Why NSW is skewing its tax system toward build-to-rent apartments and away from mum and pop landlords


Harry Scheule, University of Technology Sydney

In an apparent about face, the NSW government has halved land tax for developers of build-to-rent housing.

It came weeks after the the Treasurer Dominic Perrottet launched a report that called for a greater reliance on land tax as a replacement for stamp duty.

The greater reliance on land tax is a long-term goal. At the moment family homes are exempt, along with boarding houses, caravan parks, retirement villages and farms. Most other users pay land tax, including landlords and businesses.

The change will give developers who invest in build-to-rent schemes offering long tenancies a 50% discount on their land tax for 20 years.

Why build-to-rent?

Most Australian rental properties are owned by individuals, units in apartment blocks as well as free-standing houses. Half are owned by landlords with only one property; three quarters by landlords with only one or two properties.

If you want to rent from a corporation, or from someone with wide experience in owning and renting properties, you’ll find it hard.

It makes Australia unusual.

Nails in walls can cause problems for tenants.

In other countries corporations rent out housing, big time. America’s five largest corporate landlords own 420,000 properties. Germany’s largest landlord, Vonovia, owns more than 330,000.

Overseas experience suggests corporations provide more affordable housing, and in many ways they make better landlords.

Individuals who own just one property have put most of their eggs in one basket.

Because they can’t afford for anything to go wrong they check the condition of the property regularly.

They prohibit nails in walls and pets, and typically offer only short-term leases.

Corporations can play the law of averages.

Because they know most properties will be well maintained they are satisfied with less-frequent inspections. They allow modifications, and typically offer long-term leases.

They offer an experience pretty close to ownership, in return for rent.

It’s this that the NSW government wants to encourage.

To ensure it happens and to ensure built-to-rents don’t revert to the Australian pattern of individual investors owning individual units, it will specify that the apartments have at least 50 units and are managed under unified ownership.

Tax makes it hard

At the moment such developments are discriminated against when it comes to land tax. No tax is due if the land value is below a threshold.

Individual landlords are usually below the threshold (some spreading their portfolio between multiple states to ensure they don’t trigger each state’s threshold).

Wholly-owned apartment blocks are above the threshold and can’t escape it. University of Technology Sydney calculations suggest land tax on build-to-rent developments can consume up to 27% of the annual rent collected.




Read more:
‘Build to rent’ could be the missing piece of the affordable housing puzzle


And they are subject to goods and services tax. They can reclaim some of it but not all.

The announcement comes at a time when the COVID crisis has cut stamp duty receipts and created an oversupply of vacant apartments, particularly around universities.

The initiative appears to have been crafted before the crisis and to be more forward looking. Many of the build-to-rent projects will take years to complete.

It’s about changing the mix

That said, any extra building activity will support the construction industry and extra stock will reduce home prices and rents.

The initiative doesn’t spell the end of mum and dad landlords. They will still predominate for a long time.

It’s about providing options and security for tenants that isn’t widely available and will become more important as a greater proportion of Australians rent.

Other states will be taking note.




Read more:
What Australia can learn from overseas about the future of rental housing


For a government that wants to eventually make land tax universal, the 50% cut is a step in the wrong direction. It might have been better to remove the threshold for small landlords.

But there’s no sign the NSW government has given up on its longer term goal. It’s unlikely to be the last time land tax rules are changed.The Conversation

Harry Scheule, Professor, Finance, UTS Business School, University of Technology Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Cutting taxes for the wealthy is the worst possible response to this economic crisis


John Quiggin, The University of Queensland

Australia’s response to the health and economic impacts of the COVID-19 pandemic is rightly considered one of the world’s best. At their best, our federal and state politicians have put aside the sterile games dominating politics for decades.

It seemed possible these efforts might last, as politicians sought to find common ground and make real progress on issues such as climate change, industrial relations and inequality as part of the coronavirus recovery.

But as soon as the virus seemed to be receding, politics returned to the old “normal”. Policies are again being put forward on the basis of ideological reflexes rather than an analysis of the required response to our new situation.

There is no more striking example than the federal government’s reported plan to bring forward income tax cuts legislated for 2024-25. The idea apparently has backbench support.

Those cuts will benefit high-income earners the most. They include replacing the 32.5% marginal tax rate on incomes between A$45,000 and A$120,000, and the 37% rate on incomes between AA$180,000, with a single 30% rate up to A$200,000.

This is being proposed while the government begins to wind back income-support measures, such as free child care, with much more serious “cliffs” fast approaching.

This economic crisis is different

One of the most striking features of Australia’s initial response to COVID-19 was the speed at which the Morrison government abandoned a decade of rhetoric denouncing the Rudd Labor government’s response to the Global Financial Crisis.

In mid-March the government was floating the idea of a tightly limited response with a budget of A$5 billion. By the end of the month this had been abandoned in favour of the JobSeeker and JobKeeper schemes, estimated to cost A$14 billion and A$70 billion respectively. Other schemes brought the total to A$133 billion.

