6. Taxes and charges

The taxation and charges1 on housing are complex. The Committee heard that taxes and charges related to housing are levied at all three levels of government (federal, state and territory, and local), and vary between jurisdictions.
While the Committee appreciates that there is an extensive range of taxes and charges that can be applied to housing, this chapter will focus primarily on the four main taxes or tax concessions that were raised throughout the inquiry: capital gains tax, negative gearing, stamp duty, and land tax. This chapter will also consider fringe benefits tax, developer contributions and infrastructure charges, and the taxation treatment of ‘build-to-rent’ housing models.


The Committee received evidence on a wide range of taxes and charges that relate to housing. For example, Master Builders Australia (MBA) submitted that the most significant taxes and charges for the residential building industry include:
Goods and Services Tax (GST)
Conveyance stamp duties
Land taxes paid by developer and/or builder
Local government rates
Payroll tax
Levies applied during the development and building process
Developer contributions.2
MBA estimated that the impact of selected taxes and charges on the final price of a new home is approximately $150,000 in New South Wales (NSW), $140,000 in Victoria and $100,000 in Queensland.3
There are also several tax concessions in the treatment of existing housing. Mr Peter Mares, an independent researcher and writer, noted these include:
the exemption of the primary residence from capital gains tax (CGT)
the exemption of the primary residence from the pension assets test
the 50 per cent CGT discount on an investment property owned for more than 12 months
the option to claim investment property expenses as a deduction against other income (known as ‘negative gearing’).4
Many other aspects of Australia’s taxation regime are directly or indirectly relevant to housing and were referred to by some submitters. At the federal level these include GST in certain circumstances; at the state level, payroll tax; and at the local level, municipal rates and fees.5 The Committee also received some evidence proposing changes to fringe benefits tax (FBT) concessions for housing.
However, it was largely agreed within evidence to the inquiry that the CGT discount, negative gearing, stamp duty and land tax are the four key features of the taxation regime relevant to housing supply and affordability, and consequently they are the primary focus of this chapter.
The Committee also received evidence on developer contributions and infrastructure charges. Developer contributions are ‘levies charged by councils and state governments to help pay for local infrastructure associated with new housing’ and are sometimes also called infrastructure charges.6
In August 2021, the National Housing Finance and Investment Corporation (NHFIC) published a report on developer contributions, which it provided to the Committee.7 That report included a detailed breakdown of the different types of infrastructure that are funded by these contributions in each state and territory, which is reproduced at Figure 6.1.

Figure 6.1:  Developer contributions across states and territories

Source: National Housing Finance and Investment Corporation, Submission 78, Attachment 1, p. 10.
The Committee also received and heard evidence discussing the taxation treatment of build-to-rent housing, and these issues are discussed below.

Overall impact

The impact of taxation on housing affordability was a strongly contested issue throughout the inquiry, with considerable disagreement over the impact of taxes and charges on new housing, and the impact of tax concessions on existing housing. One group of submitters argued that the former increase prices and reduce supply and the latter increase supply and lower rents. At the same time, another group argued that taxes and charges have little impact on supply or prices and that tax concessions are an important contributor to the affordability problem. For simplicity these are referred to below as ‘the lower tax position’ and ‘the higher tax position’ respectively.
In many respects the debate over taxation reflected the broader debate over the operation of supply and demand in the property market, discussed in Chapter 2.
Throughout the inquiry the Committee also heard general suggestions that cut across these categories, such as a review of the taxes on housing and inclusion of taxes on housing within a proposed national housing plan.8 There were several variations on the Australian Finance Industry Association’s proposal of ‘…providing favourable property tax treatment for target housing markets (e.g. growth and transport corridors, key worker housing projects, etc).’9 One example of such a proposal that relates to the interaction of FBT and housing, is examined in detail later in this chapter.

General principles

The Reserve Bank of Australia (RBA) outlined its view of how taxes and charges impact housing as follows:
Households need to consume housing services and so face a choice about whether to buy or rent a home. Australia’s tax and transfer system makes it favourable to own your primary residence; this is also the case in many other countries. In Australia, tax settings also make it generally favourable to own additional properties as an investment asset. These policies therefore affect the balance of demand and supply in the housing and rental markets, raising housing demand and potentially reducing rental yields. As noted in the RBA’s past submissions to inquiries on this topic, Australia’s tax and regulatory settings could benefit from holistic consideration. Two potential objectives of reform could be to incentivise more efficient utilisation of some of the existing stock of housing and to improve the mechanisms around constructing new supply. The Henry Review10 recommended a broad range of interrelated reforms to this end, including replacing stamp duty on residential property transfers with land taxes; the NSW government has also proposed this specific change.
Accumulating and retaining savings in housing assets is incentivised by the returns on owning housing to live in (imputed rents) or as an asset (through the capital gain) not being taxed when it is the primary residence. Economic modelling can be used to compare the cost of homeownership versus renting. These ‘user‐cost’ models suggest that, on the assumption that buyers hold their property for 10 years and prices increase by more than 2 per cent per annum in real terms, on average the cost of owning a home remains below the cost of renting…in part because of the gains from expected capital appreciation...
Australia’s taxation policies also create incentives for investors to buy property; the effects on affordability can be mixed.
The tax system makes investment in property relatively attractive, adding to housing demand. Incentives are especially pronounced for housing assets because they can be purchased with more leverage than many other assets that produce capital gains. Investors can deduct borrowing costs and expenses from their total income, not just income from the housing asset, at their full marginal tax rate. In combination with concessional treatment of capital gains, this creates an incentive for leveraged investment in assets that produce capital gains, such as property. While the prolonged period of lower interest rates over recent years would have reduced households’ scope to ‘negatively gear’ existing properties, this would have been partly offset by the effect of higher housing prices on rental yields. That is because, other things equal, higher house prices reduce rental yields, affecting the point at which a property becomes negatively geared.
Investors’ purchases of property can, on the other hand, reduce affordability pressures in the rental market to the extent that it supports housing construction for additional rental purposes, and reduces rental yields.
The RBA recognises that the ability to deduct legitimate expenses incurred in the course of earning income is an important principle in Australia’s taxation system, and interest payments are no exception to this. However as stated in previous submissions to parliamentary inquiries, the RBA believes that there is a case for considering the tax system in a holistic way, taking into account the interaction of negative gearing with other aspects of the tax system.11

The lower tax position

The Centre for Independent Studies (CIS) defended the proposition that tax concessions on existing housing increase supply, submitting:
The concessional tax treatment of saving via owner-occupied and investment property adds to demand by making both a more attractive vehicle for saving relative to other asset classes. It is also positive for housing supply by making investment in housing more attractive. The net effects on dwelling prices and rents are empirical issues …
It is sometimes noted that demand from property investors is largely met through existing rather than newly built dwellings. This reflects the fact that the flow of new houses is small relative to the existing dwelling stock …. It is only supply-side constraints that prevent demand for existing dwellings from inducing new construction.
The concessional tax treatment of saving via housing does not mean there is no tax burden on housing as such ….
Strong trend growth of dwelling prices has been observed in many countries with different tax characteristics, and the trend can be explained by secular movements in income, population and interest rates in conjunction with policy-induced supply restrictions.12
The CIS also referred to a number of studies estimating the impact of tax concessions on housing prices, which it summarised as follows:
In summary, negative gearing and the capital gains discount are estimated to boost house prices between 1 and 4 per cent, while having a smaller negative effect on rents. Most of these estimates represent a long-run ‘one-off’ effect that would have been incorporated into housing prices decades ago. These estimates are small relative to the variation in the data or to other factors that affect housing prices, such as interest rates or zoning. So for most practical purposes, the effect of tax concessions on housing affordability can probably be ignored.13
Mr Ken Morrison, Chief Executive of the Property Council of Australia (PCA), replied to the suggestion that those tax concessions should be abolished by noting research commissioned by the PCA:
There would have been a modest impact on prices. After 30 years there would have been only a 2.6 per cent increase in the proportion of homeowners in the market compared to rentals. Yes, it would increase rents—not particularly dramatically. The biggest impact was actually going to be on housing supply … New housing would have dropped by 4.1 per cent. That's a three-quarters-of-a-billion-dollar decline in construction, and that would have had a huge drag impact on GDP and on construction jobs. So it would have been a complete own goal, and it's the last thing we need as we're looking to support this market through the back end of a pandemic impact.14
Commenting on the taxes and charges on new housing, the PCA submitted that:
Well in excess of one third, and often more than 40 per cent, of housing construction costs are wrapped up in federal, state and local government taxes, surcharges and levies and these form a disproportionate part of state and local government revenue and budgets.
State and local governments are overwhelmingly reliant on taxing housing and especially new housing as taxation targets. This is lethal for housing affordability.15
MJH Group echoed this view and described ‘…state and local governments pushing costs on to developers which ultimately the end user pays.’16
The Housing Industry Association (HIA) put forward the results of research it commissioned into how taxes and charges contribute to the price of a new home in the five largest mainland capital cities. In the case of houses this contribution was estimated to range from 50 per cent of total costs in Sydney to 29 per cent in Adelaide, while for apartments it ranged from 37 per cent in Sydney to 28 per cent in Adelaide.17 Other submissions had much lower estimates.
The Australian Government Department of the Treasury (Department of the Treasury) also expressed scepticism of the impact that tax changes would have on housing affordability. Mr Geoffrey Francis, Assistant Secretary, Indirect, Industry and State Tax Branch of the Department of the Treasury, stated:
Normally, when we think about tax changes that are aimed at either improving affordability for one group or potentially disincentivising one group, we would think of that as having a short-term effect on prices. If some investors were disincentivised from competing in the market, that might have a small, one-off effect on prices. But if the committee's concerned about ongoing price growth, year on year, then we don't really think changes to tax settings would do much to alleviate that. That's going to be more of a supply side issue.
Secondly…we tend to think of owner-occupied housing as being one of the most tax preferred investments. Essentially, there's no capital gains tax on the family home, it doesn't count towards the pension assets test, and the imputed rent that people receive from living in their own home is untaxed, whereas the investor, while they can claim interest deductions, would pay tax on the rental income. They also pay a capital gains tax, and the assets also count against the pension assets test. So we wouldn't see investors as necessarily being taxed preferred over owner-occupier homeowners.18
There were also some suggestions that the current system gives governments a vested interest in keeping housing prices high and rising. For example, Mr Shane Garrett, Chief Economist of MBA, told the Committee:
You're quite correct in saying that state governments and local governments are effectively rewarded whenever home prices increase. That's a point that we made in our submission. We say that when supply is constrained prices rise and when prices rise governments get more money out of the property market and the property sector. That is a conflict of interest that they face, and it does make a transition to a better tax system and a better tax structure far more difficult. States and territories basically get a bit addicted to the revenue streams they get from tax. We were looking recently at the 2019-20 financial year. Over half of the states' and territories' tax revenue is derived from property related income streams. Whether that's rates, whether that's land taxes, whether that's stamp duty and conveyances it makes up more than half their tax revenues.19

