Tag: Tax Reform

Morrison’s budget switch points at infrastructure boom

From The New Daily.

The government has bent to calls from experts and Labor by clearing away the accounting impediments to a big spend on infrastructure.

In a speech on Thursday, his last before he hands down the May 9 budget, Treasurer Scott Morrison promised to change how the budget reports the deficit.

Instead of reporting the ‘underlying cash balance’ (which counts “good and bad debt”) prominently and burying the ‘net operating balance’ (which only counts “bad debt”), Mr Morrison said he will put them side by side from now on.

“While the net operating balance has been a longstanding feature of our budget papers … it has not been in clear focus. This change will bring us into line with the states and territories, who report on versions of the net operating balance, as well as key international counterparts including New Zealand and Canada.”

In this context, “good debt” is borrowings for economy-boosting capital expenditure, such as roads and trains that reduce the time it takes to get to work, while “bad debt” is borrowing to cover the cost of defence and welfare.

As an example, in the latest MYEFO budget update, the projected underlying cash deficit for 2017-18 was $28.7 billion but the net operating deficit was only $19.2 billion.

Mr Morrison’s pledge was a marked reversal on his comments late last year when he said the government would only take on “so-called good debt” for infrastructure spending once it had brought “bad debt” under control.

The Coalition will soon, perhaps in the next six months, be forced to administratively lift the $500 billion gross debt ceiling to allow the government to keep borrowing. Nevertheless, the government will heed the calls of experts for debt-fuelled stimulus.

Various expert bodies, including the Reserve Bank, have been prodding the government to take advantage of record-low borrowing costs to renew Australia’s public infrastructure.

In his farewell address, former RBA governor Glenn Stevens said the economy would only be pulled out if its malaise if “someone, somewhere, has both the balance sheet capacity and the willingness to take on more debt and spend”.

“Let me be clear that I am not advocating an increase in deficit financing of day-to-day government spending,” Mr Stevens said.

“The case for governments being prepared to borrow for the right investment assets – long-lived assets that yield an economic return – does not extend to borrowing to pay pensions, welfare and routine government expenses, other than under the most exceptional circumstances.”

Credit ratings agencies, the International Monetary Fund and the OECD have also encouraged infrastructure spending.

And in a discussion paper last year, Labor’s shadow finance minister Jim Chalmers called for consultation on the “optimal budget presentation for intelligent investment in productivity enhancing infrastructure assets” and the idea of splitting out “spending on productive economic assets such as infrastructure from recurrent expenditure”.

Labor took a very different line on Thursday, with Shadow Treasurer Chris Bowen accusing the government of employing accounting “smoke and mirrors” to hide its economic mismanagement.

Anthony Albanese, the opposition’s infrastructure spokesman, welcomed the change but accused the government of wasting the last four years coming to the decision.

“Treasurer Scott Morrison’s declaration today that at a time of record low interest rates it makes sense to borrow for projects that boost economic productivity is precisely what Labor, the Reserve Bank and economists have been saying for years,” Mr Albanese said.

He warned the government’s “ill-advised” decision to create an infrastructure unit within the Department of Prime Minister and Cabinet, rather than relying on the independent Infrastructure Australia, risked pork barrelling.

“Creating another bureaucracy to sideline the independent adviser makes no sense. The government should have already learned that lesson from its creation of the Northern Australia Investment Facility, which was announced two years ago but has not invested in a single project.”

ABC 7:30 Does Good and Bad Debt

So the latest pivot from the Government is a focus on the “good and bad debt” as an apparent key to growth, with housing affordability now becoming more of a side show as the realisation dawns that they cannot solve that equation. This segment discusses the issue, and includes a contribution from DFA.

 

Treasury consults on Superannuation integrity of limited recourse borrowing arrangements

The Government has released for public consultation draft legislation and associated explanatory materials for changes to improve the integrity of the superannuation system. These changes are being progressed as part of a package of amendments to address concerns that have been raised in the implementation of the superannuation reform tax package.