Despite the close resemblance to the Rudd stimulus packages, there was one crucial difference.

The GFC caused a collapse in the availability of credit, potentially choking off consumer demand and private investment. This was the classic case needing demand stimulus.

By contrast, the COVID-19 pandemic caused a shock to the production side of the economy, which flowed through to incomes. Millions of workers in industries such as tourism, hospitality and the arts were no longer able to work because of the virus.

The crucial problem was to support the incomes of those thrown out of work, and keep the businesses employing them afloat until some kind of normality returned. There were problems with the details of eligibility and implementation of the JobSeeker and JobKeeper programs, but the response was essentially right.

Have cash, will buy luxury car

The primary rationale for early tax cuts is that they will stimulate demand. But the economy’s real problem is not inadequate demand – particularly not on the part of high-income earners.

On the contrary, the problem for high-income earners is having a steady income even as many of the things they usually spend on (high-end restaurant meals, interstate and overseas holidays) have become unobtainable.

Among the results has been a splurge on luxury cars. Compared to June 2019, sales of Mazdas, Hyundais, Mitsubishis, Kias, Nissans and Hondas last month were all down. But Mercedes-Benz, BMW, Audi and Lexus were all up.

As Jason Murphy notes, this rush to buy fancy cars isn’t definitive proof the wealthy are looking to ways to spend all the money they’re saving. “But it is suggestive. Eventually the money has to go somewhere.”

The worst possible course of action

The continuing problem with the pandemic is the loss of income faced by millions of workers. By definition, anyone in a position to benefit from a high-end tax cut doesn’t have this problem. Equity would suggest that, far from receiving more income, they should be sharing more of the burden, if not now then in the recovery period.




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When the federal government legislated its tax-cut schedule in advance, critics including Reserve Bank governor Philip Lowe and Access Economics partner Chris Richardson pointed out the danger of promising future tax cuts based on projected growth. The same policy had failed ignominiously in the 1990s when the Keating government legislated tax cuts to be introduced after the 1993 election. After declaring the cuts “L-A-W”, Paul Keating was forced to withdraw half of the tax cuts when the budget deteriorated.

These criticisms have now been vindicated.

The decade of strong economic growth, starting this year, that was supposed to make big tax cuts affordable has disappeared. We will be lucky if per capita GDP is back to its 2019 levels by 2024-25, when the tax cuts are slated to kick in regardless of circumstances.

Once that happens, we will need all the tax revenue we can get to bring the budget back into balance and deal with the continuing expenditure needs the pandemic has created.

The government now seems to be headed for the worst possible course of action – cutting support for those hit hardest by the pandemic while pouring money into the bank accounts of the well-off.




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Forget JobSeeker. In our post-COVID economy, Australia needs a ‘liveable income guarantee’ instead


The inevitable result of such a policy will be a surge of personal and business bankruptcies, mortgage defaults and evictions. That will bring about the kind of demand-deficiency recession the tax cuts are supposed to prevent, superimposed on the continuing constraints created by the pandemic.

So far we have all been in this together. For high-income earners that means forgoing tax cuts promised in happier times and contributing more to the relief of those who need it most.The Conversation

John Quiggin, Professor, School of Economics, The University of Queensland

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Australia needs a six-month GST holiday



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Isaac Gross, Monash University

Treasurer Josh Frydenberg has spent billions trying to save us from recession. The winding down of JobKeeper scheduled for September means he’ll have to spend billions more.

Many of the stimulus measures talked about are focused on the traditional targets of infrastructure and residential construction.

But this recession is different to previous ones. It has wrought most of its damage to restaurants, retail, entertainment and the holiday industry.

These service sector industries employ the lions share of the Australians at risk.

No matter how much traditional stimulus we offer, very few baristas or chefs are going to be able to find work building high-speed rail lines.

The COVID recession requires a different response.

A GST holiday would fight the recession we’ve got

One that would work would be a GST holiday.

Instantly, and for the next six months, all goods and services covered by the 10% tax would become more affordable.

The concession would be timely, targeted and would generate the maximum economic bang for the government’s buck.




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It would be targeted because the GST doesn’t cover many of the goods people are already buying such as fresh food and medicines.

What it does cover is extra, less essential, spending on things such as clothes, tourism and restaurants – the exact kind of spending we need to stimulate.

Cutting income tax or cash splashes wouldn’t deliver as big a bang for the buck – much of the bonus would be saved, or spent in sectors that don’t require stimulus.

However the only way to get the GST discount would be to buy goods and services, many of them produced by workers who will need support.

It’d be direct money where it is needed

The benefit would also be progressive. Calculations by Peter Varela, an economist at the Australian National University, suggest that the poorest households pay the highest share of their income in GST.

Removing it would eliminate this burden, if temporarily, helping the poorest households the most.

Making it temporary would encourage Australians to spend right now.