The higher tax position

Other submitters were supportive of reducing the current tax concessions for housing. Some went so far as to suggest that tax concessions are the main cause of the current affordability problem, or that changing them would be the most effective solution.20
The City Futures Research Centre from the University of New South Wales (UNSW) stated that a reduction in government taxes and charges would not lower house prices, a view shared by independent researcher Dr Cameron Murray.21 The City Futures Research Centre of UNSW submitted:
Should government taxes and charges on residential development be reduced? … our preceding discussion of the determinants of house prices suggests that a reduction in these charges, and therefore overall development costs, would likely flow through to increased residual land values of future site purchases (benefiting the landowner) or increased profitability for the developer (if the site is already owned), rather than to lower dwelling prices. Importantly, the infrastructure costs associated with increased development would remain the same, with alternative approaches to funding being required.22
The City Futures Research Centre also outlined the results of research it conducted on the contribution of taxes and charges to the total cost of a multi-unit development in Sydney. Looking at 30 developments completed between 2010 and 2020 and dividing these into developments with less or more than 100 units, it found that ‘…government taxes and charges accounted for 11.3 per cent [of] total scheme costs, excluding profit, in the smaller example and 10.1 per cent in the larger.’23
Mirvac expressed doubt about these figures from the City Futures Research Centre.24
It was unclear why the numbers provided by the City Futures Research Centre differed so significantly from the aforementioned HIA figures regarding the contributions of taxes and charges. However, the City Futures Research Centre of UNSW did note that its calculations excluded stamp duty, ‘taxes not specifically related to a development project, such as tax on company profits’ and ‘other uncommon charges which are not widely employed across Greater Sydney (e.g. contributions for affordable housing).’25
Prosper Australia addressed both taxes on new housing and tax concessions for property investment:
If all buyers face the same tax, the developers are equally disadvantaged along with all buyers. This means the tax is shifted back to the landowner, as all land buyers have a reduced willingness to pay for land. This can be observed with Stamp Duties and council rates (on unimproved land). In turn, these taxes do not affect development feasibility. In cases of developer charges and state land taxes, developers are discriminated against compared to owner-occupiers.
In a greenfield context this is usually irrelevant as developers face competition only from farm uses for vacant lots.
Taxes on property investors interact with market demand for dwellings in a limited sense. Commonwealth tax concessions on existing properties…have no effect on increasing housing supply. Rather they skew the ownership of the existing dwelling stock in favour of investors over potential owner-occupiers, by increasing the willingness of investors to pay for existing property as a financial asset. This inflates the price of established dwellings, as wealthier tax advantaged investors outbid homebuyers.
These same tax concessions, if restricted to new dwellings only, would reduce the value of undeveloped land and established dwellings, but still provide a premium value to new dwellings. This would potentially skew the market saturation rate in favour of more housing supply, as the returns to owning undeveloped land fall relative to the returns of selling developed land to tax advantaged investors. Developing land would still remain financially attractive and tax advantaged.26
National Shelter was also sceptical of the tax concessions on property investment:
Australian taxpayers, via the tax discounts provided to residential property investors, support a growing rental sector. So far this sector’s investors are dominated by investment in existing rather than new housing and therefore do little to increase the supply of rental housing, rather they add to price competition.27
The Committee also heard that the current tax concessions on existing property encourage housing to be viewed primarily as an asset, leading to the ‘financialisation’ of the market and speculation on property.28 Similarly, it was suggested that investment in existing housing is less productive than other forms of investment, and therefore damaging to the economy as a whole.29 One proposed response was to gradually introduce ‘…a cap on property-related tax deductions.’30
The Grattan Institute supported reducing tax concessions primarily for the impact on the broader economy, stating:
Housing demand would be reduced a little if the Federal Government reduced the capital gains tax discount and abolished negative gearing – and there would be substantial economic and budgetary benefits. The effect on property prices would be modest – they would be roughly 2 per cent lower than otherwise – and would-be homeowners would win at the expense of investors. House prices at the bottom would probably fall by more, since these tax breaks have channelled investors into low value homes that are lightly taxed under states’ progressive land taxes and tax-free thresholds.
The dominant rationale for these reforms is their economic and budgetary benefits. The current tax arrangements distort investment decisions and make housing markets more volatile. Our reforms would boost the budget bottom line by about $5 billion a year. Contrary to urban myth, rents wouldn’t change much, nor would housing markets collapse.31

Key taxes and tax concessions

Capital gains tax discount

The Australian Taxation Office (ATO) describes CGT as ‘the tax you pay on profits from selling assets.’32 The Municipal Association of Victoria (MAV) explained that:
When an asset is sold for a profit the capital gain is treated as income for tax purposes. If the asset had been held for more than 12 months, a capital gains tax discount of 50 per cent is applied, meaning only half of the capital gain is assessed as taxable income.33
While CGT does not generally apply to a person’s primary residence, it may partially apply in certain circumstances, such as when the primary residence is also used to run a business.34
Australia did not tax capital gains until 1985.35 From 1985 cost base indexation was used, meaning the discount was calculated based on the rate of inflation since purchase, until 1999 when the present system was adopted. The Department of the Treasury told the Committee that tax settings for housing have been ‘relatively unchanged’ since then.36

Calls to change the capital gains tax discount

The majority of submissions that addressed the CGT discount supported changing the current arrangements. Mr Adrian Pisarski, the Executive Officer of National Shelter, reflected the concerns of many when he told the Committee:
One of the reasons that we have had a loss of homeownership is because we have been providing additional support to investors since 1999, when the Howard government brought in the capital gains tax discount …. It was reduced at the time partly for GST and partly because interest rates were very high at the time and there was a reasonable argument about reducing it at that time. Those conditions no longer exist.
What we should be doing now is rebalancing that system. We should be reducing that capital gains tax discount so that we are rebalancing the system between potential owner-occupiers and investors who are going to buy rental housing, who are largely investing—and there's well-documented evidence to support this—for the capital gain. They're not investing to create a rational rental market; they're investing for short-term capital gain. That's not a rational basis on which to go forward in a national housing plan …. we want to rebalance the incentives between owner-occupiers and investors. There's no reason not to do that.37
The NSW Government was also critical of the CGT discount. It submitted that:
The combination of the range of state and federal property tax settings, including the 50 per cent discount on capital gains tax…skews the incentives towards the purchases of properties for investment purposes. These tax benefits of property investment have contributed to the growing housing affordability issue. While the combined effect is likely to be a moderate increase in house prices, the most significant impact is the displacement of owner occupiers (including first home buyers) from home ownership by tax-advantaged investors, predominantly those already on higher incomes. This leads to significant extra investment demand for housing leading to higher prices (and lower affordability). It also leads to poorer asset utilisation as properties are held mainly for capital gain. This has been reflected through significant growth in spare bedrooms (underutilised properties) since the CGT 50 per cent discount was introduced in 1999.
In addition to the 50 per cent discount, capital gains also receive other less explicit tax advantages compared to recurrent income. Firstly, they are taxed on sale rather than as they accrue …. Secondly, investors are able to choose the time of an asset’s sale to minimise taxes on capital gains, such as selling assets when their income is low, so they are taxed at a lower marginal rate. By encouraging investors to buy and hold property, the 50 per cent capital gains discount increases investor demand for housing and pushes first home buyers out of the market.38
Some submitters suggested that the current system is contributing to the housing affordability problem, without proposing specific changes.39 A few proposed that the CGT discount should be abolished entirely.40 Others were in favour of modifying it in some way and put forward a variety of proposals as to how this should be done.41 One popular proposal was to reduce the CGT discount rate to something less than 50 per cent, with 25 per cent often being nominated.42
Other suggestions submitters made regarding the CGT discount included indexation using the wage price index43, limits on the number of properties to which the discount can be applied44, limiting the discount to newly constructed dwellings45, and increasing the time for which a property must be held before the discount can be applied.46 More broadly, the NSW Government called for a review of taxation on property, with a focus on the CGT discount.47

Calls to retain the capital gains tax discount

Some submitters defended the current operation of the CGT discount. MBA described it as a policy that ‘…support[s] the supply of housing…’.48 Save Our Suburbs NSW argued that for most of the last century, Australia had ‘…concessional or no capital gains tax’, and yet housing remained affordable.49
The CIS noted that the CGT discount does not just apply to housing, and consequently stated that ‘[i]t is not a housing policy and should not be tampered with for housing policy reasons alone.’50
The CIS pointed out that the change from indexation ‘…was intended as more than a simplification with an equivalent average effect…’, and deliberately taxes capital gains more lightly. 51 It also observed that housing booms occurred when there was no CGT, as well as when it was indexed. Finally, the CIS suggested that CGT is effectively a ‘…turnover tax…’, and so reducing the CGT discount would reduce transactions, minimising the increase in revenue.
The issue of turnover taxes is discussed in more detail in relation to stamp duty later in this chapter.

