Housing thinking tanks
Some beastly commentators pan the Grattan Institute’s latest report on housing, which trumpets a $36 billion tax rort favouring home owners and investors.
Not only do these critics lack a sense of humour, they ignore the Grattanista’s enchanting creativity.
First the charge sheet:
Critics moan that the report grosses up all housing taxes levied in other countries that are missing in action in Australia.
Grattan doesn’t care if only a couple of nations actually employ these imposts.
It then rebadges this mega menu of MIA taxes as subsidies—that is actual multi-billion dollar outlays trousered by property owners.
In a masterstroke, Grattan then compares the $36 billion phantom cost of theoretical taxes hypothetically paid in a mixed bag of countries to the money spent on government rental assistance schemes.
And . . . hey presto, it unmasks a 90 per cent bias of benefits to housing owners and investors.
Critics also huffily observe that Grattan doesn’t bother to net these fictitious outlays against the mega-billion dollar property tax bill paid by Australians.
These narky detractors don’t get that the Grattan report is a remedial learning program.
Like one of those suburban cramming colleges, Grattan leaves clues all over the shop to assist slow learners.
Helpfully, Grattan lines up the tax rort culprits: net imputed rent (NIR), capital gains tax discounts, negative gearing and land tax exemptions.
NIR is the tax you don’t pay on the rent you don’t pay because you own your own home, or more probably, are still buying it.
The Grattan till rings up $7 billion of annual benefits for this ghastly lurk.
Grattan’s genius is to parade a meagre two nations as proof of the Aussie housing rip-off—the Netherlands and Switzerland.
A quick phone call to the rels reveals Grattan’s sense of humour.
The Dutch are more likely to triumph at a Eurovision song contest than actually pay this tax (last win: 1975 with ‘Ding-a-Dong’).
And there are more holes in the Swiss tax code than its delectable Emmentaler.
Grattan isn’t channelling Noel Coward in pinging us for not paying a tax that even the countries prone to the tax don’t pay. It’s spotlighting the idiocy of NIR. I mean, we don’t pay tax on the imputed taxi fares of the cars we own, so why houses? Where would it end?
Another Grattan gambit is played on the dreaded 50 per cent CGT concession.
Ker-ching: more billions of phantom ‘subsidies’, ‘outlays’, ‘benefits’.
The Grattan gambolers keep us on our toes by playing hide and seek with the spectral concept of inflation. As dystopian gaming vigilante Max Payne drawls, “There are more smoke and mirrors than a strip club locker room.”
A 50 per cent discount is an obvious tax lurk, right? Yet, Grattan craftily recommends a return to the old inflation-indexed CGT system.
A couple of minutes with the Elsi Mate calculator proves the government rakes in more revenue from the discount system than a tax levied on real, inflation-adjusted gains.
That’s because investors tend to hang onto property for more than a decade—the inflation worm does the government’s work.
So, no $6 billion rip off—in fact, the government is better off. Bravo, Grattan.
Then there’s the negative gearing (NG) bugaboo. A wily reading of the Grattan report shows that if negative gearing didn’t exist you’d need to invent it.
NG is assistance tapped by mums and dads, not the rich. Less than 5 per cent of NG credits are claimed by top income earners.
NG provides the renting public with up to 1.5 million homes—more than half the rental stock.
In return, investors volunteer for lower investment yields than . . . well, just about most alternatives.
Investors also pick up eye-watering transaction costs, such as stamp duty, and fork out land tax annually. Plus, investors accept the hassle of maintaining and repairing these homes.
NG offsets are the price the government pays for contracting out social policy—providing renters with a home to rent.
Did I say investors receive less than spectacular returns for all this?
The low returns mean that increases in wages have outstripped average rental growth for over a decade. That leaves more money in the household kitty for schooling, health, sports and fun.
Plus, NG is cheap. In fact, the report proves negative gearing is a bargain!
According to Grattan’s own numbers, NG costs the government an average $33 per week per investor—even less per dwelling. That’s about the same as the popular Family Tax Benefit.
In return, Aussie investors provide homes for their compatriots, and save the Feds and states the trouble of anteing up for fiscally crippling home construction, purchasing and maintenance programs.
NG also generates a fistful of property tax dollars for state governments, all the while helping build stable retirement nest eggs that ease pressure on an increasingly pricey pension system. NG doesn’t add to new housing stock, but that’s not its job.
A half decent planning system would fix the supply problem.
Thank you, Grattan. Don’t believe the humourless critics who say your housing report is a confected wormhole to a pre-ordained policy punch line.
We know the $36 billion headline is a deliberate trap for the truly dopey to cite in op-ed pieces.