A GST holiday that only lasted only six months would force households to consider bringing forward planned future purchases to the present, when they are needed, in the same way as the government’s six month extension of the instant asset write-off is meant to for businesses.

It’s been done elsewhere

The idea was considered by Australia’s treasury during the global financial crisis. Britain’s treasury did it, cutting its GST (called value added tax) from 17.5% to 15% for a year in a measure judged a success.

Britain is reported to be planning to do it again.

Germany has already done it. It has cut its value added tax from m 19% to 16% until the end of the year.

Australia baulked at the idea during the global financial crisis because it was considered too difficult to get the premiers to agree to it.

But it mightn’t be as difficult now. The COVID-19 response has generated a new surge in cooperation between state and federal leaders for the good of the nation.




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A fly in the ointment would be who paid for it. The six month holiday might cost A$35 billion. While the states traditionally receive the GST revenue, in this instance the bill for the cut should be paid by the federal government.

It’s the federal government that is responsible for managing the national economy. State budgets, already hard hit, shouldn’t be further damaged.

Over to you Treasurer Frydenberg. Your economic statement is due on July 23. The budget is due on October 6. You could do worse than emulate Germany and the United Kingdom.The Conversation

Isaac Gross, Lecturer in Economics, Monash University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Post-coronavirus, we’ll need a working tax system, not more taxes and not higher rates



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Neil Warren, UNSW and Richard Highfield, UNSW

Oliver Wendell Holmes Jr famously observed in 1927 that “taxes are what we pay for civilised society, including the chance to insure”.

Whilst tax as a price for civilised society is well understood, less appreciated is the second part of his observation – that tax provides a chance to insure against a crisis.

As nations emerge from the COVID-19 crisis with policies unthinkable just six months ago, and associated debts previously unimaginable, it is becoming clear that while some were well insured and able to respond rapidly, most were underinsured, exposing their civilisations to previously unthinkable risks.

In many ways Australia is an exemplar in its use of taxation to provide the “chance to insure”. It funds Medicare; the Pharmaceuticals Benefit Scheme; the Higher Education Loan Program; the Superannuation Guarantee Charge and contingency-based welfare payments.

COVID has exposed the weakness in our system

COVID-19 has exposed how underinsured Australia is in other ways. It will have to borrow heavily to protect the economy, but for many years won’t be able to impose the extra taxes that will be needed to pay down the debt.

Introducing new taxes or increasing existing tax rates would threaten what will be a fragile recovery.

The only realistic option is to review what Australia gives away, such as tax concessions, and what it fails to collect, as measured by the so-called tax gap.




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Did you cheat on your taxes? Here’s why your days may be numbered


The tax gap is the difference between the amount the Tax Office collects and what we would have collected if every taxpayer was fully compliant with tax law.

In 2016-17, the Commonwealth raised A$389 billion in taxes, intentionally gave away an estimated $166 billion and unintentionally failed to collect a further $30-35 billion that the Tax Office knows of.

Mapping out a pathway to winding back government debt and funding programs to better insure our civilised society has to begin with ensuring those who are not currently carrying their fair share of the legislated tax burden do so through reforms to reduce non-compliance.

Many of us aren’t paying the tax we should

The Tax Office conservatively estimates that non-compliance for the taxes it has so far examined is equivalent to more than 8% of the tax revenue it collected in 2015-16.

The Treasury also estimates that tax concessions in 2017-18 were equivalent to 41% of Commonwealth government revenue, or more than 9% of GDP (although it cautions against adding estimates together as reducing one concession can affect the use of others).

Given the scale of the Commonwealth response to COVID-19, the government will need additional tax revenues of around 2.5% of GDP (about $50 billion) for some years.

This should not prove insurmountable. In comparison with other advanced economies, Australia is a relative low taxer with a total tax burden of 28.6% of GDP in 2017-18, well below the OECD average of about 34.5%.

There’s revenue going begging

The tax gap estimates show billions can be raised from integrity measures such as addressing overclaimed work-related expenses ($3 billion), unreported cash wages ($1 billion) unreported rental property net income ($2 billion) and unreported business income ($2-3 billion).

There’s much more available from reducing tax concessions, removing the personal tax-free threshold, winding back retirement savings concessions, and broadening the goods and service tax (especially from fully taxing the food that is already partially taxed).

Lower income groups affected by the changes should be compensated by improved targeting of expenditure programs.




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Cabinet papers 1998-99: how the GST became unstoppable


Right now we’ve a near-universal welfare system and a targeted tax system.

The way out of our present problems is to make the tax system more universal and the welfare system more targeted.

New taxes and higher rates should be resisted, especially if made more palatable by more concessions.

What we are proposing would not only result in a tax system that was simpler and harder to escape – but one that was capable of funding the insurance we will need to preserve our society into the future

There’s no reason to think there won’t be another pandemic exposing the weaknesses in our tax system that remain.The Conversation

Neil Warren, Emeritus Professor of Taxation, UNSW and Richard Highfield, , UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

A temporary income tax hike is the bitter but equitable pill Australia should swallow



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Jonathan Karnon, Flinders University

We’re all in this pandemic together. But we’re currently leaving it to a small proportion of the community to shoulder most of the economic pain.