The draft legislation will include the use of limited recourse borrowing arrangements (LRBA) in a member’s total superannuation balance and transfer balance cap to the transfer balance cap and total superannuation balance. The amendments will address concerns about the ability of SMSF members to use LRBAs to circumvent contribution caps and effectively transfer accumulation growth to retirement phase that is not captured by the transfer balance cap.All interested parties are invited to make a submission by Wednesday 3 May 2017. More information on the Government’s superannuation changes is available on the Treasury website.

The two worked examples make things a little clearer, but in essence it attempts to stop SMSF property investment being used to circumvent the $1.6m tax free cap.

Example 1

Bob is 65 and is the only member of his SMSF. Bob’s superannuation interests are valued at $3 million and are based on cash that the SMSF holds.

Bob’s SMSF acquires a $2 million property. This property is purchased after 1 July 2017 using $500,000 of the SMSF’s cash and an additional $1.5 million that it borrows through an LRBA.

Bob then commences an account-based superannuation income stream. The superannuation interest that supports this superannuation income stream is backed by the property, the net value of which is $500,000 (being $2 million less the $1.5 million liability under the LRBA). Bob therefore receives a transfer balance credit of $500,000 under item 2 of the table in subsection 294-25(1).

In the first year, Bob’s SMSF makes monthly repayments of $10,000. Half of each repayment is made using the rental income generated from the property. The other half of each repayment is made using cash that supports Bob’s other accumulation interests.

At the time of each repayment, Bob receives a transfer balance credit of $5,000, representing the increase in value of the superannuation interest that supports his superannuation income stream.

The repayments that are sourced from the rental income that the SMSF receives do not give rise to a transfer balance credit because they do not result in a net increase in the value of the superannuation interest that support his superannuation income stream.

Example 2

Peter and Sue are the only members of their SMSF. The value of Peter’s superannuation interests in the fund is $1 million. The value of Sue’s superannuation interests is $2 million. All of the assets of the fund that support their interests are cash.

The SMSF acquires a $3.5 million property. The SMSF purchases the property using $1.5 million of its own cash and borrows an additional $2 million using an LRBA.

The SMSF now holds assets worth $5 million (being the sum of the $1.5 million in cash and the $3.5 million property). The fund also has a liability of $2 million under the LRBA.

Of its own cash that it used, 40 per cent ($600,000) was supporting Peter’s superannuation interests and the other 60 per cent ($900,000) was supporting Sue’s interests. These percentages also reflect the extent to which the asset supports Peter and Sue’s superannuation interests.

Peter’s total superannuation balance is $1.8 million. This is comprised of the $400,000 of cash that still supports his superannuation interest, the 40 per cent share of the net value of the property (being $600,000), and the 40 per cent share of the outstanding balance of the LRBA (being $800,000).

Sue’s total superannuation balance is $3.2 million. This is comprised of the $1.1 million of cash that still supports her superannuation interest, the 60 per cent share of the net value of the property (being $900,000), and the 60 per cent share of the outstanding balance of the LRBA (being $1.2 million).

Housing affordability is worsening, warns ratings agency

From Mortgage Professional Australia.

Moody’s report shows regulatory crackdowns and low-interest rates will not protect affordability, putting pressure on Government to take action in the Budget

Housing affordability is deteriorating in Australia despite the impact of regulatory crackdowns and low interest rates, a report by international ratings agency Moody investors Service has found.

Affordability worsened in the year to March 2017, with interest repayments requiring for 27.9% of household income on average, compared with 27.6% in March 2016. Affordability declined steeply in Sydney, Melbourne and Adelaide, according to the report, although it improved in Brisbane and Perth, which is currently the most affordable city in Australia, with the proportion of income going to repayments at 19.9%.

Moody’s expect that housing affordability will continue to deteriorate, blaming “rising housing prices, which outstripped the positive effects of lower interest rates and moderate income growth”. Whilst APRA’s restrictions on interest-only mortgage lending could dampen demand for apartments they could also reduce affordability, Moody’s claims: “the new regulatory measures have prompted some lenders to raise interest rates on interest-only and housing investment loans, which will make such loans less affordable.”

