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The Forum > Article Comments > Raising the GST could hit new housing hard > Comments

Raising the GST could hit new housing hard : Comments

By Ross Elliott, published 17/4/2015

If changes to the GST in the form of an increased rate are allowed to go ahead without some balance being restored to the new versus second hand treatment of our housing stock, it is likely that genuine new housing supply will stall further.

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The states did not agree to abolish stamp duty in return for the GST. The states did not keep any of the stamp duties and other taxes they had promised to abolish.

There were only four taxes – repeat, four - to be abolished with the introduction of the GST. They were FID, BADT, bed taxes and stamp duty on quoted market securities. Here is the relevant part of the GST agreement, Reform_of_comm-state_financial_relations.rtf:
‘The States and Territories will cease to apply the taxes referred to in Appendix A from the dates outlined below and will not reintroduce them or similar taxes in the future.
· Bed taxes, from 1 July 2000;
· Financial Institutions Duty, from 1 July 2001;
· Stamp duties on quoted marketable securities from 1 July 2001;
· Debits tax by 1 July 2005, subject to review by the Ministerial Council”.

For some reason, there is an urban myth that all sorts of taxes (e.g., payroll tax, stamp duty, land tax – the list keeps growing) were going to be abolished, but no one repeating this myth has ever quoted from the original GST agreement – because abolition of those taxes is not in it. There was a commitment to review – not abolish - some other taxes (and stamp duty on houses is not one of those either), and as a result almost all of those taxes have also been abolished.

There was a later agreement, in 2006, to abolish stamp duties on mortgages, leases, and credit and rental arrangements with the last of these taxes to be abolished in 2012‑13 (http://www.aph.gov.au/budget%20dummy/budget%202007-08%20mirror/2007-08/bp3/html/bp3_main-12.htm).

The GST did not provide “rivers of gold”. Commonwealth aid to the states as a percentage of Gross Domestic Product remained the same after the GST was introduced as before (Ross Gittins, “Stretching the truth - how Treasurer Costello continues to gild the GST lily”, The Age, July 8, 2006). It was in fact less than in the best pre-GST year. Using the percentage of the GDP as the comparison makes sense because of economic growth and inflation.
Posted by Chris C, Friday, 17 April 2015 8:20:29 AM
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A welcome clarification from Chris C. about stamp duties, but Ross' central point remains valid; and largely overlooked in public debate. There is an adverse economic consequence in treating new home sales as different to sales of existing properties. If the GST is retained (and I would replace it with land value taxation) then this anomaly should be addressed.
Posted by Philip Howell, Friday, 17 April 2015 10:01:06 AM
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Yes Philip Howell on the academic point you are right. However in all things GST or similar, governments have already ripped their pound of flesh off us when we bought something new, there is no justification to make second hand buyers of anything, houses, cars or shirts at the opp shop pay tax a second time.

You must be dependent on the public purse, otherwise you could never recommend a land tax. Once a citizen has paid all the costs of buying a bit of land or house, including GST if new, stamp duty, & the host of other charges rapacious bureaucrats dream up, it is ours. We did not contract to rent our private property, we bought it. Keep your greedy hands off it.

What we should do is make GST a state tax, set & collected by each state. This way citizens in our failed states, Tasmania & South Oz, could see how bad their governments & bureaucracies are, & kick them out. I am sick of propping up incompetents with my taxes, particularly GST.

Those who won't harvest their natural resources should pay the price themselves, not be bailed out of their stupidity by others.
Posted by Hasbeen, Friday, 17 April 2015 11:53:48 AM
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Hasbeen, society in Australia depends on the public purse to a great extent. Whether or not you're a net contributor, the need for taxation is always there. And land tax is theoretically the best tax there is. See http://en.wikipedia.org/wiki/Law_of_rent for a full explanation of why.

Put aside your objections for a moment (don't worry, I will get back to them) and consider how much better life would now be if the Howard government had introduced a broad based land tax instead of a GST: house prices would have risen far more slowly, and would not be so sensitive to interest rate movements (so businesses would benefit from lower interest rates as the RBA would no longer fear triggering a housing boom). And people would have much more disposable income. Governments would have a much stronger incentive to improve infrastructure. And when foreigners buy up farmland, Australians would continue to directly benefit.

Your objection is a valid concern, and is one of the main things deterring the implementation of land value taxation. But it can be overcome. If the tax is phased in slowly and with plenty of notice, it won't cause land value to fall. Very few people would be significantly worse off, and they could be compensated if necessary.

Land value tax would restore the intergenerational fairness, reducing the cost of living at the expense of the property speculators. Getting it right and phasing it in may be difficult, but it's well worth doing - the benefits would be enormous.
Posted by Aidan, Saturday, 18 April 2015 2:22:37 AM
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I'm in favor of replacing the GST with a direct funding model for public health and education, coupled to virtually total autonomy.