Negative gearing

The ATO states that ‘your rental property is…“negatively geared” if your deductible expenses are more than the income you earn from the property.’52 The MAV explained to the Committee that:
In the context of housing, negative gearing refers to the use of net losses associated with rental properties as a deduction against taxable income from other streams (such as employment income). If the costs associated with a rental property (including management costs, interest payments, rates and land taxes, repairs, and insurance) exceed the rental income, this loss reduces the property owner’s taxable income.53
Mr Saul Eslake, economist and Principal of Corinna Economic Advisory, provided the Committee with a brief history of negative gearing:
‘Negative gearing’ originally allowed taxpayers in effect to defer tax on their wage and salary income (until they sold the property or shares which they had acquired with borrowed money, on which they were paying more in interest than they received by way of dividends or rent). However, after the Howard Government’s 1999 decision to tax capital gains at half the rate applicable to other income (instead of taxing inflation adjusted capital gains at a taxpayer’s full marginal rate), ‘negative gearing’ became a vehicle for permanently reducing, as well as deferring, personal tax liabilities. And the availability of depreciation on buildings adds to the way in which ‘negative gearing’ converts ordinary income taxable at full rates into capital gains taxable at half rates.54

Calls to change negative gearing

The current negative gearing arrangements were a common target for submitter criticism. Mr Eslake stated that he has ‘long argued’ against negative gearing, and told the Committee that:
Another long-standing policy which I have long argued has not only failed to deliver on its oft-stated rationale of boosting the supply of housing – in this case for rent – but has actually exacerbated the mis-match between the demand for and the supply of housing, as well as having distorted the allocation of capital, and undermined the equity and integrity of the income tax system, is so-called ‘negative gearing’.
There’s no evidence to support the assertion made by proponents of the continued existence of ‘negative gearing’ that it results in more rental housing being available than would be the case were it to be abolished (even though the Henry Review appears to have swallowed this assertion).55
Mr Eslake told the Committee that rental vacancy rates are lower in Australia than in the United States (which abolished negative gearing in the 1980s) or various European countries which have never allowed it, suggesting it is not supporting the supply of rental properties.56
Other submitters raised similar concerns, essentially claiming that negative gearing unfairly advantages investors over people looking to purchase a dwelling to live in.57
A significant number of submitters favoured entirely abolishing negative gearing for property.58 Mr Eslake went so far as to suggest the abolition of negative gearing for all investments, with expenses instead being set off against CGT liability; failing that he proposed only 40 per cent of investment expenses be allowed to be deducted.59
Other submitters suggested various alternative changes to negative gearing. These included limiting it to only other real estate investment expenses or passive investment expenses60, only allowing it for newly constructed housing61, or only allowing it for one investment property per taxpayer.62 It was also suggested that taxpayers be allowed to deduct mortgage interest on their primary residence, either in place of the current negative gearing system for investment properties or in addition to it.63

Calls to retain negative gearing

The Committee received evidence from some submitters arguing that negative gearing arrangements should remain in their current form.64 The HIA argued that Australia’s rental market is dependent on individual investors and unlike many other countries, the majority of those investors are on average incomes and that the youngest investors make the most use of negative gearing.65
The CIS put forward several arguments in favour of negative gearing, including that:
Housing is not the only asset class for which interest on borrowing to invest is deductable against other income, so negative gearing cannot be considered a special subsidy or tax concession for housing
…. Like all leveraged investments, negative gearing is risky, not a one-way bet.
A case for limiting deductibility of expenses could only be justified if the rental income was in some way taxed concessionally rather than as part of comprehensive income.66
The Real Estate Institute of Australia (REIA) also advocated for retaining negative gearing, and submitted that:
… negative gearing has served Australia well in supporting and promoting private rental markets, allowing the prevalence of mum-and-dad investors. 70 per cent of investors own just one investment property.67
Mr Adrian Kelly, President of the REIA expanded on this for the Committee, stating that ‘negative gearing has served us pretty well in Australia’:
… past experience tells us that, when negative gearing is removed, someone has to pay. That generally results in rising rents. Higher rents at the moment is just not a place that we want to be and nor do we want to see any more investors selling their rental properties, because most of our rental property markets across the country at the moment are way, way less than five per cent.68
Save Our Suburbs NSW argued that negative gearing was also allowed when housing was affordable for much of the twentieth century.69 Another submitter also drew on historical example, arguing that the abolition of negative gearing for a brief period in the 1980s had no discernible effect on property prices, as well as noting the application of negative gearing to non-property investments and suggesting that in the current low interest rate environment negative gearing is not as important as it once was, as investor expenses are reduced.70

Stamp duty and land tax

Property transaction taxes are imposed by all state and territories, the largest of which is stamp duty on the transfer of real property. The NSW Productivity Commission explained that ‘stamp duty is paid by the purchaser of the property on the sale price, which includes land and improvements on the property.’71 These taxes will be referred to as ‘stamp duty’ throughout this report.
An alternative to stamp duty is a ‘land tax’, a term most submitters used to refer to ‘a broad-based annual property tax based on unimproved land values.’72 These two taxes are jointly discussed below.

The case for replacing stamp duty

A substantial majority of submitters who addressed stamp duty supported replacing it with some other form of tax, typically a land tax.73 This was principally based on the view that stamp duty is an inefficient tax, whereas a land tax is efficient.74
When asked what changes should be made to taxes on housing, Mr Garrett from MBA replied:
Stamp duty would definitely be No. 1 there. Countless studies have shown how detrimental the tax is, and not just from the point of view of housing affordability. It adds a huge cost. In Sydney and Melbourne at the moment, your typical stamp duty bill for an owner-occupier trading up would be close to 50,000… But it also has negative outcomes for the economy. It prevents people from moving around to take up the right opportunities for them and their families when it comes to the labour market, and it also acts as a huge barrier to the more effective use of the housing stock by people who would like to downsize, free up housing space and make it available to the market. The stamp duty barrier prevents them from doing that.75
Similarly, the NSW Productivity Commission submitted that:
Generally, property transactions generate an increase in economic welfare because property ownership is transferred to people who value it highest. By raising the cost of transacting, stamp duty discourages property transfers, which means dwellings are not necessarily allocated to those that most value them. This economic distortion is particularly inequitable for those whose circumstances require them to move more frequently.
Stamp duty also has implications for property investment, as it taxes the market value of property, including improvements to the land. Investment decisions are based on the post-tax rate of return from the sale of property. Therefore, stamp duty reduces the incentive to deliver new supply and improve the quality of existing properties. The result is lower quality housing supply and further upward pressure on prices
Across the State’s major revenue sources, stamp duty on property is widely considered the most inefficient tax. That is, it imposes the largest economic cost of all existing taxes …. In contrast, a broad-based land tax on the unimproved value of land—such as local government rates—is the most efficient tax available to the states.76
The Department of the Treasury and the RBA were both tentatively supportive of the replacement of stamp duty with land tax but cautioned against hopes that this step alone would make a major difference to housing affordability.77
The Australian Capital Territory (ACT) Government is currently implementing a switch from stamp duty to land tax over a twenty-year period, and the NSW Government is considering switching, using a model where taxpayers can opt-in to paying such a tax instead of stamp duty.78
In the context of a discussion about NSW’s optional transition to land tax model, Mr Mike Scott, Chairman of the HomeWorld Group, told the Committee that the relative impact of stamp duty versus land tax depends on the property type:
It's interesting: what's being proposed has a different effect on the different types of residential property. Because it's levying on unimproved land value as opposed to stamp duty, which is actually based on the final sale price of the dwelling, when you're in our world buying a block of land and building a contract house, it's actually got a slightly more detrimental effect if you look at the effect on your borrowing because you've got an annual fee or tax and the banks will certainly clip the amount that they lend you. But, for apartment buildings, you're well in front. Then for single established dwellings, it's about a line-ball call, so the process of allowing you to be locked-in or not locked-in, I think, is a good one to go with in the early stages particularly, to give some certainty. For people who see that they're buying a property as an apartment because they're a young couple and they want to buy again in a couple of years, they can use the property tax, but then, if they see this as their forever home where they're going to raise a family over the next 15 to 20 years and decide that stamp duty is a more economical way to go, they can opt back and use the stamp duty. So I think allowing buyers their own choice and flexibility in choosing to pay that property tax is, ultimately, the fairest way to do it, but certainly, removing stamp duty helps the mobility with the capital of the loan and helps our economy work more efficiently.79

