Government rejects Productivity Commission’s findings 

2 July 2004 

The Federal Government has rejected several recommendations made by the Productivity Commission into first home ownership including the recommendation to means test the first home owners grant, leaving industry groups wondering why the Commission was called to begin with?

In its submission presented to Parliament late last week, the Commission said the recent dramatic house price rises were predominately a result of more investors entering the market because they were attracted by tax discounts and negative gearing. As a result the Commission called on the Government to hold a review into the effect of the current taxation system on the housing market. 

“Interactions between negative gearing, capital works’ deductions, post-1999 capital gains’ provisions and marginal income tax rates have lent impetus to investment demand during the housing boom," the report said. 

The Treasurer, Mr Peter Costello, has rejected the call saying “This Government cut capital gains’ tax. It was a much needed reform in Australia and it has been a good reform. We won't be reversing it, not for a moment. We won't be reversing it in relation to real estate and we won't be reversing it in relation to equities." 

Mr Costello also rejected the Commission's recommendation to means test the first home buyers grant so it would not be available to high income earners. 

The Commission said the bulk of the $7000 grants go to households with above-average incomes. "Assistance should be targeted to the housing needs of lower income households by restricting the eligibility," it said. 

But Mr Costello said this wasn’t required and that the Government already provided “significant resources to address the housing needs of low income households”. 

Although Mr Costello rejected proposals aimed at the Federal Government he did endorse recommendations relevant to state governments, including stamp duty reforms and land supply processes. 

Commenting on the Treasurer’s comments, Ms Kareena Ballard, President of the Real Estate Institute of Australia said “The Commonwealth Government considered first home affordability to be so important that it commissioned a national inquiry. The recommendations in this report are a good start to resolving significant problems, but the Commonwealth Government has apparently left all the responsibility to State governments.” 

“The REIA welcomes initiatives by some State governments to reduce stamp duty for first home buyers, but there is more to be done. Moreover, reductions should not be funded by an investors' capital gains tax, as in the case of NSW. Small investors are working hard to get ahead in life and to help provide for self funded retirement. Increased levels of home ownership and opportunities to provide for self funded retirement will reduce the potential future burden on government housing and social welfare resulting from Australia's aging population”, said Mrs Ballard. 

If you would like to find out more about the Productivity Commissions finding, log on to www.pc.gov.au/inquiry/housing/.