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Removing the Taxation Burden from the Australian New Housing Sector

During the first week of October the federal government held the 2011 Tax Forum in Canberra, which involved around 200 individuals and organisations with an interest in taxation reform.

The HIA was invited to the Forum to represent the Australian housing sector. In preparation for the Forum, HIA collated a wide-ranging and in-depth body of information to assist the government and other participants when considering the taxation issues affecting housing.

As part of this work, HIA commissioned an independent report into the taxation of the housing industry, with a particular focus on new housing. Taxation of the Housing Sector was prepared by the Centre for International Economics (CIE) on behalf of HIA.

Information was gathered and collated on all the taxes that contribute to the final price of a new home. The results demonstrated that the residential (new home) building sector is not only heavily taxed, but it is the second most highly taxed industrial sector in Australia.

The CIE study showed that the Australian housing sector contributes nearly $40 billion in taxation revenue to federal, state and local governments in Australia each year – 11% of the total taxation revenue collected by all tiers of government.

Further, the new housing sector accounts for 1.2% of the Australian economy’s value added yet contributes 2.8% of all taxation revenue.

The total taxation burden on a new home can now be well over 40% of its purchase price - most of which is borne by the home buyer. This means that the tax component of a new home is now so large, it usually exceeds the costs of land.

Taxes on new home building dampen economic activity and reduce housing affordability, and with many of the taxes on new housing being highly inefficient, there are significant economic gains to be made from their removal.

Australia has a large housing shortage, and because as a nation we continue to under-build, each year we add a further 20,000 homes to this shortage. Yet taxes on the delivery of serviceable land for residential development, property transfers and on new home building activity - together with land supply constraints - inhibit the industry’s capacity to supply sufficient homes to meet demand for more affordable housing.

The Tax Forum acknowledged the array and magnitude of taxation on new housing. It will hopefully be the first step towards the removal of (or at least sizable reduction in) the myriad of inefficient taxes on housing.