Model tips renter peril in tax change

RENTERS would be forced to fork out more cash each week and fewer dwellings would be built if capital gains tax is increased, the housing industry has warned.

Modelling released today shows increasing CGT would boost Federal Government revenue $500 million a year but would be dwarfed by stamp duty tax losses to states in excess of $1 billion annually.

The study, commissioned by the Housing Industry Association, takes aim at the federal Labor Opposition’s proposal to halve the capital gains discount for all new assets, warning it would increase the cost of rent- ing and exacerbate the housing affordability crisis.

The Centre of Economic analysis found that, while increasing the tax on investment homes may initially benefit first-home buyers, over time this gain would be lost as rental costs rose, leading to higher house prices that would once again force first home buyers out of the market.

Labor dismissed the report’s warnings saying it did not model the impacts of grandfathering and did not model the proposed changes to negative gearing, which it says are key features of its housing policies.

HIA’s principal economist Tim Reardon said governments could not afford to tax their way out of the housing affordability problem.

“Increasing the tax on housing will result in less investment in housing, fewer houses being built and inevitably a worsening of the affordability challenge,” Mr Reardon said.

“Addressing affordability requires co-ordinated effort by all tiers of government to allow the industry to respond with the type and location of housing required to satisfy the pentup demand.

The modelling found that increasing the tax on capital gains was most likely to push up housing costs across the board, including rents as well as the prices first homeowners paid to buy property reduced economic activity and household consumption

Treasurer Scott Morrison said it was another independent report that had warned of damaging impacts as a result of Labor’s tax increase proposals.

Labor’s treasury spokesman Chris Bowen said winding back tax expenditures like the CGT tax discount was more equitable and designed to stimulate new housing supply.