Challenges in transitioning from stamp duty to land tax

Submitters had various suggestions as to how a transition from stamp duty to a broad-based land tax should be managed, with a popular idea being to allow taxpayers to claim credit for some or all past stamp duty paid against their land tax liabilities.80 Domain expressed scepticism about the use of an opt-in process such as the one proposed by the NSW Government, but this was the favoured approach of the Sustainable Australia Party and the PCA, which put forward ‘7 principles for good stamp duty reform’.81
Some submitters raised the specific concern that states may be reluctant to switch from stamp study to land tax because it would have a negative impact on their share of GST revenue; hence it was argued that the Australian Government should incentivise the transition, either through extra grants or changing how GST is distributed.82 The NSW Productivity Commission explained:
A substantive barrier to states pursuing tax reform is the horizontal fiscal equalisation system administered by the Commonwealth Grants Commission (CGC). The current methodology for distribution of…GST revenue among states aims [to] offset differences in revenue-raising capacity and varying costs of delivering services. An unintended consequence, however, is that it also disadvantages states that undertake productivity-enhancing tax reform.83
It was suggested that the way the Australian Government encouraged the states to reform their competition law arrangements in the 1990s through the National Competition Policy could serve as model for how to encourage stamp duty reform.84 Evidence regarding the National Competition Policy is discussed further in Chapter 3.
Emeritus Professor of Finance Kevin Davis suggested an alternative approach and advocated for the states to use a ‘securitisation’ model to avoid any shortfall in revenue during the transition. He outlined this model as follows:
The simple solution…is to securitise the future property tax receivables. The government would receive a current cash inflow from investors purchasing securities giving them claims on those future tax receivables. This would offset the drop in cash flow from loss of stamp duty receipts.85
Further to these proposals, there were also some calls for a Commonwealth land tax to replace stamp duty and some other Commonwealth taxes.86

The case for retaining stamp duty

Some submitters advocated for retaining stamp duty. Dr Cameron Murray argued that by reducing dwelling turnover, stamp duty helps stabilise the market. He submitted that:
… taxes on dwelling asset transactions do not add to the price but get subtracted from it. An asset that comes with an additional tax liability, like stamp duty…will be priced to take that into account. For example, if a company issued two classes of shares, one with a purchase fee, and one with no fee, the market will price the share with fees less than the other class of shares by exactly the cost of the fee. The same applies in land and dwelling asset markets.87
Another submitter claimed that the ACT’s transition from stamp duty to land tax has ‘made no improvement to affordability whatsoever.’88
Urbanised Pty Ltd stated that:
The proposal [to replace stamp duty with land tax] creates perverse incentives where Government can increase revenue by not delivering more housing. (At least the present system is based on transaction and provides an incentive to deliver more dwellings.) The proposed reform model is also more costly than a homebuyer adding the existing stamp duty costs to their mortgage and amortising that cost over the life of the loan.89
Ms Joanne Seve, a state taxes consultant specialising in stamp duty, appeared before the Committee in a private capacity and flagged some potential challenges in administering a broad-based land tax. Ms Seve said:
I know that land tax and unimproved land values have been around for a long time. Once it moves onto the family home, there's uncertainty about unimproved values, because it's an expert area in itself. It's costly to contest. If it goes to court, there are even more costs involved with that. I see a potential risk for governments in the long term if there were to be large-scale class actions for refunds for overvaluations of properties when individuals couldn't take it on, because of the costs involved.
Stamp duty has done a lot of good …. in the long term, ultimately paying an annual, perpetual tax, which will inevitably increase year by year unless rates are reduced—and we've seen with stamp duty that they're not reduced at the state level—is not a preferred course for home ownership, which should be a necessity.90
Other submitters did not oppose a switch from stamp duty to land tax outright, but suggested caution is required since it could lead to unintended consequences such as short-term price rises.91 The Regional Australia Institute called for a review of stamp duty92; and the MAV noted that when considering the impacts of a land tax it should be borne in mind that it can be negatively geared by investors.93

Proposed changes to stamp duty

Several submitters proposed stamp duty reforms. One specific issue that was identified was the effect of ‘bracket creep’ on stamp duty collections.94 Ms Seve explained:
When the thresholds in New South Wales were originally introduced in 1986, the rate of stamp duty on the purchase of an average home in Sydney was predominantly 1.75 per cent. Today, with the average home price in Sydney now being over $1.1 million, because of stamp duty bracket creep the rate of stamp duty is predominantly 4.5 per cent, up to 5.5 per cent—that is, the rate applying today is actually 157 per cent greater than the effective rate that originally applied and that was meant to continue to apply.95
Ms Seve noted that NSW introduced indexation of stamp duty in 2019, although this did not account for the previous 33 years of bracket creep, while the other states and territories still have not addressed the issue. She recommended that the Commonwealth Grants Commission:
…incentivise states and territories to reduce stamp duty rates, so as to optimise turnover and revenue collections and help to improve housing supply and affordability.96
Various other changes to stamp duty were proposed to address aspects of the housing affordability problem. These included limiting or abolishing stamp duty on primary residences97, exempting downsizers from it98 (Tasmania already provides a stamp duty discount for downsizing pensioners99), exempting those who are relocating to regional areas from it100, and allowing it to be paid off overtime instead of upfront.101 The HIA was critical of the fact that the price on which stamp duty is calculated includes all other taxes and government charges, whereas they are not included in the calculation of GST.102

Fringe benefits tax

Under Australia’s FBT regime, employers can claim concessions for some goods and services, such as housing, provided to employees that are working in designated remote areas.103 Briefly, remote area FBT concessions consist of:
exemptions – where the good or service is not subject to any FBT. For example, housing that is owned or leased by the employer and provided to an employee as an employee’s usual place of residence, and
partial concessions – for example, some assistance with rent or mortgage interest payments attract partial concessions where the taxable value is reduced, often by 50 per cent.104

Box 6.1:   Case study: Calls to change fringe benefits tax for housing in regional and remote communities

A number of individuals and organisations participated in a letter writing campaign and lodged submissions to the inquiry relating to the lobby group ‘More than Mining’. These submissions called for the FBT concessions currently available to mining employers to be extended to all Australian residents in regional and remote areas.
In its 2020 report titled Remote Area Tax Concessions and Payments, the Productivity Commission concluded that ‘[r]emote area tax concessions and payments are outdated, inequitable and poorly designed.’105 It stated that:
The evidence gathered by the Commission suggests that the exemption for employer-provided housing (as an employee’s usual place of residence) is the big-ticket item. This exemption is uncapped and can be worth many thousands of dollars at the employee level…
The Commission estimates that there are about 42,000 employer-provided dwellings used as an employee’s usual place of residence in the FBT remote areas, with the cost of the exemptions (in terms of forgone tax revenue) ranging between $300 million and $390 million per year.106
Mr Brendon Grylls, a Diamond Member of the Karratha & Districts Chamber of Commerce & Industry, told the Committee about the consequences of current FBT arrangements for local communities in regional and remote areas. He explained that there are ‘peaks and troughs in demand’ and during the peaks:
… everyone wants to build a house at the same time that companies are trying to construct multibillion-dollar projects. Not surprisingly, the houses become expensive because you can't get the people to do it.107
Mr Grylls added that:
… when rents go above $1,000 a week … which is good for the state and good for the nation and which delivers lots of revenue to the bottom line of all government jurisdictions, but the collateral damage is the people in these communities who can't afford to keep up with the cycle and have to wear the pain.
Mr Grylls stated that the More than Mining campaign aims to put the ‘property challenge in the hands of the people who have a long-term vested interest in the community…’.108
The Committee received a total of 53 submissions that were part of the More than Mining letter campaign and published a small selection on its website.109 The submitters told the Committee that the More than Mining campaign seeks:
…targeted changes to the application of Fringe Benefit Tax rules … as a means to enhance the economic drivers for a private individual to purchase, build or otherwise reside for longer within these communities.
The submitters added that this proposal addresses ‘the root causes of housing affordability and supply problems’ in remote communities.110
Specifically, the submissions stated that the More than Mining campaign is lobbying for the following:
Definition of a new category of remote area within the taxation legislation named ‘Remote Area – Mining Community’ and defined as communities affected by the volatility of mining construction and commodity price cycles and impacted by Fly-in-Fly-out workforces.
Remote Area Mining Communities to benefit from 100% Fringe Benefit Tax exemption for rent, owner occupier housing purchase cost and mortgage interest when an employer pays these expenses out of the employee’s pre-tax income.111
The submissions added that this reform would:
… give the individual more disposable income to pay off their mortgage faster, increases their purchasing power, and allows them to reinvest in their local communities.112
The Committee also received evidence from the Police Federation of Australia calling for the FBT concessions that are currently provided to ambulance services to be extended to the police service. The Police Federation of Australia explained that: ‘…in 2004, a special Fringe Benefits Tax $17,000 gross benefits exemption per employee was provided to ambulance services, because of an adverse court finding…’.113
Mr Scott Weber, Chief Executive Officer of the Police Federation of Australia expressed his concerns about the existing housing situation for police officers:
We want not only police officers but all emergency services workers to live close to their stations, to live close to the communities they work with. We all know there are police officers around the country that commute large distances just to get to work. This can be a critical issue when there's a disaster or a counterterrorism issue or if we need a surging of police. It's a massive issue with regard to tasking and deployment as well as shift deployment. Fatigue, stress, burnout, workload—all of those contribute.114

