These variations complicate the prospects for reform, but there is an emerging consensus on appropriate policy directions, including the adoption of a ‘layered’
2.2 Australia and other countries compared
Housing price inflation and its associated policy challenges are being experienced to varying degrees across a wide range of international property markets. While there are common drivers, such as historically low interest rates and a strong credit supply (Turner 2015), there is also a good deal of variation between different nations and regions, highlighting the extent to which residential housing markets are influenced by a host of domestic and local factors. Yet the common policy challenges facing a number of countries, combined with the wide range of responses that have been implemented, provide a useful baseline for comparing Australia’s property tax regime with other jurisdictions, and an opportunity to assess relevant recent trends in property tax policy in these countries.
2.2.1 International comparisons
Using the definitions of property taxes outlined above (Section 2.1) we can see from Figure 2 below that, when tax is considered as a proportion of GDP, Australia has a relatively high dependence on property taxes (40% above OECD average) although the UK, France and Canada are higher still. When property tax is considered as a proportion of all taxation revenue, as in Figure 3 below, Australia’s overall reliance on property tax is further above the OECD average, in part because overall tax to GDP in Australia is well below the OECD average. Perhaps of greater significance is the unusual mix of taxes in Australia’s property tax regime:
Australia’s reliance on non-recurrent taxation on transactions is far in excess of the other comparison countries. These comparisons underscore the point made in various reviews (Henry, Harmer et al. 2009; Commonwealth of Australia 2015; ACT Treasury 2012) that while Australia is not undertaxed, it is poorly taxed and overly dependent on transaction-based taxes on property (Mangioni 2016c).
Figure 2: Selected property taxes as a proportion of total GDP, selected countries and OECD average, 2014
Source: OECD 2016.
Figure 3: Selected property taxes as a proportion of total tax revenue, selected countries and OECD average, 2014
Source: OECD 2016a.
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 4100: Recurrent taxes, immovable property 4400: Financial transaction taxes Total P rop orti on of tot al tax r ev en ue Type of tax
Australia Canada France Germany
United Kingdom United States OECD average
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 4100: Recurrent taxes, immovable property 4400: Financial transaction taxes Totals P rop orti on of G DP Type of tax
Australia Canada France Germany
Australia’s existing regime of transaction taxes is problematic for a number of reasons. First, in terms of economic efficiency, taxing transactions acts as a disincentive for owners wanting to move to more appropriate accommodation, hindering labour mobility and acting as a barrier to ‘downsizing’. Second, evidence suggests that shifting the property tax mix to a recurrent tax on property values will put downward pressure on property prices improving housing affordability. Finally, revenue from transaction-based property taxes can be extremely volatile given its dependence on the volume and price of property transactions (Henry, Harmer et al. 2009: 253– 254; Productivity Commission 2017b). As reproduced in Figure 4 below, modelling undertaken as part of the Commonwealth Government’s Re:Think tax review found that of the taxes
modelled, transfer duties imposed the highest level of marginal excess burden on the economy, meaning that the impact of raising revenue from these taxes on the consumption of goods and services by households is considerable and detrimental (Commonwealth Government 2015: 24–25). By contrast, municipal rates and land tax (on the existing narrow base) both imposed a negative marginal excess burden (Commonwealth Government 2015: 25).
Figure 4: Analysis of marginal excess burden of key Australian taxes
Source: Reproduced from Commonwealth Government (2015: 25).
A further important complication arises from the sharing of the property tax base between local government (rates) and state government (land tax). These two revenue sources are designed and levied differently and billed separately, and this duplication results in higher compliance and administrative costs than would otherwise be the case. It therefore has the potential to hinder the broadening of more efficient recurrent taxes in the Australian property tax regime.
2.2.2 International trends in property taxation
Although there is a technical consensus that transaction duties should be phased out in the longer term, transaction-based taxes are being used in some international property markets to curb speculation and investor demand in the hope of curbing rapid price growth. This
international evidence is of direct relevance to the current housing tax debate in Australia highlighting the potential role of well-designed transfer duties in the short to medium term. For example, the Smith Institute, a UK think tank, has advocated the introduction of a property speculation tax modelled on existing taxes applied in Germany and Malaysia, as well as China, Taiwan and Hong Kong. It would be directed primarily at overseas investors and short-term buyers (those selling properties within a set period of purchasing them), with the revenue
hypothecated into affordable housing provision (Heywood and Hackett 2013). Such a tax, it is argued, would not need to be a permanent or ubiquitous feature of the national tax regime, but could be used when and where appropriate or necessary to dampen investor demand and reduce the risk of housing bubbles (Haywood and Hackett 2013: 14). More recently, analysis of the London market has highlighted the role of increasing transfer duties on high-value
properties and second or subsequent homes with removing some, though not all, of the heat from the market, particularly that coming from domestic buyers (Miller 2017).
In Hong Kong, transfer duty rates depend on the value of the property, but a special additional duty is charged on properties that are resold within 36 months of being purchased (Government of Hong Kong 2017). The provincial government in British Columbia has recently introduced a 15 per cent tax on foreign buyers of properties in metropolitan Vancouver, and the city of Vancouver has added a 1 per cent tax on vacant properties. Media commentary has drawn attention to the unintended consequences of these latter measures, especially the displacement of speculative investment into other Canadian markets (Middleton 2017)—although it is worth noting this claim has been attributed to a real estate firm specialising in luxury properties, which has depicted the policies as unwarranted government interference in the market (see Sothebys International Realty Canada 2016: 6).
More generally, the European Commission has argued that taxation policies are not the best mechanism with which to control the risk of an over-valued housing market. However, the Commission also notes that ‘it is important the structure of property and housing taxation does not contribute to such increases in asset prices or bubbles’ (Eurostat 2015: 43).