Chapter 11

Housing

11.1 The Senate Community Affairs References Committee also received evidence on the Government's proposed GST package in relation to public and community housing and the private rental market. This section represents an edited extract from the References Committee Report in relation to these issues. The findings of the References Committee are set out in Chapter 1.

Public Housing

11.2 There are 360,000 households in public housing in Australia. Tenants in public housing pay rent based on a fixed proportion of their income, which varies from between 20 to 25 percent of income, depending on the State or Territory. [1]

11.3 Residential rents for public housing will be input taxed. While housing rents will not be subject to GST, the inputs (the goods and services used to build, repair or maintain a dwelling) will be taxed at 10 per cent and no input credits will be allowed to be claimed by public housing authorities. The housing authorities will either have to absorb the additional costs or pass on the costs to tenants in the form of higher rents.

11.4 As part of the Government's compensation package there will be a 4 per cent increase in the maximum rate of social security pensions. [2] DFaCS advised the Committee that `each State will make its own decision as to the extent that income support rate increases and increases in family assistance are taken into account when calculating rents'. [3] Organisations representing public housing tenants argued that rents will increase and that the rent increases will be substantial.

11.5 The Department stated that the maximum rent increase, if applied, would `be in the order of 1% of income, whereas GST compensation for income security recipients will be 4%'. [4] The Committee notes that the Government has taken steps to ensure that nursing home residents, who pay a fixed proportion of their income in accommodation charges, are not faced with any increase in costs. This has been done by ensuring that the 4 per cent pension increase is quarantined from the formula that calculates the amount of rent paid by residents in nursing homes. The Committee asks why public and community housing tenants are not treated in the same way.

Rent increases

11.6 Concerns were expressed at the possibility of an increase in rents as a result of the tax reform compensation measure. Several groups noted that the 4 per cent increase in rates of social security payments designed to provide compensation for the impact of the GST on low income people, will lead to an automatic increase in social housing rents for all tenants on social security payments – which is the majority of tenants – unless State/Territory housing authorities make special provisions to prevent this flow on. [5] Rents are set as a fixed proportion of a tenants' income, which varies from between 20 to 25 per cent of their income. Therefore, 25 per cent of the compensation package will automatically go towards increased rents.

11.7 The Community Housing Federation of Australia (CHFA) stated that:

Any change to their income – in other words, the compensation package that is being introduced on 1 July 2000 – will have a fairly direct impact on people who are community housing tenants on the basis that they pay a percentage of their income as rent…If their income goes up, their rent immediately goes up. So, by the benefits that come through the GST compensation package, these people will be adversely affected immediately through a rental increase…with the introduction of the GST these people will not get compensation through tax cuts, and many of them do not earn enough to pay any tax. There will be increases in other services, such as transport, education and food. And there are now going to be rental increases as well for those people. [6]

11.8 The National Youth Coalition for Housing (NYCH) also submitted:

In our estimation…there are extremely important questions in relation to compensatory measures offered to social security recipients: the effect of price rises on those who consume more than 100 per cent of their incomes, the effect of the tax package on rental housing costs, the effect of the new tax system on the service capacity of existing services to homeless people under the Supported Accommodation Assistance Program, the effect of the new tax system on funding levels in specific purpose payments and the future of specific purpose payments and the Commonwealth's role in safety net programs under the new tax system into the future. We are particularly worried about the effects on young people's ability to afford basic living costs after the introduction of a GST because young people are on the lowest incomes of all in our communities. [7]

While public housing providers may receive increased rents as a result of the 4 per cent GST compensation increase in social security payments, this is not expected to offset the increase in costs. [8]

11.9 The National Association of Tenant Organisations (NATO) noted that the effects of the GST will add to public housing waiting lists and exacerbate the already critical under supply of public housing in Australia. NATO stated that given that housing funds are declining and `everything' that public housing organisations purchase will cost more it will diminish the ability of providers to meet increasing community needs. [9]

11.10 A number of housing organisations raised concerns about their status as either `commercial' or `non-commercial' entities under the proposed legislation. A non-commercial supply of services is one where the price charged (in this case, rent) is less than 50 per cent of the normal market value. National Shelter stated that there is still great uncertainty about this issue. National Shelter stated that `this is something we have sought advice from Treasury on, but we are still awaiting a response'. [10]