Proportion of joint-income required to meet interest repayments, March 2016:

  • Sydney 37.5%
  • Melbourne 30.3%
  • Brisbane 23.9%
  • Adelaide 23%
  • Perth 19.9%
  • Australia: 27.9%

Coming just weeks ahead of the 2017-18 Federal Budget, Moody’s report indicates the Government cannot rely on regulators and the RBA if it wants to improve affordability. In March Treasurer Scott Morrison said repayment affordability would play a major part in the Budget and was a bigger issue then the difficulty of first home buyers, whilst ruling out any changes to negative gearing.

In a series of sensitivity tests, Moody’s demonstrated the risks faced by Australian homeowners. Looking at the effect of house prices continuing to rise, income decreasing and interest rates increasing, Moody’s found Sydney homeowners were particularly vulnerable. A 10% rise in property values – far from unknown in the harbour city – meant an extra 3.8% of income needed to meet mortgage repayments.

Moody’s report did find that affordability was unchanged for apartments. Apartment owners spent an average of 24.5% of their income on repayments, compared to 29.3% for house owners. This is a national average: affordability of apartments did decline in Sydney and Melbourne.

Budget may encourage downsizing with superannuation breaks

From The Real Estate Conversation.

The government is considering offering exemptions to new superannuation limits for retirees who downsize from their family home, according to reports.

The upcoming Federal Budget could contain measures that allow elderly Australians who sell the family home to be exempt from new superannuation caps, according to media reports.

A report in The Australian Financial Review is claiming that proceeds from the sale of the family home could be quarantined from both the $1.6 million cap on super retirement funds, and the non-concessional amount that can be contributed to super annually.

It’s widely expected that proceeds from the sale of the family home will not be excluded from the age pension assets test.

The anticipated policy is designed to tackle housing affordability problems by freeing up more housing stock on the market, in particular housing for families.

The Federal Budget, which will be handed down on 9 May, is widely expected to contain several measures aimed at tackling housing affordability.

Read the The Australian Financial Review article here (subscription only).

Modelling shows how many billions in revenue the government is missing out on

From The Conversation.

The federal government could collect billions more in royalties and tax revenue if it changed the rules on debt loading and adopted alternative royalty schemes in dealing with oil and gas giants, new modelling shows.

Our modelling, funded by lobby group GetUp, found that over the four-year period from 2012 to 2015, Chevron’s average effective interest rate was 6.4%. However, it has been steadily reducing from 7.8% in 2012 to 5.7% in 2015.

We estimated that if Australia adopted a similar approach to Hong Kong to eliminate debt loading abuse, United States oil and gas giant Chevron would have been denied A$6.27 billion in interest deductions, potentially increasing tax revenues by A$1.89 billion over the four-year period (2012-2015).

The issue of debt loading abuse was highlighted last week when the full bench of the Federal Court dismissed unanimously Chevron’s appeal against the Australian Taxation Office (ATO), ordering the company to pay more than A$300 million.

Chevron Australia was using debt loading, where, compared its equity, it borrowed a large amount of debt at a high interest rate from its US subsidiary (which borrows at much lower rates). It did this in order to shift profits from high to low tax jurisdictions.

Based on Australia’s existing “thin capitalisation” rules, there is a maximum allowable debt that interest deductions can be claimed on, in a company’s tax return. Companies can exceed this debt but the interest charges must be at “arm’s length” – at commercial rates.

Chevron’s size and financial strength allow it to negotiate very competitive (low) rates on its external borrowings and this was the main issue in the Federal Court case. As the court has now ruled on what constitutes a reasonable interest rate for inter-company loans, this benchmark will likely be adopted by the ATO.

It can now approach and enforce this benchmark in similar disputes with confidence that companies engaged in debt loading will want to settle rather than engage in a costly court battle.