Developer contributions and infrastructure charges

Criticism of developer contributions

Some submitters were highly critical of the current system of developer contributions. The Urban Development Institute of Australia (UDIA) cited a recent report by NHFIC, noting that it found that ‘…the costs of developer contributions were as high as $85,000 per house, and as much as 20 percent of the price paid for [the] finished product by homebuyers.’115 The executive summary of NHFIC’s report is more circumspect, stating that ‘…developer contributions can typically amount to around 8 per cent to 11 per cent of total construction costs…’.116 UDIA also criticised developer contributions as funding infrastructure that benefits the whole community (rather than just the new development), and as lacking in transparency.117 These views were echoed by other submitters who also endorsed the NHFIC report, as well as by NHFIC itself.118
MBA stated that ‘…the linkage between the value of developer contributions paid and the volume of infrastructure provided in return by the local government is often unclear, disproportionate, and lacking in transparency.’119 Similarly, the HIA told the Committee:
We talk about development-specific infrastructure; that's the stuff that developers should pay for because you get a block of land out of it. If you're putting the pipes and the roads and the parks in, that is the right thing to do. That's a cost of business. That's a cost of development.
But we now have situations, particularly on the east coast, where the development charges and contributions are layering on top of that things which are for the broader community good. They're great infrastructure, but they're not specifically for that one person. We're building pools, we're building libraries and we're building broad community infrastructure and charging just the people who buy a house this year to pay for it.120
Mr Eslake argued that developer contributions encourage developers to build fewer, more expensive residences on their land rather than smaller properties that are more suited to first home buyers.121 Dwyer Lawyers submitted that such charges are ‘regressive’, as they place the burden of funding infrastructure on home buyers (particularly first home buyers) instead of it being shared across the whole community, as it is when infrastructure is funded through municipal rates.122
Prosper Australia suggested that contributions can delay development if the developer must wait for the profitability of the site to rise, but they ‘remain efficient’ if they ‘[reflect] a cost that would otherwise be borne by the community at large.’123
There were some suggestions that developer contributions should be abandoned, and infrastructure instead funded from other sources. Mr Eslake suggested using rates or land tax, or levies on the increase in land value resulting from infrastructure spending.124 The HIA proposed using general taxation, as did Urban Taskforce which recommended the Australian Government create a fund for this purpose.125 The question of funding for development-supporting infrastructure is further discussed in Chapter 7.
Other submitters instead favoured reform of the developer contributions system. The NSW Productivity Commission noted that all 29 recommendations of an inquiry it recently conducted into the issue were accepted by the NSW Government in March 2021. It explained that these recommendations aim to ensure the system is certain, cost reflective, simple, transparent and consistent, and underpinned by two concepts:
For local infrastructure, industry should be charged for costs that are contingent on their developments proceeding—development-contingent costs – no more, no less…
For State infrastructure, industry should be charged for costs that have a strong relationship to growth—development-associated costs.126
The NSW Productivity Commission recommended other states should consider adopting a similar approach.127 It also noted that the NSW approach will require reform of that state’s rate pegging, which may also be an issue for other states.128 NHFIC suggested that the Northern Territory model where only essential infrastructure is funded is the one ‘a lot of industry would like.’129
While the HIA supported the abolition of developer contributions, it also put forward a list of reforms as an interim measure; these focused on improving transparency and ensuring funds are spent on necessary infrastructure, and that the contributions be payable ‘at the latest stage of the development process’.130 Professor Steven Rowley also proposed that contributions be made ‘payable at the completion of the development rather than upfront’ to assist ‘marginal projects.’131
MBA suggested that ‘there is a role for regulatory oversight of local governments in certain areas’, including to ensure that ‘developer contributions are not costed excessively and that they are matched to specific infrastructure provision.’132 It also supported capping ‘local government planning department fees and charges’.

Support for developer contributions

The Committee also heard from many submitters who were supportive of developer contributions. Dr Cameron Murray argued that reducing or abolishing such charges does not reduce the price of new dwellings, but rather increases the price of undeveloped land, a view shared by the City Futures Research Centre of UNSW.133
The City of Karratha submitted that developer contributions ‘do not affect supply (or demand) for property’, while the Snowy Monaro Regional Council reported that it ‘has discounted these contributions and has not seen a significant change in the release of approved subdivisions.’134 It was noted that abolition or capping of these charges would mean the funding would need to come from another source, a point accepted by many the critics of developer contributions as discussed earlier in this chapter.135
The Queensland Department of State Development, Infrastructure, Local Government and Planning acknowledged the findings from NHFIC’s report regarding development contributions and new housing prices, discussed above, but argued that ‘local infrastructure creates utility which in turn creates value which would substantially exceed the 8 per cent to 11 per cent that local infrastructure costs.’136
Several submitters suggested that the existing developer contributions usually do not cover all necessary infrastructure, particularly in Queensland where contributions are capped.137
The Australian Local Government Association defended developer contributions:
The ongoing life cycle costs of managing and maintaining infrastructure are not typically included in these [council contribution] plans; these are generally supported by rates. Infrastructure contributions are made by developers to help deliver the infrastructure needed as communities grow. This is based on the economically sound user-pays (or beneficiary pays) principle of the existing planning system i.e. new development contributes towards the cost of infrastructure that will meet the additional demand it generates and benefits from. Infrastructure contributions also equitably distribute these costs between beneficiaries, lowering infrastructure barriers to development and facilitating growth.138


Support for build-to-rent

Another taxation-related issue that was raised by submitters was build-to-rent housing (also referred to by some submitters as BTR). Mr Ken Morrison from the PCA explained to the Committee:
Build-to-rent housing … is really a different type of housing ownership. It's an institution which is investing in housing in the same way that it might invest in office space. The benefits for the person who rents are that you've got a long-term landlord professionally managing the property, and a building which is designed with rental needs in mind. It might have common property. It also provides the benefit of a longer-term leasing environment. The interest from the owner's perspective is that you have happy tenants who stay there for a long time, and it provides full occupancy. It's an income reward play rather than a capital return play, as with traditional build-to-sell housing. So there's a lot that makes a lot of sense, which is why we see it very prevalent in North America, the UK, Europe and Japan.
It's emerging in Australia, but it really needs the right frameworks: the right planning frameworks and tax frameworks at a state government level but also the right frameworks at a federal government level. The main block at a federal government level is to equalise and provide a level playing field on withholding tax arrangements within a managed investment trust so that offshore capital, which will always be a significant part of the capital stack that you have investing in this or in commercial property, has an equivalent tax rating. At the moment, it has a tax rating which is twice that of an investor investing in a shopping centre, an office building or an industrial centre, so it means that you're just not going to be able to attract the same level of investment with the same returns. There are also a number of things that state governments need to address here.139
Mr Morrison stated build-to-rent ‘will never take over mum-and-dad investors’, and has not done so even in the United States where it is well-established.140 The PCA also recommended ‘land tax relief, local planning guides that recognise the asset class as a different form of housing to typical apartments and planning approval pathways that recognise the “shovel ready” nature of Build-to-Rent projects.’141
Urban Taskforce similarly recommended equalising the taxation treatment of build-to-rent with other types of property investment, and additionally recommended allowing build-to-rent construction costs to be instantly written off (as is allowed for build-to-sell), provided that the property is held at least five years.142 Under the current system build-to-rent assets must be held for five years before GST can be offset. Urban Taskforce further noted that the NSW Government has taken steps to encourage build-to-rent housing by establishing a ‘fast track planning assessment process’, reducing the foreign investor stamp duty surcharge and providing a 50 per cent reduction in land tax for such housing.143
In its submission the NSW Government suggested the fast-track assessment process was not confined to build-to-rent, but noted that build-to-rent is specifically included in the state’s new planning policy. It recommended that the Australian Government equalise the tax treatment of ‘all forms of commercial residential property’ and consider the impact of CGT on build-to-rent.144 The Queensland Department of Communities, Housing and Digital Economy noted that the Queensland Government has commenced a build-to-rent pilot scheme, under which developers agree ‘to deliver a Build-to-Rent development with an affordable housing component.’145
Dr Luci Ellis, Assistant Governor, Economic at the RBA, identified another difficulty:
One of the things that I'm very mindful of and that we've spoken about publicly before is the tax treatment of investor property. While it is the same as the tax treatment of other income producing assets, because you can leverage it, the combination of negative gearing with concessional capital gains means that it is very attractive to leverage into investor property as opposed to thinking of yourself as a landlord with a business providing housing services. As a consequence, individual households do it. What happens is that the rental yield on rental properties in Australia is quite low, so the overall level of rents is low relative to prices, but, because of the tax advantages, individual households investing in rental property are willing to accept a relatively low yield for that. It's still attractive relative to other investments, but they're willing to accept a relatively low yield. But, because corporates don't negatively gear and because they're not necessarily planning to sell it later on; it's a long-term investment for them, the concessional capital gains is less relevant to them …. Essentially what it means is that a household owning an individual house to rent out is willing to accept a lower yield than a corporate would.146
The Shop, Distributive and Allied Employees’ Association submitted that:
The two key impediments [to build-to-rent] are land tax (state land taxes are levied on the basis of individual dwellings not the entire holding and are consequently significantly higher than other property asset classes) and GST. In the latter case the treatment of housing is a complex area and would require broader consumption tax reform. In the former case, land tax on underlying land values means a single owner faces a large bill, while investors who own one or two apartments do not. In the latter, the GST treatment of BTR and build-to-sell differs. GST is embedded in acquisition and development costs; thus, it is not creditable for BTR but it is creditable for build-to-sell. In addition, overseas-based BTR investors are subject to a higher tax rate on market-rent residential investment than other asset classes which is a significant impediment given that global funds would be likely ‘first movers’ in establishing a new institutional funding asset class.147

