The OECD’s latest report makes a proposal that even a leading critic of tax breaks says would be political suicide.
Australia’s public purse missed out on $64 billion last year in tax revenue foregone due to the capital gains tax exemption on the principal place of residence, a tax break that entrenched intergenerational and geographic inequality, a new OECD report on housing and taxation says.
But while most leaders would not go that far, it could also have far-reaching consequences for housing by raising prices further, warned independent economist Saul Eslake.“It would be a form of political suicide subject to one point,” said Mr Eslake, a critic of Australia’s tax incentives that encourage investment in residential property and drive up the price of housingThis would give people even more cash to put into housing purchases, Mr Eslake said.
But the Paris-based organisation says capping CGT exemptions for primary residences has the potential to reduce distortions and improve equality while also raising revenue, especially at a time of falling home ownership among younger people. The unprecedented gains in residential property values – which have outstripped inflation and wage growth – over the past three decades were due to historically low levels of interest rates and unlikely to be repeated, meaning future home owners will not reap the same benefit, it says.“Homeownership rates are falling among younger generations, in part due to property value increases that have made it increasingly difficult to access the housing market,” the report says.
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