What the government could save from addressing debt loading

Chevron’s tax avoidance measures meant the interest rate, adjusted for maximum allowable debt, varied only slightly from their effective rate. Our modelling showed that if the ATO had applied the thin capitalisation rules to Chevron’s accounts each year over the four-year period, it would’ve reduced Chevron’s interest deduction by A$461 million and potentially generate an additional tax liability of A$138 million.

We modelled a scenario where Chevron Australia’s interest deductions were limited to the group’s external interest rate, applied to its level of debt. This would have reduced in the interest deduction by A$4.8 billion over the four year period, potentially generating A$1.4 billion in additional tax revenue.

We also worked out what would happen if Australia applied the debt loading rules Hong Kong does currently. Hong Kong disallows all deductions for related-party interest payments, making abuse of the system difficult. According to the latest ATO submission to the Senate tax inquiry, investment in the extraction of Australian oil and gas is almost entirely in the form of related-party loans.

Chevron Australia’s debt is entirely made up of related-party loans. If the Hong Kong solution was operating in Australia, we found that Chevron would have been denied A$6.275 billion in interest deductions, potentially increasing tax revenues by A$1.89 billion over the four-year period.

We also looked at ExxonMobil Australia, which also has high amounts of related-party debt (98.5%), and the Hong Kong solution would have denied ExxonMobil A$2.7 billion in interest deductions, potentially increasing tax revenue by more than A$800 million for the same period.

US oil and gas company Chevron lost a Federal Court appeal against the ATO. Toru Hanai/ Reuters

Changing the PRRT for more revenue

Our report also includes an analysis of the potential for additional revenue from replacing the Petroleum Resource Rent Tax (PRRT) with resource rent systems used in the US and Canada. Oil and gas sales have increased from an average of A$5.96 billion per year between 1988 and 1991, to an annual average of A$33.3 billion between 2012 and 2015, indicating the huge growth in this sector.

We modelled what would happen if the US and the Alberta, Canada, royalty schemes were applied to Australian production volumes and realised prices, to compare returns to those achieved by the PRRT.

The US royalty scheme charges a flat percentage royalty on production volumes, priced at the well-head. The royalty rate was progressively increased in the US from 12.5% to 18.75% between 2006 and 2008.

Based on the data from Australian production volumes and realised sales prices, the US royalty scheme could have potentially raised an additional A$5.9 billion in revenue for Australia since 1988, or A$212 million per year.

However, over the period from 2010 to 2015, the additional revenues would have been almost A$2.5 billion per year. This is because of both the decline in the PRRT revenues, relative to price and volumes, and the increase in the royalty rate in the US.

However, while the US scheme would raise more than the PRRT, the Alberta royalty scheme would raise substantially more revenue than both of these schemes. The Alberta scheme is progressive in nature, meaning the royalty rate increases with the realised price, similar to income levels and personal income tax rates.

The Alberta scheme has been amended many times and the current scheme only started in January 2017, so the full effects of this scheme will not be evident for some time. However, based on the data from Australian production volumes and realised sales prices, we calculate the Alberta royalty scheme would have raised an additional A$103 billion in revenue since 1988, or an additional A$3.7 billion per year.

As the scheme was only implemented this year, these results may be unrealistic, but are indicative of the level of revenue that could be raised. Over the period from 2010 to 2015, the additional revenue would have been A$11.3 billion per year.

The modelling done for our report considers just two multinational corporations, their use of debt loading and the PRRT. Now we can can hope for more revenue collection from many of the multinationals operating in Australia, as a result of the recent Federal Court ruling.

Critically, too often corporations are able to work within Australia’s tax rules to avoid paying for operating here, by constantly arguing they can’t develop business in Australia unless there are tax breaks. Our modelling demonstrates governments need to ensure corporations benefiting from the use of Australia’s resources are contributing the same as they do in other jurisdictions.

Authors: Roman Lanis, Associate Professor, Accounting, University of Technology Sydney; Brett Govendir, Lecturer, University of Technology Sydney; Ross McClure,
PhD Candidate, casual academic, University of Technology Sydney

The real reason Scott Morrison is playing down the budget

From The Conversation.