Scepticism about build-to-rent

The Committee received little evidence opposing an expansion of build-to-rent housing, although Mr Andy Fergus, Advocacy Lead of Urban Design Forum and of Andy Fergus Design Strategy, stated that ‘I don't know if I would want to follow the build-to-rent pathway’, without elaborating further.148
Mr Robert Pradolin, Founder and Director, Housing All Australians Limited commented that:
Let's be very clear: build-to-rent is about $700 to $800 a week; it is not affordable housing. As a taxpayer, if we are to give tax concessions in terms of land tax et cetera, which I would support, it must get a public outcome in terms of providing affordable housing, otherwise you are just allowing the rental market to drop a bit but still you do not hit the affordability level.149
By ‘affordable housing’ Mr Pradolin was apparently referring to ‘non-market housing’, which as explained in Chapter 1 is largely not the focus of this report. No evidence set out specific arguments against tax changes to support build-to-rent such as changing the treatment of managed investment trusts, however Mr Greg Chemello, Chief Executive Officer, Moreton Bay Regional Council, expressed scepticism about the difference tax changes would make:
Build-to-rent is interesting in Australia. I did a Property Council tour in the United States a couple of years ago to look at the build-to-rent market there. There are fundamental differences to Australia in the cost structure, aren't there? The cost of construction there seems to be something like a third or a quarter less than ours; it would be a lot less now. Also, their rental levels, particularly on the north-west coast, were double ours. So, if your cost of construction is a third less and you can get twice the rent, it makes complete and utter sense why, in the States, you would hold and hold and rent, compared to Australia. That has been the challenge in the Australian economy with our market and with our comparative cost of construction and rental levels, notwithstanding the increase in rents lately which still wouldn't have changed it; it still makes it pretty marginal. I know there are a lot of folks looking at taxation ways to make it more attractive to do that. We don't find in South-East Queensland many successful examples of that, and this is a very buoyant market too.150

Committee comment

As explained in Chapter 2, the Committee’s view is that Australia’s housing affordability crisis is primarily a supply-side problem. While a significant number of submitters were critical of some of the Commonwealth’s tax concessions on housing, particularly the CGT discount and negative gearing, the consensus appears to be that reducing these concessions would only have a small, once-off effect on housing prices, while increasing rents to some degree. The Committee believes that this does not justify changing these arrangements, especially given that they are not unique to housing, but merely particular applications of broader principles of the tax system.
The Committee accepts the majority view among submitters – a view that has been endorsed by many prior reports on this topic – that stamp duty is an inefficient tax, and that replacing it with a broad-based land tax would improve the functioning of the housing market and the economy in general.
The Committee acknowledges that making such a switch poses significant transitional difficulties, both in terms of ensuring those who have recently paid stamp duty on a property are not disadvantaged and in replacing the revenue stamp duty provides for state and territory governments, but believes that these can be worked through.
The Committee encourages the Australian Government to lead any national coordination required to achieve this, but believes that stamp duty reform must ultimately be a matter for the states and territories. In particular, the Committee believes that it would be setting an unhelpful precedent for the Australian Government to provide financial incentives for the states and territories to engage in this reform – it is their responsibility to take what steps they can to improve the productivity of their economies.
The Committee notes evidence regarding issues associated with the current FBT regime, and the calls from multiple submitters for FBT concessions to be extended in various ways. The Committee considers this is an important issue that warrants greater interrogation and consideration from a wider range of perspectives than those covered in the evidence to this inquiry, to ensure that no unintended consequences could flow from FBT reforms.
The issue of developer contributions was a particularly complex one, as the situation appears to vary from state to state, council to council and sometimes even development to development. The Committee heard about the extent to which developer contributions increased the cost of new developments and in many cases, the funds were not being used for their intended purpose. Thus, there is a clear need to reform these charges or do away with them entirely and implement a value capture model instead.
The Committee believes that the Australian Government should lead efforts to develop a more nationally consistent and transparent approach to these charges, underlined by the principle that they should only be used to fund infrastructure that is directly necessary for the development on which they are being levied.
The Committee was intrigued by the evidence it received on build-to-rent housing, and believes this is a model that has potential to help improve housing affordability. Nonetheless, it is clear that promoting this style of housing will require detailed consideration of multiple obstacles, primarily relating to taxation but also other matters such as planning. Given the complexity of these obstacles, the Committee believes further investigation of them is required before any changes to legislation or regulations are made, and recommends that the Australian Government give further consideration to the issue.

Recommendation 8

The Committee recommends that the Australian Government not change its current policy regarding negative gearing.
The Committee recommends that the Australian Government maintain current policy with regard to negative gearing. The Committee believes the benefits this policy provides in the form of lower rents, higher housing supply, diversity of ownership and the efficiency of the tax system, outweigh the nominal impact it has on housing prices.

Recommendation 9

The Committee recommends that state and territory governments replace stamp duty with land tax.
The Committee recommends states and territories replace stamp duty with land tax. This should be implemented over time, avoiding those who have already or recently paid stamp duty facing double taxation through the replacement land tax. This change would increase housing turnover, remove an unnecessary obstacle to home ownership and stabilise government revenues.

Recommendation 10

The Committee recommends that the Australian Government conduct a review into how transitional costs regarding Recommendation 9 might be smoothed.
The Committee recommends that the Australian Government, led by the Department of the Treasury, conduct a review of how transitional costs for Recommendation 9 might be smoothed and how adverse effects on fiscal equalisation might be avoided.
As the states and territories would be the biggest beneficiaries of this transfer, any money provided by the Australian Government should be repaid by the states and territories.
In the interim, the Committee recommends that states and territories that adjust stamp duty brackets to redress decades of stamp duty bracket creep will not be penalised by the Commonwealth Grants Commission in Goods and Services Tax (GST) distributions.
Furthermore, the Committee recommends that states and territories should adjust stamp duty brackets to redress decades of stamp duty bracket creep and that they should be indexed in line with inflation in the housing market.

Recommendation 11

The Committee recommends that the Australian Government work with state and territory governments to reform developer contributions, ensuring that the money is used to fund value adding and demanded infrastructure.
The Committee recommends that developer contributions are reformed as they have ballooned, adding nearly half of the housing cost and have failed to provide increased infrastructure. There are two ways this could occur, either replacement with a value capture model or ensuring that developer contributions can only be expended on their intended purpose, development infrastructure and services.
This should form part of the incentive payments recommended in Recommendation 2.
The Committee recommends that the Australian Government work with the states and territories to increase the consistency and transparency of developer contributions across the nation, and to ensure that such contributions are only used to fund useful, value adding infrastructure that is genuinely essential for the development on which they are levied.

Recommendation 12

The Committee recommends that the Australian Government conduct a review into the build-to-rent housing market and how it is affected by current regulations and tax policies.
The evidence the Committee has heard suggests that build-to-rent housing would provide consumers more choice and has the potential to increase security of tenure. As a result, the Committee recommends that the Australian Government, led by the Department of the Treasury, conduct a review into the build-to-rent housing market and how it is affected by progressive land tax and other tax and regulatory settings.