11.11 National Shelter argued that public housing providers were nevertheless likely to be treated as `commercial' entities. If housing is deemed `commercial', rents will be GST-exempt. This means that the housing supplier/owner pays the GST on inputs (such as management fees, maintenance, office rent and office expenses) but no tax credits can be claimed. The housing owner/supplier cannot charge tenants GST on their rent. Thus the supplier of the goods and services, in this case, a public housing authority, either has to absorb the GST paid on the inputs itself, or passes the GST on to the final consumer – that is, the tenant, by increasing rents. [11]

11.12 National Shelter explained that:

Public housing providers are therefore in an untenable position. Housing is a government service that is input taxed. Because of this situation, there is no recourse for a commercial organisation to claim input credits on its additional expenditure. The assumption that the cost of the GST will be passed on to the consumer, cannot apply for public housing because rents are income based. There is no capacity to put up rents to meet the additional cost.. [12]

11.13 Evidence to the inquiry indicated that because residential rents are input taxed, there is no scope for public housing providers to claim input tax credits on any GST they pay on their inputs, including any GST on insurance costs, legal costs, administrative costs and maintenance costs. [13] National Shelter and other groups also argued that there is no scope to pass on these increased costs to tenants in the way that private landlords can, because rents for public housing tenants are a fixed proportion of income – not exceeding 25 per cent of income, which means that one out of every four dollars goes directly in rent. [14] National Shelter noted that this benchmark `has tacit agreement from all social housing providers and any increase to this would be an additional burden on the poorest Australians'. [15]

11.14 The increased costs will have to be borne by the public housing authorities. There is no guarantee that the extra costs will be covered by increased funding from Government.

11.15 Evidence indicated that public housing providers will face increased costs in the provision of public housing with the introduction of a GST. There will be increased construction costs and increased costs associated with the supply of existing rental housing, because there will be a GST on maintenance costs and contracts and on stationery and the rental of office premises. The NSW Federation of Housing Associations pointed out that in 1996-97 the NSW Department of Housing spent over $113 million on maintenance of public housing. Under the GST they would spend an additional $11.3 million on this item alone. [16] Shelter Tasmania stated that Housing Tasmania will face additional costs due to the GST – `extra maintenance will be a special burden'. The proposed tax changes `will compound the problems of maintenance and supply of public housing'. [17] Since State Governments are major suppliers of public housing the impacts of the GST will have marked effects on the available budgets for housing maintenance and purchase of capital stock.

11.16 Shelter Victoria stated that given that a GST will be levied on the construction of new housing, as well as the costs of inputs such as maintenance, repairs and redevelopment, State housing authorities will face `difficulties in the light of continually declining funds from the Commonwealth under the Commonwealth-State Housing Agreement (CSHA) to maintain, let alone expand, its public housing stock'. [18]

11.17 National Shelter and ACOSS argued that increased costs could lead to public housing authorities providing less housing, compromising on housing quality and maintenance and/or increasing rents. [19] Grants from Government to housing associations may also incur a GST. This is because these grants may be considered to be `purchases' for the supply of housing. This is another example of the uncertainty in the legislation and the confusion this is causing to housing providers.

Community Housing

11.18 There are 28,779 housing units managed by community housing organisations nationally. Community housing provides essentially the same service as public housing but with a more locally managed focus. The majority of community housing tenants are in receipt of income support and pay between 20 to 25 per cent of their income in rent. About 12 per cent of tenants in the community housing sector pay market rents. [20] Community housing organisations raised many similar concerns to the concerns raised by groups in relation to public housing.

11.19 Under the proposed legislation rents for community housing will be input taxed. As for public housing, this will mean that suppliers of community housing will either have to absorb the additional costs or attempt to pass on these costs to tenants. CHFA stated that the majority of tenants are paying less than 50 per cent of the market rate in rent. [21] DFaCS advised the Committee that community housing services provided on a non-commercial basis (eg. where accommodation is provided at less than 50 per cent of the tax inclusive market value) would be GST free. [22]

11.20 Some community housing tenants, however, pay 50 per cent or more of the market rent, depending on their location, housing type, and income. Housing associations which operate in areas where market rents are low may find themselves considered to be providing a commercial service and taxed accordingly. [23] Shelter Tasmania stated that this is a real concern in Tasmania –`if rent exceed 50% of market rent – a real possibility in certain areas of Tasmania – they will be classified as commercial and subject to the commercial rate of GST. This would make many community housing organisations unviable'. [24]