It’s an approach that’s compounding social and intergenerational inequity.

To date the Australian government has committed A$320 billion to support households and businesses during the COVID-19 pandemic. The Commonwealth’s net debt had been projected to peak this year at $392 billion and then decline. Now that debt is set to almost double.




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Vital Signs: Scott Morrison is steering in the right direction, but we’re going to need a bigger boat


Paying the debt will likely take decades. The burden will fall mostly on younger generations, through higher taxes or reduced public services such as health care and education.

Younger workers are also bearing the brunt of the immediate economic effects. Industries with the biggest proportion of young workers have been hit hard. In arts and recreation services, a quarter of workers are under the age of 25. In retail it’s about a third. In accommodation and food services it’s almost half.

In the past, governments have imposed temporary levies after natural disasters to pay for recovery efforts.

But the peculiar dynamics of this crisis open the opportunity to introduce a temporary levy now. This would enable those with secure incomes to share the pain and reduce the double impost on the younger generation.

Levy time

A temporary income tax levy is not unprecedented.

In 2014 the federal government implemented the “temporary budget repair levy” to reduce the budget deficit (then A$37 billion). Gross national debt was about $320 billion. The levy increased the marginal tax rate on the top income bracket (more than $180,000 a year) from 45% to 47%. It collected about A$3 billion over three years.

Given the magnitude of the deficit we now face, a similar levy makes sense.

An example levy is illustrated in the table below (based on income tax data from 2016). A 1% levy is applied to annual income between A$18,200 and A$37,000, a 2% levy to income between A$37,000 and A$90,000, a 3% levy up to A$180,000, and a 4% levy to income of more than A$180,000.



For someone on a median full-time income of A$1,463 a week, this would mean paying an extra A$17 a week in income tax.

Over a six-month period such a levy would raise about A$6.5 billion.

Consumption block

The main argument against raising income taxes is that it reduces incentives to work and lowers consumers’ disposable income, which dampens economic activity (and ultimately government revenue).

This, and the politics of tax, means governments usually wouldn’t dream of raising taxes during an economic crisis, because that would further reduce consumer spending and compound the downturn.

But the COVID-19 economic crisis is unique. It is suppressing spending by those with secure incomes because people are staying home.

Analysis published by The Sydney Morning Herald and The Age shows consumer spending fell to 13% below normal in late March. One-off government stimulus payments totalling A$5 billion reversed the downward trend in the first week of April. However, the effect of the one-off stimulus payments is likely to be temporary as higher-income earners, who didn’t receive a stimulus payment, continued to reduce their spending.

If people are spending less because there are fewer opportunities to spend, this novel aspect of the crisis reduces the likelihood a temporary increase in the income tax levy would have any negative economic effect.

Positive effects

Right now the costs of the COVID-19 crisis are being disproportionately borne by a small proportion of the population – the 700,000 Australians who have lost their jobs and about the same number relying on the JobKeeper wage subsidy.

Many of those who have lost their jobs were already in low-paid and insecure jobs.

As previous research on the longer-term effects of natural disasters has found, these types of economic shocks widen inequalities, with most people never making up the income they lose. A levy would reduce this inequity.




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An advantage of introducing a levy during the crisis is there is clear time-frame to end it. It could be tied to social distancing regulations, ending when spending patterns return to normal.

Alternatively, the government could set a specific date to review the levy. It has already done this for funding initiatives such as telehealth consults during the crisis.The Conversation

Jonathan Karnon, Professor of Health Economics, Flinders University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The dirty secret at the heart of the projected budget surplus: much higher tax bills



Bill shocks are the flipside of a surplus built on higher tax collections and tighter access to support payments.
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Peter Martin, Crawford School of Public Policy, Australian National University

The budget is bouncing out of deficit and is set to stay in surplus for the decade to come.

That’s what the April budget and the final budget outcome for 2018-19 tell us, and Thursday’s report from the Parliamentary
Budget Office doesn’t say any different.

It doesn’t have much choice. The Parliamentary Budget Office is required to take the government’s surplus and deficit projections for the next four years as given, and to take its economic forecasts and tax and spending announcments for the next ten years as given, whether realistic or not.

What it is allowed to do, and does once a year in a publication entitled medium-term fiscal projections, is to set out the implications of those projections.

Those implications, spelled out on Thursday, show the projected budget surplus to be so fragile as to be unrealistic, except the parts that rely on much higher personal income tax collections.

That’s right: much higher income tax collections per person, even after taking into account the coming decade of legislated tax cuts.

Middle earners hit hardest


Parliamentary Budget Office

But it won’t be higher for all of us.