Despite the Treasurer, Scott Morrison, describing the federal budget as “not a centrepiece”, it has always been regarded as just that – the centrepiece of fiscal policy in Australia.

Any changes in federal taxes and expenditure are intended to achieve good outcomes for Australia’s economy, such as low unemployment, price stability and economic growth. In economic terms, government spending should increase and tax receipts fall during downturns in the economy, and the opposite should happen when the economy is booming. This is how the government is able to balance out cycles in spending by the private sector.

Importantly, the budget is made up of more targeted fiscal policies (referred to as “discretionary” by economists) as opposed to automatic processes (referred to as “stabilisers”). The distinction between the two is important.

Automatic processes refer to when government taxes and expenditure generally increase and decrease with the business cycle. They are automatic because these changes in taxes and spending occur without the government having to do anything.

For example, when the economy is growing strongly, employment increases and unemployment falls. This results in unemployment benefit payments to workers, who were previously unemployed, automatically decreasing.

Also, when the economy is expanding, expenditure and incomes for workers and for businesses rise and the amount the government collects in taxes increases. When economic growth slows or becomes negative, the opposite occurs: the amount the government collects in taxes will fall and expenditure on unemployment benefits will rise.

With more targeted fiscal polices, the government takes actions to change spending or taxes. But although the budget is the centrepiece, it is not a very effective means of managing the economy.

The government and parliament have to agree on changes in fiscal policy. The treasurer initiates a change in fiscal policy through the budget in May each year. This must be passed by both houses of federal parliament, which can take many months (some measures have been blocked by the Senate for much longer).

Even after a change in fiscal policy has been approved, it takes time to implement. Suppose, for example, that parliament agrees to increase spending on infrastructure to create “jobs and growth”. It will probably take several months or more to prepare detailed plans for construction projects.

State or territory governments will then ask for bids from private construction companies. Once the winning bidders have been selected, they will usually need time to organise resources, including hiring labour, in order to begin the project.

Only then will significant amounts of spending actually take place. This delay may well push the spending beyond the end of the low point in the economy that the spending was intended to counteract.

Indeed, if the economy has recovered by the time the construction and related jobs come on board then the government spending will mean a shortage of labour in other parts of the economy and few or no new jobs (unless shortages are filled through migration).

Because the budget is a very difficult means of carrying out targeted fiscal policy, it’s become more important as a centrepiece for the government to set out its broad economic strategy – its goals and how to achieve them. But it seems that both major parties are failing even with this goal.

In recent years the view of most economists has been the need to reduce the structural budget deficit and the level of government debt. In 2016-17 net government debt stood at A$326 billion, and was forecast in last year’s budget to increase until at least 2018-19. There is also quite widespread acceptance that our tax system is in need of reform.

There are two glaring omissions from recent federal budgets of both major parties: any plan to significantly reduce the deficit any time soon, and any proposal to embark on meaningful tax reform.

The Rudd and Gillard governments will be remembered for Wayne Swan’s budgets, which consisted of new spending initiatives including the National Disability Insurance Scheme, the National Broadband Network, and the Gonski education funding reforms, but featured no plan to raise revenues to fund them and manage the huge subsequent debts.

Joe Hockey and Tony Abbott’s attempt in the 2014 budget to address government deficit and debt was regarded as a disaster, resulting in the demise of both as leading politicians. Morrison and Prime Minister Malcolm Turnbull are desperate not to make the same mistake, and this severely limits their capacity to do anything meaningful to tackle the deficit and debt issue.

The major problem with successive budgets is that they have not provided a cogent strategy for improving living standards, including addressing inequity for the most disadvantaged Australians, which can only be achieved through economic growth.

Growth entails taking materials, labour and capital to produce goods and services of greater value that people want at prices they are willing to pay. This is best done by the private sector and cannot arise from wasteful government expenditure, accumulating debt or fiddling at the edges with markets, through such things as changes to superannuation or housing finance.