  • 1
    The distinction between a tax and a charge was not explored in detail in the evidence, but in general terms a tax is an exaction by government for public purposes, as opposed to a fee for services rendered: LexisNexis, Concise Aus Legal Dictionary, 6th edn, Chatswood, 2021, p. 656. The question of what is provided in return for charges on housing was a source of debate and is discussed below.
  • 2
    Master Builders Australia (MBA), Submission 125, p. 8.
  • 3
    MBA, Submission 125, p. 8.
  • 4
    Mr Peter Mares, Submission 53, p. 9.
  • 5
    Mr Chris Moore, Submission 1, pages 5; Centre for Independent Studies (CIS), Submission 24, p. 13; Property Council of Australia (PCA), Submission 154, p. 21.
  • 6
    National Housing Finance and Investment Corporation (NHFIC), Submission 78, Attachment 1, p. 6.
  • 7
    NHFIC, Submission 78, Attachment 1.
  • 8
    MBA, Submission 125, p. 10; Mr Adrian Kelly, President, Real Estate Institute of Australia (REIA), Committee Hansard, Canberra, 4 November 2021, pages 48, 50.
  • 9
    Australian Finance Industry Association, Submission 130, p. 9.
  • 10
    Commonly referred to as the Henry Review because the Chair of the Review panel was Dr Ken Henry AC, then Secretary to the Australian Government Department of the Treasury (Department of the Treasury), this review was established by the Australian Government and ran from 2008 to 2010: Department of the Treasury, Australia’s Future Tax System Review, 2 May 2020, treasury.gov.au/review/the-australias-future-tax-review/final-report, viewed 17 February 2022.
  • 11
    Reserve Bank of Australia (RBA), Submission 52, pages 14-16.
  • 12
    Centre for Independent Studies (CIS), Submission 24, p. 13.
  • 13
    CIS, Submission 24, p. 15; citing J Daley et al, ‘Hot property: negative gearing and capital gains tax reform’, Grattan Institute, April 2016, grattan.edu.au/wp-content/uploads/2016/04/872-Hot-Property.pdf, viewed 10 February 2022; G Tunny, ‘Untangling the debate over negative gearing’, Policy, Vol. 34 No. 1, Autumn 2018, www.cis.org.au/app/uploads/2018/03/34-1-tunny-gene.pdf, viewed 10 February 2022; J Duke, ‘Negative gearing changes would push up rents 10 per cent: BIS Shrapnel’, Domain, 3 March 2016, www.domain.com.au/news/negative-gearing-changes-would-push-up-rents-10-per-cent-report-20160302-gn8ehp/, viewed 10 February 2022; Y Cho et al, ‘Investment housing tax concessions and welfare: Evidence from Australia’, Australian National University, Crawford School of Public Policy, Centre for Applied Macroeconomic Analysis Working Paper Series, 2/2021, January 2021, cama.crawford.anu.edu.au/publication/cama-working-paper-series/18248/investment-housing-tax-concessions-and-welfare-evidence, viewed 10 February 2022; Deloitte Access Economics, Analysis of changes to negative gearing and capital gains taxation, report prepared for the Property Council of Australia, July 2019, cdn2.hubspot.net/
    hubfs/2095495/_Communications/NGCGT/DAE%20analysis.pdf, viewed 10 February 2022.
  • 14
    Committee Hansard, Canberra, 4 November 2021, p. 69; citing Deloitte Access Economics, Analysis of changes to negative gearing and capital gains taxation, report prepared for the Property Council of Australia, July 2019, cdn2.hubspot.net/hubfs/
    2095495/_Communications/NGCGT/DAE%20analysis.pdf, viewed 10 February 2022.
  • 15
    PCA, Submission 154, p. 20.
  • 16
    MJH Group, Submission 98, p. [3].
  • 17
    Housing Industry Association (HIA), Submission 41, p. [8]; no citation provided.
  • 18
    Committee Hansard, Canberra, 14 September 2021, p. 8.
  • 19
    Committee Hansard, Canberra, 4 November 2021, p. 6.
  • 20
    Mr Mares, Submission 53, p. 3; Dr Angela Ballard, Submission 82, p. [1]; Mr Peter Neil, Submission 83, p. 1.
  • 21
    City Futures Research Centre of the University of New South Wales (UNSW), Submission 42, p. 27; Dr Cameron Murray, Submission 12, p. 14.
  • 22
    City Futures Research Centre of UNSW, Submission 42, p. 27.
  • 23
    City Futures Research Centre of UNSW, Submission 42, p. 25; citing City Futures Research Centre of UNSW, Developing the compact city, unpublished.
  • 24
    Mr Toby Long, General Manager, Residential Development New South Wales (NSW), Mirvac, Committee Hansard, Canberra, 26 November 2021, p. 8.
  • 25
    City Futures Research Centre of UNSW, Submission 42, p. 24.
  • 26
    Prosper Australia, Submission 103, pages [13-14].
  • 27
    National Shelter, Submission 93, p. [4].
  • 28
    See for example: Mr John Goodman, Submission 80, p. [1]; Shop, Distributive and Allied Employees’ Association (SDA), Submission 88, p. [17]; Municipal Association of Victoria (MAV), Submission 105, p. 8; Dr Luci Ellis, Assistant Governor, Economic, RBA, Committee Hansard, Canberra, 14 September 2021, p. 16.
  • 29
    Community Housing Industry Association (CHIA) NSW and Aboriginal Community Housing Industry Association (ACHIA) NSW, Submission 68, p. 7; MAV, Submission 105, p. 9.
  • 30
    CHIA NSW and ACHIA NSW, Submission 68, p. 8.
  • 31
    Grattan Institute, Submission 94, pages 12, 14.
  • 32
    Australian Taxation Office (ATO), Capital gains tax, Canberra, August 2021, www.ato.gov.au/Individuals/Capital-gains-tax/, viewed 14 December 2021.
  • 33
    MAV, Submission 105, p. 8.
  • 34
    Name Withheld, Submission 109, p. [2]. See also: ATO, Your main residence (home), August 2021, www.ato.gov.au/individuals/capital-gains-tax/property-and-capital-gains-tax/your-main-residence-(home)/, viewed 14 December 2021.
  • 35
    CIS, Submission 24, p. 14. See also: ATO, Indexing the cost base, August 2021, www.ato.gov.au/Individuals/Capital-gains-tax/Calculating-your-CGT/Cost-base-of-assets/Indexing-the-cost-base/#:~:text=The%20indexation%20method%20adjusts%20the,capital%
    %20on%20the%20asset, viewed 24 January 2022.
  • 36
    Dr John Swieringa, Assistant Secretary, Social Policy Division, Department of the Treasury, Committee Hansard, Canberra, 14 September 2021, p. 7.
  • 37
    Committee Hansard, Canberra, 10 November 2021, p. 35.
  • 38
    NSW Government, Submission 142, p. [27].
  • 39
    See for example: Australians for Intergenerational Equity, Submission 60, p. 4.
  • 40
    See for example: Mr Moore, Submission 1, p. [11]; Southern Youth and Family Services, Submission 31, pages 2-3; Sustainable Australia Party, Submission 81, p. 4; Housing for the Aged Action Group, Submission 132, pages [6-7].
  • 41
    Grattan Institute, Submission 94, p. 13; MAV, Submission 105, p. 16; Name Withheld, Submission 155, p. [1].
  • 42
    Mr Saul Eslake, Submission 3, Attachment 2, p. [14]; CHIA NSW and ACHIA NSW, Submission 68, p. 8; National Shelter, Submission 93, p. 4; Name Withheld, Submission 109, p. [2]; Name Withheld, Submission 110, p. [2].
  • 43
    Dr Bradford Sherman, Submission 32, p. 2.
  • 44
    Ms Suzanne Janine, Submission 11, p. [2]; Dr Ballard, Submission 82, p. [2].
  • 45
    Prosper Australia, Submission 103, p. [14].
  • 46
    Name Withheld, Submission 19, p. [2]; Dr Sherman, Submission 32, p. [2]; Mr Mares, Submission 53, p. 13.
  • 47
    NSW Government, Submission 142, p. [20].
  • 48
    MBA, Submission 125, p. 10.
  • 49
    Save Our Suburbs NSW, Submission 16, p. 3.
  • 50
    CIS, Submission 24, p. 14.
  • 51
    CIS, Submission 24, p. 14.
  • 52
    ATO, Rental expenses to claim, July 2021, www.ato.gov.au/Individuals/Investments-and-assets/Residential-rental-properties/rental-expenses-to-claim/, viewed 24 January 2022.
  • 53
    MAV, Submission 105, p. 8.
  • 54
    Mr Eslake, Submission 3, Attachment 2, pages [9-11].
  • 55
    Mr Eslake, Submission 3, Attachment 2, pages [9-11].
  • 56
    Mr Eslake, Submission 3, Attachment 2, p. [13].
  • 57
    Australians for Intergenerational Equity, Submission 60, p. 8; Affordable Housing Party, Submission 85, p. [1]; Name Withheld, Submission 155, p. [1].
  • 58
    See for example: Mr Christopher Rowland and Dr Joseph Brassil, Submission 25, p. [2] (or limit); Name Withheld, Submission 50, p. [3]; Mr Tone Wheeler, Submission 58, p. [2]; Mr Martin Carey, Submission 84, p. 2; Ms Madonna Waugh, Submission 145, p. 3.
  • 59
    Mr Eslake, Submission 3, Attachment 2, p. [14].
  • 60
    Dr Sherman, Submission 32, p. 2; Name Withheld, Submission 110, pages [1-2], National Shelter, Submission 93, p. [5].
  • 61
    Industry Super Australia, Submission 18, p. 2; Mr Mares, Submission 53, p. 13; Prosper Australia, Submission 103, p. [14].
  • 62
    Mr Paddy Cashman, Submission 63, p. 3; Dr Ballard, Submission 82, p. [2].
  • 63
    Mr Mark Kelly, Submission 28, p. [1]; Name Withheld, Submission 100, p. [8].