The middle fifth of earners will pay far more of their income in tax in ten years’ time under the government’s projections, according to the PBO’s calculations. Instead of paying 14.9% of their income in tax, by 2028-29 they will pay 18.8%.

That’s after taking into account the long-term tax cuts the government pushed through parliament in May and went to the election on.

Without those legislated tax cuts, they would have been paying an extra 6.3% of their income in tax. With the legislated cuts (and others pencilled in by the PBO to keep the government’s tax take within its promised ceiling) they will be paying an extra 3.9%.

Put another way, the government’s tax cuts will undo some of the damage caused by bracket creep as more of each pay packet climbs into higher brackets, but not most of it.

It’s the same for pattern for the second-lowest fifth of earners. They will move from paying 5.3% of their income in tax to 9.9%, a near doubling, which is taken is taken into account in the surplus projections.




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Those future tax cut promises… they’re nowhere near as big as you’d think


The second-highest fifth will move from paying 22% of their income in tax to 23.4%, even after the tax cuts. The bottom fifth, who don’t pay much tax, will move from paying 0.6% to 1.2%.

Highest earners escape

But workers in the top fifth, which at the moment is workers earning above A$90,000, won’t pay a cent more, at least not on average.

The government’s projections, as spelled out by the PBO, have them paying less of their income ten years from today than they do today.

Put another way, they are the only fifth of the population that won’t be expected to wear pain to keep the budget surplus.



Parliamentary Budget Office

There are other contributors to the budget surplus. One is a pretty hefty assumed decline in growth in government spending over the next decade, amounting to 1% of GDP, taking government spending from around 24.9% of GDP to around 23.9%.

Much of it is projected to come from tighter eligibility criteria for payments, and measures to constrain their growth, something the PBO believes might be difficult to maintain:

The spending restraint seen over the past few years may be increasingly difficult to maintain over coming years given the length of time over which restraint has been applied, the pressures emerging in some spending areas, and the potential need for fiscal stimulus, noting that the projected improvement in the budget balance is mildly contractionary.

What it is saying, gently, is that it the longer the government attempts to restrain spending (for instance by imposing tough conditions on access to benefits and using debt collectors to recover alleged overpayments), the harder it will get.

And it is saying the government might need to spend in ways it hasn’t accounted for, including on measures to support the economy in the event of a downturn.

Budget conventions to the rescue

The projections assume the opposite of a downturn.

No blame should attach to this government for them, but our rather odd budget conventions dictate that the worse the economy is, the better the budget’s projections for economic growth. That’s right: the weaker our current economic growth, the stronger the budget’s projections for future economic growth.

The thinking is that over the long term, the economy should grow at roughly its long-term average growth rate. To get there when the economy is weak, as it is now, the budget assumes several years of stronger than normal economic growth to catch up.




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In this case it’s five years of stronger than normal economic growth.

The PBO contents itself with the observation that economic growth that was merely normal (or worse, remained weaker than normal) for some of those years would have a “significant and compounding effect on the budget position over time.”

The surplus is far from assured, and it shouldn’t be. The government might well find that it can’t and shouldn’t restrain spending on payments as much as is projected in the decade ahead, and it might find it needs to spend to support the economy.

It will almost certainly find that lifting the tax take on middle Australians from 14.9% of income to 18.8% is intolerable.The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Vital signs: we need those tax cuts now, all of them. The surplus can wait



If you’re going to stimulate the economy, it’s wise not to wait.
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Richard Holden, UNSW

In an enormous week for economic news at the start of the month, parliament passed the government’s three-stage personal income tax plan, and the Reserve Bank cut official interest rates to an unprecedented low of 1%.

It happened against the backdrop of a flagging economy in dire need of stimulus.

As the bank cut rates to a record low, its governor Philip Lowe again warned about the waning power of rates (monetary policy) to lift the economy.

At the Darwin community dinner after the board meeting he said:

Monetary policy does have a significant role to play and our decisions are helping support the Australian economy. But, we should not rely on monetary policy alone. We will achieve better outcomes for society as a whole if the various arms of public policy are all pointing in the same direction.

Lowe and many others – including yours truly – have repeatedly pointed out that spending on physical and social infrastructure can do what lower rates can’t do well – boost the economy while lifting its productivity. So, too would other productivity-enhancing reforms, particularly in the labour market.

And, of course, the government’s tax cuts will also stimulate the economy when they come into effect.

With tax cuts, timing’s the thing…

The obvious problem is that much of stimulus from those tax cuts will happen years from now, rather than today.

What the government should have done was insist on enacting all three stages of their tax plan immediately. Not staggered over several years, not in 2024-25. Now.

That would have, of course, pushed the budget into deficit in the short run, and that would would have run counter to the government’s narrative about being responsible economic managers.

But how responsible is it to prioritise one’s own political brand over the economic health of the nation?




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Let’s not forget where the timing of the government’s tax plan came from. 2024-25 is outside the budget’s so-called “forward estimate” period and thus the impact on the deficit or surplus projections is not apparent.

