business Council, calling for Abbott-style audit
Cleaning up even a small amount of a $110 billion "red tape burden" could deliver billions in savings, the Business Council of Australia says, ahead of next week's economic reform round table. Years of accumulated regulations that have built up with little oversight have led to a compliance burden needlessly costing billions, the peak business body says. But there has been no significant red tape audit since the Abbott government in 2014, and no central agency tasked with preventing the build-up of rules duplications and inconsistencies. "The only way to sustainably lift living standards and grow real wages is through faster productivity growth," the council's treasury submission concluded. "We've identified 62 discrete examples in our own report, but these aren't the only 62 and there are going to be hundreds of other opportunities out there," chief executive Bran Black said. Among them are proposals to harmonise disparate schemes requiring businesses to comply with eight different regulatory regimes across states and territories, relax trading and delivery hours for retailers and fixing licensing rules for tradespeople, so that qualifications are recognised across borders. Ageing environmental laws holding up housing, resources and renewables projects, widely viewed as "broken", but which the government was unable to reform last term are a chief concern. The Business Council says productivity growth over the last decade is the worst it has been in 60 years, and that has also led to the slowest decade in income growth for 60 years. The outlook is even more dire. Just this week, the Reserve Bank further revised down its expectations for productivity growth into the future, attaching a warning that wage expectations would also have to be reduced, or else it would drive inflation. An alliance of nearly 30 industry groups has called for Australia to pursue a target similar to the UK government's of a 25 per cent reduction in the cost of regulation by 2030. Its chief executive Bran Black says if even a 1 per cent reduction in compliance burden was achieved, it would represent more than $1 billion in savings through lower costs, reduced delays and better choices. "Are there opportunities to consider overlaps, and where there are overlaps dispense with one of the overlaps? Do we really need, for instance, 36 different licences in Victoria in order to pour a first cup of coffee?" he asked. The BCA said the last "regulatory stocktake" under former prime minister Tony Abbott identified $65 billion in compliance burdens, $110 billion in today's dollars, and another $5 billion at least in new compliance costs since then had been identified by the government's Office of Impact Analysis. Mr Black said the government should launch a new red tape stocktake, and appoint a dedicated "minister for better regulation" who could ensure regular monitoring. Among its 62 'red tape' examples are inconsistencies across state borders on when retail stores can operate, what hours they are allowed to sell certain products and the hours workers are allowed to be onsite, for example to prepare ovens or cash registers. The BCA says hours are still "heavily regulated" in Queensland, Western Australia and South Australia despite the shift in consumer preferences to 24/7 online trade. Similarly hours of operation for major stores and distribution centres are limiting when businesses can receive supplies and restock, an issue that hampered supermarkets in responding to panic buying during the pandemic, the BCA says. The council noted curfews were temporarily lifted to allow 24-hour operation of freight delivery and restocking during COVID, and easing the rules again would improve efficiency and reduce road congestion. "There are some jurisdictions that are far more open and free ... our position would be ultimately businesses are best to judge whether or not they should be open ... at the end of the day they are not going to be open if there's not a clientele that they can serve," Mr Black said. "I'm not for a second suggesting regulation is unnecessary, we have just got to make sure we have got the right regulation." It is less than a week until the Economic Reform Roundtable, led by Treasurer Jim Chalmers, is due to begin. The BCA's submission comes a day after accusations from Opposition Leader Sussan Ley that the government was using the round table to orchestrate a "stitch-up", with pre-determined outcomes in mind, after the ABC revealed leaked Treasury advice detailing possible announcements from the event. Mr Black however maintained optimism that participants were entering with an open mind. "I would be surprised if a treasurer wasn't receiving advice from his or her department in relation to the kind of issues that might come out of a round table and which should therefore be on the agenda for discussion," he said. "I genuinely think we should be approaching the round table with an open mind. We really do have a national productivity problem, and if that problem isn't addressed then that has an impact on your day-to-day quality of life."
News.com.au
3 hours ago
- News.com.au
Banks lead the charge as ASX finishes heavily in the green
Shareholders have shrugged off the potential for fewer interest rate cuts, as strong earnings particularly out of Westpac drive the ASX 200 higher. The benchmark ASX 200 closed 46.70 points, or 0.53 per cent, higher to finish the day at 8,873.80, while the broader All Ordinaries finished 46 points or 0.51 per cent higher to 9,149.10. The Aussie dollar slipped 0.14 per cent and is now buying 65.41 US cents. Overall eight of the 11 sectors finished higher, led by utilities and financials stocks. The bounce in financials comes just a day after the Commonwealth Bank announced its results which dragged the sector lower. Westpac shares soared 6.31 per cent to $36.04 after the banking giant announced its unaudited statutory net profits for the last quarter jumped 14 per cent to $1.9bn. Its all important core net interest margin was up 0.05 per cent to 1.85 per cent, while revenue jumped 4 per cent. Shares reached a decade high on the result. NAB jumped 1.89 per cent to $38.88 and ANZ gained 1.98 per cent to $32.50 on the back on Westpac's results. CBA continued its slide, down 1.13 per cent to $167.21. Kodari Securities founder and chief executive Michael Kodari said big banks would likely drive the market higher. 'The big four continue to offer attractive value, particularly when compared to global peers,' he said. 'Following strong profit and fresh all-time high for Westpac, there could be more gains from the big banks over the next six months, likely taking the S&P/ASX 200 to a fresh record by the year's end.' Investors also shrugged off figures released by the Australian Bureau of Statistics showing the unemployment rate fell to 4.2 per cent in July, from 4.3 per cent, despite it impacting future rate cuts. VanEck head of investment and capital markets Russel Chesler said the data-driven Reserve Bank could pause further interest rate cuts. 'To nip inflation in the bud – an outcome that should help ease cost of living as well as interest rates – we think labour conditions need to loosen more than they have to date,' he wrote in an economic note. 'The unemployment rate is still at historically low levels.' On a jammed pack day of reporting, Telstra shares slumped 2.61 per cent to $4.85 after the telco announced statutory net profit for the last financial year came in at a substantial $2.17bn, up nearly 34 per cent on this time last year. Healthcare imaging software group Pro Medicus posted a 40 cent increase in net profits to $115.2m on the back of new contracts in American hospital and radiology clinics. Shares jumped 6.24 per cent to $315.69 on the back of the announcement. Suncorp Group shares rose 3.64 per cent to $20.77 after it announced its net profits after tax came in at $1.8bn after the business benefited from a favourable natural hazard experience and positive net investment income of $766m. Redbubble parent company Articore announced it had its first profitable fourth quarter in five years, albeit on an EBIT basis. Overall net profit after tax improved 77 per cent to negative $1.4m. Articore Group shares were up 5.77 per cent to $0.275. Furniture retailer Temple and Webster shares soared 8.75 per cent to $28.35 after announcing record revenues of $601m for financial year 2025, up 21 per cent compared to this time last year.
