Housing taxation reform required to deal with ageing population: HIA

The increasing expenditure associated with Australia’s ageing population will necessitate reforms to the country’s taxation system, according to the latest Economics Group Research Note from the Housing Industry Association of Australia (HIA).

With the number of Australians aged 85 and over projected to grow from 455,000 to 1 million in the next 25 years, the country’s working population is expected to decline in relation to the number of senior financial dependents. The country's shifting age demographics are likely to intensify public expenditure pressures, with HIA claiming that the residential construction sector will play a direct role in Australia’s response to the ageing population.

Currently, the Public Budget Office estimates that the structural budget balance will remain in deficit in 2016/17. As such, in its report HIA advocates a series of structural taxation reforms extending to the housing construction sector to help manage Australia’s shrinking taxation base.

The report states that new housing is Australia’s “most heavily and inefficiently taxed sector”, contributing about $40 billion 11% of total taxation revenue per year across all levels of government.

“Taxes on new housing are not only excessive, but are disproportionate relative to the rate of taxation on other sectors of the economy – the average tax burden on the residential building sector is estimated at around 31% of the value of output, which compares to an economy-wide average of 24.4%,” writes HIA in the report, titled Housing: Paving the Road to Recovery?

Citing the 2010 Ken Henry Tax Review, HIA also criticises stamp duties as inefficient and providing a disincentive for older Australians to move to more appropriate dwellings. In the final recommendations of Australia’s Future Tax System, Henry advises that “ideally, there would be no role for any stamp duties, including conveyancing stamp duties, in a modern Australian tax system”. Instead, the review recommends a broad land tax.

HIA’s report also raises the issue of providing adequate housing stock to meet growing demand. Pointing to legislative barriers to housing supply, the industry body claims there is a shortage of housing stock and inflating home ownership and rental prices.

Although housing supply is largely regulated by state and local governments, HIA claims that the federal government can take action to increase new housing stock, such as tying funding to public and social housing delivery benchmarks.