It was the same rationale that underpinned the glacial, decade-long pace at which the government’s “enterprise tax plan” was to move to a 25% company tax rate. And it is the same set of dodgy accounting tricks that Wayne Swan was a master of for everything from health to education spending commitments.

…and the timing could be immediate

Productive infrastructure spending is hard to enact quickly. Spending on social infrastructure like education and training has a long lead time.

And structural reform of the industrial relations system might is probably the hardest and longest of all to put in place.

They are real constraints.

The Reserve Bank faces another, the so-called “zero lower bound” of conventional monetary policy and the complexities and uncertainties of unconventional policies such as quantitative easing.




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But a government which won a mandate for its tax policies, and who frankly has the Labor opposition in a tailspin, could have insisted on all three stages of the tax cuts immediately.

The only thing standing between the economy and the aggressive fiscal stimulus it needs is the government’s obsession with balancing the budget regardless of the circumstances.

We’re not in the best of times

Don’t get me wrong, I think debt and deficits most certainly do matter. The government deserves credit for chipping away at the structural budget deficit, and we shouldn’t be running deficits in good economic times.

But we’re not in good economic times. We’re standing on the precipice of the first recession in nearly three decades. We’re looking at highly uncertain global conditions, domestic economic growth that has slowed to a trickle, sluggish wages growth, persistently high underemployment, and even the possibility of Japanese-style deflation.

The irony is that if, with the failure to enact sufficiently bold stimulus, we do tip into a recession, the red ink will flow all through the budget. Unemployment benefits and welfare payments will rise, personal and corporate income receipts will fall, GST revenue will drop. And young people who enter the labour market during a recession will suffer for years to come.

The downsides of not enacting sufficient fiscal stimulus far outweigh whatever benefits there are of a glide to path to budget balance while avoiding a recession.

It’s certainly not the time for hand-wringing

Coming back to Lowe’s admonition that we need the “various arms of public policy…pointing in the same direction”, here’s where we currently stand: The bank has acted, but far too late. For years it told us that 5% unemployment was as good as it could get long-term, to be patient and to wait for higher wage growth and inflation.

It’s been a mere five weeks since Lowe stopped impersonating Charles Dickens’ character Wilkins Micawber, who was fond of saying “something will turn up”.




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Now the treasurer Josh Frydenberg is giving us his version of the same routine. On one hand he says personal income tax cuts are crucial to boosting employment and spending. On the other hand, he says we’d better wait.

The Australian economy can’t afford to wait for aggressive stimulus. The government has shown more concern for its political brand than for our economic health.

It isn’t what a responsible steward would do.The Conversation

Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Build to rent could shake up real estate but won’t take off without major tax changes


Hal Pawson, UNSW

In the wake of slumping demand for apartment building, it’s little wonder the multi-unit housing industry has been eagerly eyeing a possible new residential product: “build-to-rent”.

In fact, the latest figures show that apartment-building construction starts were down 36% in 2018 from 2016. But how much will this little-known type of housing solve our housing problems?




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Build-to-rent won’t be a silver bullet solution for Australia’s housing affordability stress, but it does have potential to tick the box on several important public policy objectives. These include widened housing diversity, enhanced build standards, and a better-managed, more secure form of private rental housing.

But for this to happen, Australia’s tax settings need adjustment.

What is ‘build-to-rent’?

This refers to apartment blocks built specifically to be rented, usually at market rates, and held in single ownership as long-term income-generating assets.

The enduring owner might be, for instance, an insurance company, an Australian super fund, a foreign sovereign wealth fund, a private equity firm, or the building’s developer.

Although new in Australia, build-to-rent is quite common in many other countries. Under its North American name, “multi-family housing”, the format has generated more than 6.3 million new apartments since 1992 in the US alone. And in the UK, a build-to-rent sector has led to 68,000 units built or under construction since 2012.




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A scattering of build-to-rent schemes are already underway or completed, mainly in inner Sydney and Melbourne. And they may prove to be the forerunners of a new Australian residential property sector – but that is far from guaranteed.

In Australia, our private rental market is almost entirely owned by small-scale mum-and-dad investors, so this kind of housing would be a largely new departure from typical Australian real estate.

Potential benefits

The build-to-rent development model, involving a long-term owner commissioning an entire building, creates an incentive for higher, more enduring quality than the standard “build-to-sell” apartment development approach.

Importantly, build-to-rent is a long-run investment that caters for rental demand, which tends to grow steadily.

This means the model is largely immune to the fickle changes in housing demand resulting from typically short time horizons and primarily speculative instincts of individual buyers traditionally dominant in our market.




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So at its full potential, this new housing product could introduce a valuable counter-cyclical component into the notoriously volatile residential construction industry, helping to offset damaging booms and busts. In other words, build-to-rent can create stability in the Australian property market.

