You tell ’em, Timbo

The Spencer Street Soviet’s economics editor Tim Colebatch has some harsh words for Aussie housing policy.

He argues that Australia’s tax treatment of housing – the capital gains tax exemption on the family home, and allowing mortgage interest to be written off against any income, not just rental income – are responsible for jamming Australian house prices higher. In an ideal world, he says, these tax breaks would be phased out.

Colebatch’s policy proposal:

For a bold government, there is an opportunity to cut through and make big reforms by appealing to people’s sense of fairness and the need to get policy back on track.

In one swoop, it should remove the two big tax distortions of the market. End the exemption of the family home from capital gains tax. End the tax break for negative gearing – or limit it to new homes built by the investor. And, at the very least, require temporary residents to report their property purchases, so we can know whether we have a problem or not.

Sadly, the CGT exemption for the family home and the negative gearing tax break seem to be third rails for the Aussie electorate – but if the government of the day is looking to bring down house prices, knocking out one or both of these two tax breaks might be a policy tool worth looking at.

Also, a scary statistic (I can’t find where I sourced this from, so if anyone’s got a good source it’d be much appreciated) – seventy percent of Aussies who own investment property are running it at a loss, and relying on rising house prices to bail them out. That’s an awful lot of people all the same way ’round in a trade with negative carry.

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