11.21 CHFA noted that an important issue for the sector is whether community housing providers are classified as `commercial' or `non-commercial' entities under the proposed tax changes. A non-commercial supply of services is one where the price charged is less than 50 per cent of the normal market value. Shelter Victoria stated that `this is particularly relevant for community housing providers as a number of these organisations are currently sales tax exempt due to Public Benevolent Institution (PBI) status'. [25]

11.22 CHFA stated that the intent of the legislation is very unclear in this regard. CHFA noted that the Vos Report stated that the commercial activities of charities will be subject to a GST to avoid unfair competition with other businesses and that a `non commercial' supply of services is a `supply that is for a nominal or insubstantial consideration'. `Nominal or insubstantial consideration' is the payment of a price that is less than 50 per cent of the normal market value of the supply. The Federation asked `where do community housing services fit into that definition?'. [26]

11.23 CHFA argued that all community housing organisations should be defined as `non commercial' because they are not strictly in competition with private providers and because the people who use community housing `often have high needs tenancies, low incomes and poor tenancy records, none of which are usually attractive to private rental agencies. A number of them are young people, and they are also seen as a considerable risk'. [27]

11.24 National Shelter noted that community housing may be considered to be providing `commercial' services. If the sector is `commercial' then National Shelter noted that `it will be treated like any other business and will have no relief from the GST on our inputs'. [28]

11.25 CHFA noted the costs of compliance associated with the proposed tax changes will add to the administration and training costs of community housing organisations. [29] National Shelter stated that compliance costs will be significant noting that `organisations that become registered are therefore tax collectors…Some housing associations with complex functions could find they are involved in very complex reporting and tax collection arrangements'. [30]

11.26 The Aboriginal and Torres Strait Islander Commission (ATSIC) also noted concerns in relation to Indigenous community organisations providing housing to Aboriginal communities. ATSIC expressed concerns that the organisations `would either have to reduce the level of housing provided or pass on the increased costs (of building new houses and repairs and maintenance) through to the tenants' as a result of the proposed tax changes. [31]

Input Tax Credits

11.27 CHFA and National Shelter raised issues related to the input tax arrangements. National Shelter noted that the majority of inputs for community housing organisations are not currently taxed, for example, in the areas of maintenance, management fees, office rent and office expenses as most organisations are sales tax exempt because they have Public Benevolent Institution status or are defined as charities. In addition, major expense items for these organisations do not incur sales tax because they are primarily services rather than goods. [32]

11.28 CHFA submitted that community housing providers are unlikely to be able to recoup the additional costs associated with the input taxing of rents in increased rents as community housing tenants do not pay market rents – with rents as a fixed proportion of tenants' income. CHFA stated that the rent increases that will result from the GST compensation arrangements will increase the income for community housing organisations `but not sufficiently to offset the other increases as a result of the GST'. [33] CHFA stated that some community housing organisations would become non viable and could close down. [34]

Boarding Houses, Hostels and Caravan Parks

11.29 Under the proposed tax reforms, where accommodation in boarding houses, hostels and caravan parks is supplied for 27 days or less, it is classified as short term accommodation and is therefore subject to a GST at the full rate of 10 per cent. If the premises are predominantly used for short stays the proprietor is able to charge a GST rate of 10 percent for the first 27 days and a 5 per cent rate thereafter.

11.30 The Government's initial proposal was that `long term stays' (for 28 days or more) would be subject to a GST at a concessional rate of 50 per cent (that is, a GST rate of 5 per cent). The Government has now decided that proprietors will have the option of applying either this rate or applying the input tax rules for residential rents, that is, not charging a GST, but not being entitled to input tax credits. [35]

11.31 Evidence from caravan park associations were also generally opposed to a GST on residents' rents. [36] It was emphasised that long term residents in caravan parks should not be treated differently from renters in the general housing market especially as the caravan park is their principal place of residence. Evidence suggested that residents of caravan parks are generally on low incomes, with most in receipt of government social security payments. It was argued that park owners will almost certainly increase rents to cover additional costs they may incur due to the GST. [37]

11.32 Operators of boarding houses and caravan parks and the like may either charge the concessional rate of the GST on rents or apply the input tax rules for residential rents – that is, not charge a GST, but not be entitled to input tax credits.

