Nearly half of Australia's top economists have backed the complete elimination of capital gains taxation (CGT) benefits for property investors.
A recent survey by the Economics Society of Australia (ESA) Monash Forum polled 27 highly ranked economists on the following statement:
“Capital gains tax deductions for housing investment should be removed because they overstimulate the housing market, contributing to rising house prices.”
Of those polled, 44.4% agreed, 40.7% disagreed, while 14.8% were uncertain.
This statement was deliberately more extreme than measures proposed by the Australian government to reform the current 50% CGT benefit on property investment.
Maria Yanotti, lecturer of economics and finance of the Tasmanian School of Business & Economics at the University of Tasmania, conducted the survey. She explained that the question was chosen to be more general to encourage a broader debate instead of focusing in anything inherent to a single political party.
The fact that a reduction in CGT concessions to 25% or 40% had been discussed was also of note, she said.
“One of the options was to remove it if you sold the property in the initial years of the investment and then phase it back later if you held your investment for a longer period and then sold it,” Yanotti told
Australian Broker.
When looking at the qualitative statements made by those surveyed, 54% of economists said that CGT benefits should merely be reduced while 35% said they should remain the same.
“This has been a no-brainer for years,” said Paul Frijters, economist at the University of Queensland, in the survey. “[Subsidised] housing purchases [increase] the price of houses and [distort] incentives. One probably would need to phase them out though rather than remove them in one go because so many people are heavily leveraged on the expectation that the subsidy would remain.”
Rodney Maddock, adjunct professor of economics in Monash Business School at Monash University, wrote in his survey result that CGT concessions were good policy which supported investment in a world where asset prices were subject to inflation.
“Their removal would lead to inflationary gains being taxed, even when [there has] been no real increase in value: that would be bad policy.
“The fundamental problem is not with the principle of concessions for capital gains but rather with the level: the current concessional treatment is excessively generous. Cutting the rate drastically would reduce most of the potential for abuse.”
Looking at the responses overall, most economists pushed for a broader view encompassing a range of aspects instead of merely focusing on CGT deductions, Yanotti said.
“It’s not treating the tax system in an equalitarian way and it would create distortions in the economy and financial markets in general. They were proposing a more holistic approach not only for tax reform but also for housing supply and demand.”
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