TAXES PLAY A VITAL ROLE IN OUR COMMUNITIES, DELIVERING FUNDING FOR INFRASTRUCTURE AND SERVICES. BUT HOW THEY ARE COLLECTED CAN HAVE UNINTENDED CONSEQUENCES WHICH CAN STIFLE ECONOMIC DEVELOPMENT.
The consultation period for the Federal Government’s tax review closed this week with the expectation of a large variety of responses.
Taxes play a vital role in our communities, delivering funding for infrastructure and services. But how they are collected can have unintended consequences which can stifle economic development.
The availability of affordable dwellings is fundamental to our economic growth. There would be few people in WA who would not relate to that, with shortages during the past decade creating a wild ride for property prices, particularly in the North West.
While many profited from the escalation, there were many who suffered, with some of those moving in homelessness. There is a strong link between labour-force participation and adequate housing, with labour-force participation rates a key influence on how Australia will cope with our ageing population.
So what are the implications of the tax review for the housing industry?
We know that State-based taxes, which are triggered by the sale of property, act as a brake on mobility. People will tend to stay in dwellings that do not suit their needs in size or location because the cost of moving is too high.
As a consequence labour may not be in the right place to meet demand.
This could be within a city, resulting in high levels of congestion, or inter-city where the underemployed do not move to where the employment opportunities are.
It can also mean that people who want to downsize are constrained by the stamp duty that would be due.
There is no silver billet for this situation. The State Government has only a few taxation options that can be employed to fund the State-based services.
If the GST base is increased to facilitate the removal of State-based taxes, the current distribution methodology may see WA not receiving sufficient to cover abolished taxes, which would have obvious and immediate impacts.
The situation is made even more complicated as each State has a different stamp-duty regime.
For economic growth we need to remove mobility barriers wherever possible. However, stamp duty is a State Government decision while GST is under the Federal Government’s control.
We need a co-ordinated review of tax barriers that limit the efficient use of our housing to avoid shortages that will affect affordability and economic growth. Everything is linked and a perfect solution will be hard to find.