11.33 `Commercial accommodation' is also very narrowly defined in the Bill to include the provision of gas/electricity, airconditioning and heating, telephones and televisions. Any additional services offered at the premises such as meals, drinks, laundry etc. are considered `incidental' and attract the full 10 per cent GST.

11.34 Several groups, including National Shelter and ACOSS argued that rents paid by long term residents in accommodation such as caravan parks, hostels or boarding houses should be exempted from the GST. [38] The Committee believes that it is unacceptable that residents in these types of accommodation, many of whom are among the most marginalised and disadvantaged members of the community, should face a disproportionate increase in housing costs as a result of the introduction of a GST.

Strata and Body Corporate Schemes

11.35 Concerns were raised by Unitcare Services that strata title schemes and body corporates will be forced to add the GST to their levies. The GST will be applied to the levies raised by the strata corporation/unit group to pay maintenance, painting, insurance and administration of the property. What this means is that strata title schemes will be forced to levy a GST, track the GST charged on goods and services, and then have the added administrative burden of claiming tax credits. If introduced this would impact on approximately 1.1 million unit owners in Australia, of whom 286,000 are aged over 65 years. [39]

11.36 Not all strata schemes are large organisations – some involve as few as two or three homeowners. The Committee believes that it is unreasonable for the Government to expect these organisations to take on such an onerous role in the administration of the taxation system. This measure is bound to have an effect on the financial security of body corporates because it discourages savings for future maintenance. This is because the GST is levied at the same time body corporate fees are paid, yet the tax credits for GST charged on goods and services can only be claimed when the work is done – which may be some years down the track.

Private Rental Market

11.37 The supply of residential rental property is input taxed under the proposed new tax arrangements. National Shelter and other groups noted that private landlords will pay GST on management fees, maintenance and other recurrent costs, and will not be able to claim these back as input tax credits. There will also be additional capital costs due to increases in the purchase price of property. These increases in costs will lead to a rise in rents, as landlords pass some or all of the increases to private renters. [40] The Urban Development Institute of Australia (UDIA) also noted that the GST on new homes will provide less incentive for private investors to invest in private rental stock. [41]

11.38 DFaCS stated that Treasury estimated that housing costs would increase by 2.3 per cent as a result of the GST and the Department `anticipated' that this increase will flow through to the private rental market. [42] The Department added that `the assumption is that the impact of the GST would increase landlords' costs by 2.3 per cent and they would want to pass that on to tenants if they can. Whether they actually can pass it on to tenants or not will depend upon the market'. [43]

11.39 The Department noted that private renters who are eligible for income support or Family Tax Benefit can access Rent Assistance (RA) to help with the cost of private rental. RA is a non-taxable income supplement paid to individuals and families who rent in the private rental market. The existing rate maximum RA recipients will benefit from the 4 per cent increases to RA as part of the compensation package. Those currently receiving less than the maximum rate will receive an increase if their rents increase. [44] The Committee concludes that in all rental markets, but especially in high rental markets, like Sydney, the proposed increase in RA will go nowhere near compensating the rent increases likely to occur.

11.40 Evidence to the Committee suggested that the level of rent increases will exceed the Government estimate of a 2.3 per cent increase. The Housing Industry Association (HIA) estimated that the long term effect of the tax plan would be to increase rents by 3 per cent. [45] The NSW Federation of Housing Associations claimed that the likely increase in rents could be as high as 11 per cent. [46] NATO estimated that the impact on rents from the proposed tax changes will be to increase rents from between $5 and $30 per week. [47] The Committee notes that modelling by Chris Murphy from Econtech to the Select Committee showed that rents would increase by 3-4 per cent. [48]

11.41 The variation in these estimates results from the sensitivity of the analyses to various assumptions, including such factors as changes in housing consumption patterns, the extent to which landlords absorb increases in costs, and the length of time it takes for increases in the cost of new housing to affect other housing sub-markets. [49] National Shelter noted the Government's estimate of rental increases focuses at the macro level on the housing market but at the micro level of the private rental situation for low income earners rental increases will be greater than the Government estimate.