How build-to-rent can incorporate affordable housing

Optimistically, some have claimed build-to-rent could also provide an “affordable housing” fix for many earners who are doing it tough in our existing private rental market.

But this could be possible only with the aid of major government funding or planning concessions.

Ideally, housing at rents affordable to low or moderate income earners would be included in predominantly market-rate build-to-rent schemes. Indeed, one major construction industry player recently advocated this as a standard expectation.

So how should affordable housing be provided in this case?

To find out, our analysis compares the cost of developing affordable housing by a for-profit company with development under a not-for-profit community housing provider.

Thanks to that non-profit format, and the tax advantages that go along with it, community housing providers can, in fact, construct affordable rental housing at significantly lower cost than their for-profit counterparts. Less subsidy is therefore needed.

Nonetheless, government help in some form will be essential to enable an affordable housing element. The most painless way for this to happen, from the government perspective, is through allocating sections of federal or state-owned redevelopment sites to community housing providers at discounted rates.




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Encouragingly, this strategy was recently advocated by newly designated federal housing minister Michael Sukkar.

Such designation of government-owned sites could, for instance, be factored into large-scale urban renewal projects like Sydney’s Central-to-Eveleigh and Rozelle Bays. When complete, it could fulfil the widely voiced demand that 30% of these developments should be affordable housing.

Levelling the playing field

Our modelling shows that under current conditions, even market-rate build-to-rent projects are barely viable – at least in Sydney.

The inflated price of developable land in Australia’s urban housing markets is an important contributing constraint. But our research also identifies a range of government tax settings that disadvantage build-to-rent, compared with both mum-and-dad-investors and traditional build to sell developers.

Removing less favourable land tax and GST treatment could markedly improve build-to-rent feasibility.




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From a housing policy perspective, there’s also a case for the federal government to reconsider its recent “withholding tax” decision that treats overseas-based institutional investment in rental property less favourably than investment in commercial property.

Since such global funds would likely lead the establishment of a new Australian build-to-rent asset class, revisiting the withholding tax changes could be a significant step in making build-to-rent a reality in Australia.

In any case, build-to-rent is no simple solution for Australia’s affordable housing shortage.

But even as a market-rate product, it could fulfil several important public policy objectives. How far it might do so in practice is something that governments rightly need to weigh up when considering industry-proposed tax and regulatory reforms.The Conversation

Hal Pawson, Associate Director – City Futures – Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Morrison’s $158 billion tax plan set to sail through Senate after deals with crossbenchers


Michelle Grattan, University of Canberra

The Morrison government will finish the first week of the new parliament with its election centrepiece – the $158 billion, three-stage tax package – passed into law.

The first stage of the tax relief – in the form of an offset for low- and middle-income earners when people submit their returns – will be available as soon as the Tax Office makes the necessary arrangements over the next few days. Getting the legislation through this week means there is only minimal slippage from the July 1 start date that was promised in the budget.

The numbers fell into place with Tasmanian crossbench senator Jacqui Lambie declaring she would vote for the package. She had negotiated with the government on her demand that it forgive the $157 million social housing debt her state owes the Commonwealth. This would save Tasmania $15 million a year, which Lambie wants used to deal with issues of homelessness and social housing.

Lambie said: “The good will is there and they know that we’ve got housing problems down there.”




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While Finance Minister Mathias Cormann, who had said there would be no horse-trading over the package, was publicly coy about the deal, Lambie is confident it will be delivered.

She said some details still had to be sorted out.

What I don’t want to be doing is rushing out saying here’s the money and that’s it. We want to make sure that that money is targeted […] we’re still dealing on good faith. And I look very forward to that over the next four to six weeks.

Cormann told Sky News: “Senator Lambie has been a very forceful advocate.

She has raised issues with us. We are very happy to work through these issues with her. When we are in a position to make further announcements down the track we will.




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The other crossbench votes needed for the package come from independent Cory Bernardi and the two Centre Alliance senators.

Centre Alliance extracted a deal over action on gas prices.

It said in a Thursday statement that it had “worked with the government on both short- and long-term reforms to deal with gas market concerns.”

The government would announce the full package in coming weeks, it said.

It would include

changes to the Australian Domestic Gas Security Mechanism (ADGSM) to deal with current pricing, market transparency measures, measures to deal with the monopoly nature of East Coast gas pipelines and longer term measures to ensure future gas projects deliver surplus supply to the Australian market.

The gas agreement, canvassed publicly in recent days, has caused some blow-back from the industry.

Faced with the inevitability of the tax package passing, Labor said it would continue to pursue its attempt to split the package and then consider its options.

It is likely not to oppose in the final vote.




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Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Grattan on Friday: Those tax cuts test Albanese and provoke Hanson


The proposed 3 stage tax plan will cost $158 billion.
Shutterstock

Michelle Grattan, University of Canberra

As hissy fits go, it was a beauty. Pauline Hanson was very cross indeed. Senate leader Mathias Cormann hadn’t called her, even though he was reportedly negotiating on the government’s $158 billion package of income tax cuts.