Growth and jobs can only arise from value-adding activities and government policies which facilitate this such as reducing debt, promoting free trade, reducing restrictions on business and labour market reform. This is hard to do and far more difficult than easy options, which explains why we can expect little from the budget to address real reform.

Author: Phil Lewis, Professor of Economics, University of Canberra

Both sides of politics target the $24 billion super property lurk

From The New Daily.

The little-known superannuation tax lurk that has pushed $20 billion into the property market in just under five years is under attack, with Labor promising to ban private superannuation funds from borrowing and the Coalition foreshadowing new restrictions.

As The New Daily recently reported, self-managed superannuation fund borrowing arrangements have grown almost tenfold, from $2.5 billion in June 2012 to $24.3 billion last December. The lion’s share of that is going into commercial and, increasingly, residential property.

That has been a concern for regulators, with the Murray inquiry into the financial system in 2014 recommending SMSF borrowing be banned, warning “further growth in superannuation funds’ direct borrowing would, over time, increase risk in the financial system”. The Reserve Bank concurred.

Opposition Leader Bill Shorten on Friday announced he would ban SMSF borrowing if Labor comes to power as part of a bid to “cool an overheated housing market partly driven by wealthy self-managed super funds. Allowing this [SMSF borrowing] to continue would increase risk in the superannuation system and crowd out more first home owners”.

Stephen Anthony, chief economist at Industry Super Australia, said a ban would be “an obvious structural reform that would have benefits through the economy and to the budget”.

The Coalition has been silent on the issue in recent times, but Financial Services Minister Kelly O’Dwyer responded on Friday to questions from The New Daily foreshadowing moves to make the process less attractive.

“The Government will be progressing a package of minor and technical amendments including a proposed limited recourse borrowing arrangement (LRBA) integrity measure to address a potential concern  that has been raised during the implementation of the superannuation taxation reform package.”

While the meaning of that is not altogether clear to the uninitiated, tax expert and principal with Arnold Bloch Leibler, Mark Leibler, told The New Daily it foreshadows action to prevent SMSF owners using borrowings to circumvent a $1.6 million cap on tax-free super retirement pensions due to start on July 1.

“It sounds to me like what they’re going to do is prevent people using borrowings to get around the $1.6 million cap,” Mr Leibler said.

Using an example of an SMSF owning a $2 million property with borrowings of $400,000, Mr Leibler said that if borrowings were not factored into the cap, owners would effectively get the benefit of a $2 million investment while staying within the $1.6 million cap.

Stephen Anthony described the Coalition move as “interesting. But if their intention is to reduce the incentive to borrow in SMSFs you’d have to ask why they don’t just rule it out entirely.”

While the foreshadowed move might reduce SMSF borrowing, it still leaves plenty of space for funds under the cap limit to borrow, Mr Anthony said.

Peter Strong, CEO of the Council of Small Business Australia, said Labor’s SMSF plans could negatively affect small businesspeople trying to buy their business premises.

“It’s good business for businesses to invest in their business. For most businesspeople their business is their super plan, so there could be unintended consequences in this. They need to be looked at,” Mr Strong said.

It also appears that Treasurer Scott Morrison has lost the cabinet battle to allow first homebuyers to dip into super to fund a housing deposit.

On Friday, Finance Minister Mathias Cormann, who is part of the government’s budget “razor gang”, told Sky News: “That’s not something we think would address the problem.”

Prime Minister Malcolm Turnbull has also come down against the move, saying, “The purpose for superannuation is to provide for retirement, that’s the objective.” The Treasurer had previously supported the idea.

Super funds targeted in Shorten’s housing affordability package

From The Conversation.

Labor will promise to ban direct borrowing by self-managed superannuation funds, as part of a housing affordability policy released on Friday to pre-empt the government’s package in next month’s budget.

This “limited recourse borrowing” – where a creditor has limited claims on the loan if there is a default – has increased from about A$2.5 billion in 2012 to more than $24 billion. Almost all of it is in residential or commercial property.