  • 64
    See for example MBA, Submission 125, p. 10.
  • 65
    HIA, Submission 41, p. [20].
  • 66
    CIS, Submission 24, pages 13-14.
  • 67
    REIA, Submission 74, p. 11, citing REIA, Sensible Approach to Royal Commission Reforms to Benefit Home Owners and Mum-and-Dad Investors, 2021.
  • 68
    Committee Hansard, Canberra, 4 November 2021, p. 49.
  • 69
    Save Our Suburbs NSW, Submission 16, p. 3.
  • 70
    Name Withheld, Submission 109, pages [1-2].
  • 71
    NSW Productivity Commission, Submission 115, p. [14].
  • 72
    NSW Government, Submission 142, p. [8].
  • 73
    See for example: Mr Eslake, Submission 3, Attachment 1, p. [6]; Urban Taskforce, Submission 43, p. [29]; City of Karratha, Submission 76, p. [4]; National Shelter, Submission 93, p. [5]; Narrow Road Capital, Submission 135, p. [3].
  • 74
    See for example: National Centre for Economic and Social Modelling, University of Canberra, (NATSEM), Submission 8, p. [3]; HIA, Submission 41, p. [18]; REA Group, Submission 46, p. [2].
  • 75
    Committee Hansard, Canberra, 4 November 2021, p. 6.
  • 76
    NSW Productivity Commission, Submission 115, pages [14-15].
  • 77
    Dr Swieringa, Department of the Treasury, Committee Hansard, Canberra, 14 September 2021, p. 10; RBA, Submission 52, pages 16-17.
  • 78
    NATSEM, Submission 8, p. [5].
  • 79
    Committee Hansard, Canberra, 4 November 2021, p. 66.
  • 80
    Mr Moore, Submission 1, p. [2]; NATSEM, Submission 8, p. [5]; Name Withheld, Submission 19, p. [3].
  • 81
    Domain, Submission 89, p. [10]; Sustainable Australia Party, Submission 81, p. 5; PCA, Submission 154, p. [26].
  • 82
    NATSEM, Submission 8, p. [5] (without directly mentioning GST); HIA, Submission 41, p. [18]; Prosper Australia, Submission 103, p. [13]; NSW Government, Submission 142, p. [14].
  • 83
    NSW Productivity Commission, Submission 115, p. [17].
  • 84
    CIS, Submission 24, p. 19; Mr Mares, Submission 53, pages 13-14.
  • 85
    Professor Kevin Davis, Submission 128, p. [10].
  • 86
    Mr Moore, Submission 1.1, p. [2]; Dwyer Lawyers, Submission 117, p. [11].
  • 87
    Dr Murray, Submission 12, p. 14.
  • 88
    Name Withheld, Submission 100, p. [6].
  • 89
    Urbanised Pty Ltd, Submission 153, p. 4.
  • 90
    Committee Hansard, Canberra, 3 November 2021, p. 41.
  • 91
    Raine & Horne Group, Submission 34, p. 3; City Futures Research Centre of UNSW, Submission 42, pages 25-26; CHIA NSW and ACHIA NSW, Submission 68, pages 8-10.
  • 92
    Regional Australia Institute, Submission 114, p. [6].
  • 93
    MAV, Submission 105, p. 16.
  • 94
    Urbanised Pty Ltd, Submission 153, p. 4; Mr Morrison, PCA, Committee Hansard, Canberra, 4 November 2021, p. 70.
  • 95
    Committee Hansard, Canberra, 3 November 2021, p. 38.
  • 96
    Ms Seve, Submission 138, pages 1-2.
  • 97
    Mr Rowland and Dr Brassil, Submission 25, p. [2].
  • 98
    Mr Eslake, Submission 3, Attachment 1, p. [5]; Mr Rowland and Dr Brassil, Submission 25, p. [2]; Raine & Horne Group, Submission 34, p. 4.
  • 99
    Mr Umesh Ratnagobal, Head of Government and Industry Affairs, REA Group, Committee Hansard, Canberra, 4 November 2021, p. 58.
  • 100
    Raine & Horne Group, Submission 34, p. 5.
  • 101
    REIA, Submission 74, p. 10.
  • 102
    HIA, Submission 41, pages [18-19].
  • 103
    ATO, Fringe benefits tax – remote areas, 25 September 2018, www.ato.gov.au/General/
    fringe-benefits-tax-(fbt)/in-detail/exemptions-and-concessions/FBT---remote-areas/., viewed 8 February 2022.
  • 104
    Productivity Commission, Remote Area Tax Concessions and Payments, Study Report, 2020, www.pc.gov.au/inquiries/completed/remote-tax#report, viewed 8 February 2022, pages 240-241.
  • 105
    Productivity Commission, Remote Area Tax Concessions and Payments, Study Report, 2020, www.pc.gov.au/inquiries/completed/remote-tax#report, viewed 8 February 2022, p. [8].
  • 106
    Productivity Commission, Remote Area Tax Concessions and Payments, Study Report, 2020, www.pc.gov.au/inquiries/completed/remote-tax#report, viewed 8 February 2022, pages [33-34].
  • 107
    Committee Hansard, Canberra, 8 November 2021, pages 10-11.
  • 108
    Committee Hansard, Canberra, 8 November 2021, p. 7.
  • 109
    The published submissions that were part of the More than Mining campaign include: Mr Jordan Ralph, Submission 6; Australian Mining Cities Alliance (AMCA), Submission 146; Connect Paediatric Therapy Services, Submission 147; Karratha & Districts Chamber of Commerce & Industry (KDCCI), Submission 148.
  • 110
    Mr Jordan Ralph, Submission 6, p. [2]; AMCA, Submission 146, pages [9-10]; Connect Paediatric Therapy Services, Submission 147, p. [2]; KDCCI, Submission 148, p. [2]. See also: Pilbara for Purpose, Submission 127; Isaac Region Council, Submission 118; Ngarliyarndu Bindirri Aboriginal Corporation, Submission 101.
  • 111
    Mr Jordan Ralph, Submission 6, p. [2]; AMCA, Submission 146, pages [9-10]; Connect Paediatric Therapy Services, Submission 147, p. [2]; KDCCI Submission 148, p. [2].
  • 112
    Mr Jordan Ralph, Submission 6, p. [2]; AMCA, Submission 146, pages [9-10]; Connect Paediatric Therapy Services, Submission 147, p. [2]; KDCCI, Submission 148, p. [2].
  • 113
    Police Federation of Australia, Submission 37, p. [2].
  • 114
    Committee Hansard, Canberra, 10 November 2021, p. 51.
  • 115
    Urban Development Institute of Australia (UDIA), Submission 33, p. 26. NHFIC provided this report to the Committee: NHFIC, Submission 78, Attachment 1.
  • 116
    NHFIC, Submission 78, Attachment 1, p. 4.
  • 117
    UDIA, Submission 33, p. 26.
  • 118
    Urban Taskforce, Submission 43, pages [17-18], MBA, Submission 125, p. 13; PCA, Submission 154, p. [23]; Mr Hugh Hartigan, Senior Advisor, NHFIC, Committee Hansard, Canberra, 15 November 2021, pages 2-3, 5.
  • 119
    MBA, Submission 125, p. 13.
  • 120
    Ms Kristin Brookfield, Chief Executive, Industry Policy, HIA, Committee Hansard, Canberra, 4 November 2021, p. 10.
  • 121
    Mr Eslake, Submission 3, Attachment 2, p. [5].
  • 122
    Dwyer Lawyers, Submission 117, p. [6].
  • 123
    Prosper Australia, Submission 103, p. [14].
  • 124
    Mr Eslake, Submission 3, Attachment 1, p. [6], Attachment 2, p. [16].
  • 125
    HIA, Submission 41, p. [7]; Urban Taskforce, Submission 43, p. [18]. See also Mr Hartigan, NHFIC, Committee Hansard, Canberra, 15 November 2021, pages 5-6.
  • 126
    NSW Productivity Commission, Submission 115, pages [19-20]; citing NSW Productivity Commission, Review of infrastructure contributions in New South Wales. Final report, December 2020, www.productivity.nsw.gov.au/infrastructure-contributions-review, viewed 10 February 2022.
  • 127
    NSW Productivity Commission, Submission 115, p. [19].
  • 128
    NSW Productivity Commission, Submission 115, p. [20].
  • 129
    Mr Hartigan, NHFIC, Committee Hansard, Canberra, 15 November 2021, p. 7.
  • 130
    HIA, Submission 41, p. [12].
  • 131
    Professor Steven Rowley, Submission 2, p. [3].
  • 132
    MBA, Submission 125, p. 13.
  • 133
    Dr Murray, Submission 12, p. 14; City Futures Research Centre of UNSW, Submission 42, p. 27.
  • 134
    City of Karratha, Submission 76, p. [4]; Snowy Monaro Regional Council, Submission 97, p. 7.
  • 135
    City Futures Research Centre of UNSW, Submission 42, p. 27; Queensland Department of State Development, Infrastructure, Local Government and Planning (DSDILGP), Submission 62, pages [1-2]; AMCA, Submission 146, p. [11].
  • 136
    DSDILGP, Submission 62, p. [2].
  • 137
    Regional Development Australia – Barwon South West, Submission 121, p. 11; Local Government Association of Queensland, Submission 126, pages 27-29; Moreton Bay Regional Council, Submission 139, p. [3].
  • 138
    Australian Local Government Association, Submission 113, p. 4.
  • 139
    Committee Hansard, Canberra, 4 November 2021, pages 70-71.
  • 140
    Mr Morrison, PCA, Committee Hansard, Canberra, 4 November 2021, p. 71.
  • 141
    PCA, Submission 154, p. [28].
  • 142
    Urban Taskforce, Submission 43, pages [25-27].
  • 143
    Urban Taskforce, Submission 43, p. [25].
  • 144
    NSW Government, Submission 142, pages [5], [25].
  • 145
    Queensland Department of Communities, Housing and Digital Economy, Submission 149, p. [3].
  • 146
    Committee Hansard, Canberra, 15 November 2021, p. 29.
  • 147
    SDA, Submission 88, p. [19].
  • 148
    Committee Hansard, Canberra, 4 November 2021, p. 39.
  • 149
    Committee Hansard, Canberra, 10 November 2021, p. 58.
  • 150
    Committee Hansard, Canberra, 8 November 2021, p. 31.

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