Which by the way could reduce the bill to the taxpayer by as much as 30%; the extra loading/management fees, imposed by some states when rolling out the school halls program?

Which would then mean, WE'D REMOVE ALL THE GST CASCADING COMPONENT COSTS from new house construction entirely!

If the total tax take from all sources is just 4% of the GNP; and if the GNP is a genuine reflection of our combined expenditure for any purpose!?

Then a tax which taxes that expenditure as a stand alone, unavoidable expenditure tax, will raise more money,75-100 billion more per; and end the current structural deficit?

And given it would be collected via the banks fee free in return for a licence, and transferred overnight electronically; not only removing all the fees and charges normally associated with tax collection and reconciliation, but removing from the bottom line any and all tax compliance costs!

Which averages around a 7% impost on the average bottom line; as well as completely eliminating any opportunity to engage in any avoidance/minimization strategies, which would then become entirely counterproductive!

And only doable if we replace all the self defeating risible no can do reasons (cronyism nepotism) with, yes we can! But only if we are intelligently lead!

Simply put, we just don't need any other form of tax; or indeed all the costly complexity or the parasites who live off of it!

Albeit, all the current excises including all fuel excise, could become exclusive state taxes, and raised by them directly; meaning, there'd finally be real competition between states for enterprise and people! Rather than fighting over the nanny nipple, that is what the (guaranteed revenue) GST has become!

A very wise man said, at some point complexity always becomes fraud!
Rhrosty.
Posted by Rhrosty, Saturday, 18 April 2015 12:23:46 PM
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Explanation. If the total tax taken by an expenditure tax, is just a 5% impost, then all else that follows a stand alone unavoidable expenditure tax, hopefully, occasionally, makes sense?

Moreover, if the states were far more self reliant, we'd likely wind up with not only smaller government, but affordable means tested services?
Rhrosty.
Posted by Rhrosty, Saturday, 18 April 2015 12:40:00 PM
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1. Increase the GST.

2. Simplify. Aim at dramatically reducing the work available for lawyers and tax accountants. That will benefit tax collection and the public.
Posted by onthebeach, Saturday, 18 April 2015 1:44:27 PM
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What are you Aidan, a uni student, who is not satisfied at having your living & education paid for by the older generation, but want them to keep on paying for things they bought & paid for years ago. Your ideas are half baked enough to come from a uni student.

About time we returned to full cost recovery from students, & then, if they ever actually pay for what they have been given, how about an education tax. They could keep paying a percentage of their education tax for ever. Now that would be intergenerational & inter class fairness.

Surely that would "restore the intergenerational fairness, reducing the cost of living at the expense of the property speculators" you say. No sorry, education speculators.

Obviously you are a lefty, or you would realise most real estate is held by mums & dads, & is mostly their buffer against future costs, not speculation. You really don't have much idea of how the world works. Perhaps you are a recent arrival from the old world, or a dictatorship, where the majority don't own their housing.
Posted by Hasbeen, Saturday, 18 April 2015 1:58:31 PM
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We have the same old nonsense arguments about raising taxes instead of looking at how money is created from nothing by our private banking system.

Taxes are raised to pay for debt created from nothing by our private banking system. Over inflating house prices is the prime means of debt money creation. Who are the slaves and who are the servants ?

Surely those who write papers on economics and finance cannot be this stupid.
Posted by Arjay, Saturday, 18 April 2015 10:42:53 PM
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Many know the answers but have not the guts to go there. Move back to Govt Banks that can create new money for infrastructure debt free and reduce the size of the public service.

Money costs nothing to produce. Plenty of money for wars a a global derivative ponzy scam market worth $2000 trillion. Yes with a T.

No one wants to take Wall St and the banks on.
Posted by Arjay, Monday, 20 April 2015 7:25:33 AM
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Arjay, although money technically costs nothing to produce, producing too much of it results in too much inflation, so there has to be some limiting factor on the amount of it.

____________________________________________________________________________________

Hasbeen, I'll respond to your objections later.
Posted by Aidan, Monday, 20 April 2015 1:04:10 PM
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Again! most Austrians think this country works off thin air.....17% GST is the best you can give....being...you can all go back to what ever country you came from:)...I stand here!...The tax that you think un-fair is for you.....Australia is an island...Don't play nice....I cant hold them back....Your a victor or a guess....We will be watching you! very closely!.....If you think you can bring your camel SH!T here....your not on the right grounds to play with!

Just a thought.

Tally
Posted by Tally, Tuesday, 21 April 2015 8:43:28 PM
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