The Murray Financial System Inquiry in 2014 recommended restoring the prohibition that had been lifted in 2007. It warned that “further growth in superannuation funds’ direct borrowing would, over time, increase risk in the financial system”.

Among other measures, a Shorten government would double the screening fees on foreign investment and financial penalties that apply to foreign investment in residential real estate. Foreign investment purchases nearly tripled over the three years to 2014-15. The ALP says the higher fees and penalties would “help level the playing field between first home buyers and property speculators”.

The centrepiece of the ALP housing policy remains the changes to negative gearing and the capital gains tax discount that Labor took to the election, but the latest package surrounds those with several other initiatives.

The opposition announcement comes as the government’s expenditure review committee struggles to stitch together a credible package, and after a much-publicised split among ministers over whether first home buyers should be able to use their superannuation for housing. Malcolm Turnbull last week apparently ruled that option out.

Labor says its package would see the construction of more than 55,000 new homes over three years and increase employment by 25,000 new jobs a year.

The ALP would establish a Council of Australian Governments process to achieve a more efficient and uniform vacant property tax across the main cities.

It would provide $88 million over two years for a new Safe Housing Fund for transitional accommodation for victims of domestic violence, vulnerable young people and older women at risk of homelessness. This would restore cuts made by the Coalition in the 2014 budget.

It would also work with state governments to get better outcomes in the National Affordable Housing Agreement. And it would establish a bond aggregator to increase investment in affordable housing – something the government is moving towards.

Labor would also re-establish the national Housing Supply Council and re-instate a minister for housing, the policy says.

It says that “any housing affordability package that doesn’t involve reforms to negative gearing and the capital gains tax discount is a sham”.

“Demand for housing is being turbo-charged by unfair, unsustainable and distortionary tax concessions for investors.” The ALP’s long standing policy is to limit future negative gearing to new housing and reduce the capital gains tax discount from 50% to 25%.

Labor says the super funds’ ban “will prevent the unnecessary buildup of risk in Australia’s superannuation system, reduce future calls on the aged pension as a result of a less diversified superannuation system and make the financial system more resilient in the face of potential economic shocks”.

It says that although foreign purchases in residential real estate account for a relatively small amount of overall annual purchases, the amount has grown by 275% in the three years to 2014-15.

Under the Labor policy, from July 1 2019 the foreign investment application fee would go from $5000 to $10,000 for a property up to $1 million; from $10,100 to $20,200 for one between $1 million and $2 million, and from $20,300 to $40,600 for one between $2 million and $3 million.

For foreign buyers who acquired dwellings without approval, the criminal penalty would be increased to $270,000, and $1.35 million for a company.

Author: Michelle Grattan, Professorial Fellow, University of Canberra

Federal government may cap number of investment properties

From The Real Estate Conversation.

The federal government is considering limiting the number of properties investors can buy, as it struggles with ways it can reign in property prices in booming markets only a few weeks out from the May budget.

According to an article in The Australian Financial Review, the government is looking at ways it can cap the value of tax breaks for property investment as it tackles housing affordability problems, which vary widely around the country.

Since 2012-2013, there has been a 9.2% increase in the number of property investors that own five or more properties, according to The Guardian’s analysis of recent Australia Tax Office data.

The federal government has ruled out getting rid of negative gearing according to Labor’s policy, and has indicated that it will consider more ‘surgical’ measures.

The government appears to have moved away from an earlier idea to allow first-home buyers to access their superannuation funds to accumulate enough money for a deposit.

Malcolm Gunning, president of the Real Estate Institute of Australia, told SCHWARTZWILLIAMS the percentage of investors in the market that own three or more investment properties is only very small, and therefore capping the number of properties those investors can own is only “clipping around the edges”.

Gunning said capping the number of properties investors could own would mainly be “political posturing”, and warned it could decrease the supply of new properties coming onto the market, which in turn could cause rents to rise.

“It’s a balancing act,” said Gunning.