Venting on Sky on Wednesday night, Hanson said: “I don’t think he’s got the guts to pick up the phone and actually talk to me. And to turn around and say that he’s negotiating with crossbenchers is not the truth, because he’s not negotiating with me”.

She went on to rail about the Liberals preferencing One Nation below Labor, doing “grubby deals” with Clive Palmer and trying to destroy her.

The three-stage 10-year package, which promises an extra tax offset for low and middle income earners, is the big game in town for the first days of the new parliament, which opens the week after next, and it’s causing some grief.




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Despite the government’s confident words during the election campaign, the Tax Office has declined to pay the offset of up to $540 until the legislation is passed. This means the July 1 deadline from when the offset was supposed to be available will be missed. (Although people will get from July 1 the tax cut in the pipeline from last year’s budget.)

If the tax legislation is passed quickly, a few weeks’ delay for the offset is no big deal, especially as many people won’t be putting in their tax returns for a while. But the pressure on the government to deliver the first stage of its plan ASAP – not least because the economy needs the stimulus – reduces its ability to hold out indefinitely on its insistence it won’t split the package to accommodate objections to the later cuts.

Labor is in even more of a bind. It is happy to tick off the first stage – worth $15 billion – but has yet to decide its position on stages two (costing $48 billion and starting 2022-23) and three (costing $95 billion and commencing 2024-25).

Its objections are particularly to the last stage, which delivers cuts for higher income earners. Both the later stages come after the next election, due early 2022.

Those urging Labor should try to block at least stage three argue, apart from the equity issue, that mounting economic uncertainty makes it irresponsible to lock in such big tax cuts out in the “never never”.

On the other hand, a strong case can be made on grounds of principle and practicality for Labor to wave the whole package through.

The question of when a party or politician has a “mandate” is vexed.

On one view an opposition can claim it possesses a mandate to stay faithful to positions it advanced before an election even after it has lost that election.

But when the Morrison government went to the polls with the tax package as its prime policy, it does seem to have a strong case to say the parliament should pass it.

The same point would have applied if Bill Shorten had won. He would have had a mandate for his proposed changes to franking credits and negative gearing – both opposed by the Coalition.




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It doesn’t help maintain faith in the political system, or in election promises, for parties to try to govern from opposition, despite the Senate’s voting system sometimes facilitating this. Voters should be able to expect that major election policies of the winning side are implemented (perhaps with some alterations at the edges by parliament).

It is another matter when, as happened with the Abbott government’s 2014 budget, big new controversial initiatives are brought in soon after the election campaign, during which they were not flagged.

The practical reason against Labor going to the barricades on the tax package is that as it regroups, there is little to be gained by taking on this particular battle, especially when it is trying to reposition itself as appealing better to “aspirational” voters and leaving behind language attacking the “top end of town”.

Labor might be right that the proposed long term tax cuts could look irresponsible later, but if so, that is a fight to be had at the next election, when the ALP could highlight doubts it had previously registered.

There are divisions in Labor about what to do. Victorian MP Peter Khalil this week said if the government won’t split the package, Labor should vote for it all. Anne Aly, a backbencher from Western Australia, expressed concern about the package’s implications against a darkening economic outlook. The ALP has asked the government for more information. Anthony Albanese is consulting within the party before shadow cabinet decides the position it takes to caucus.

While the government is focusing the rhetorical pressure on Labor, it has an eye to the alternative route – to get the package through via the crossbench.




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For Cormann, the new Senate is easier than the last, partly because the non-Green crossbench has been slashed at the election.

To pass legislation opposed by Labor and the Greens the government needs four of the six non-Green crossbenchers. These include two from Pauline Hanson’s One Nation, two from Centre Alliance, South Australia’s Cory Bernardi, and Tasmania’s Jacqui Lambie.

Bernardi will vote with the Coalition. He has said he wants to help the Morrison government as much as possible, and on Thursday he announced he is winding up his Australian Conservatives party. It’s not clear whether he’ll seek to rejoin the Liberals, from whom he defected in 2017, or even stay in the parliament.

Cormann has been in discussion with Centre Alliance about their push for lower gas prices, and an agreement on some action appears likely. While this deal is formally separate from the tax package, he and they both have that front of mind.

This would leave one vote to be collected.

Lambie refuses to comment on her position. Hanson said earlier this month she was “not sold” on the current package and “therefore not likely to support the measures” – and proposed some of the funds be used for a coal-fired power station and a water security scheme.

After Wednesday’s outburst, Cormann was (of course) on the phone to her at crack of dawn Thursday. On her account, he said: “I’m not negotiating with crossbenchers with this at all. We have our three stages. We’re going to pass that no matter what”.

The government aims to keep the heat on Albanese. By the same token, if the crossbench has to come into play, Cormann won’t want a repeat of last term, when he couldn’t muster the numbers to deliver tax relief to big companies.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.