11.42 NSW Federation of Housing Associations undertook specific modelling of the impact of the GST on rents for different low income household types living in private rental accommodation. [50] The Federation argued that their modelling of the impact of the GST on private rental housing shows that there are two impacts on the private rental market that will contribute to a rise in rents – firstly, an increase as a result of the GST on various direct inputs such as management costs and maintenance; and secondly, a larger impact from the increase in the cost price of new housing and the associated flow on effects to prices of existing houses. The Federation stated that `where the government predicts an “across the board” increase in housing costs of 2.3 per cent the reality is that this increase in house purchase translates into a much larger rent rise'. [51] Other modelling also concludes that the increase will be more than the government's predictions.

11.43 The Federation noted that `using our data, it is clear that all low income cameos will be considerably worse off after the introduction of a GST. Given that the only additional expense included in our modelling is housing, we are very concerned that private renters will have spent the majority of their compensation on housing before they have met the cost of other basic needs such as food'. [52]

11.44 Submissions noted that there are a large number of sub-markets within the private rental market, for example, a high vacancy rate in one suburb may not apply a few suburbs or towns away. Similarly, vacancy rates at the top end of the market are unlikely to be the same as those at the bottom end of the market, and these can affect rent levels. [53] NATO argued that more research needed to be conducted on the potential impact of a GST on specific markets eg. high rent cities like Sydney and places like, for example, Port Hedland or Cairns where rents are in excess of the national average. [54] National Shelter also noted that rents are more likely to be raised in $5 steps, so a $3 rise in costs is likely to translate into a $5 rent increase. [55]

11.45 The Committee is persuaded on the evidence that rent increases in the private rental market will be in excess of the Government's estimates and that the Rent Assistance increases will not be sufficient to compensate low income private renters.

Home Purchase

11.46 Under the proposed tax changes, the construction and sale of new homes and repairs and renovations to existing homes will be subject to GST. However, DFaCS noted that this will be offset by the removal of wholesale sales tax currently paid on some materials used in the constructing and finishing of a house, such as carpets, bathroom fittings and heaters. Treasury has estimated that the net increase to the price of new house construction would be approximately 4.7 per cent if there were no other intervention. DFaCS stated however, that, the cost of buying a land and house package, will not rise by this amount `as a large part of the land cost will not be subject to GST. It is anticipated that this will also flow through to the cost of purchasing an existing home'. [56]

11.47 The Urban Development Institute of Australia (UDIA) noted that while the purchase price of land does not attract a GST, that only represents about a third of the total costs of developing the land. Some two-thirds of the cost of developing the housing block goes in costs that will have a GST applied to them. Thus the cost of the GST is not purely on the construction of the home, but on the development of the land. Therefore the cost of the GST impost will be considerably greater than the Government estimate. [57]

11.48 In situations where residential land is sold by a registered business, such as a property developer, it is not subject to GST on its full sale price, but only on the margin added by the business. The Department noted that it is anticipated that this will also flow through to the cost of purchasing an existing house. [58]

First Home Owners' Scheme

11.49 To assist in maintaining home affordability the States will be required to introduce a First Home Owners' Scheme (FHOS) as a condition of receiving GST revenue. The scheme will apply to Australian citizens and permanent residents buying or building their first home. To qualify, an applicant must not have previously owned a home. The purchase of a `first' home will include the purchase of the land on which a house is to be built and cover all forms of private dwelling ownership (strata title etc.). Those qualifying for assistance would receive a non-means tested lump sum of $7,000. DFaCS stated that the scheme will more than compensate first home owners on the purchase of a home with a construction value (excluding land) of up to $150,000. [59]

11.50 Evidence to the Committee suggested that the FHOS was inadequate in terms of compensation for the new tax burden imposed by the GST. Firstly, UDIA stated that on a house and land package of $160,000 the GST would be $12,800, while the proposed rebate is only $7,000. [60] Secondly, HIA stated that the package is inadequate because it will only be available to about 15 per cent of new homebuyers. [61] Thirdly, in Sydney, a house costing $230,000 is in the bottom third of the housing market, so the rebate will go nowhere near compensating for the majority of the housing market.

11.51 ACOSS raised a number of equity issues associated with the FHOS noting that the scheme will not be available to all people facing increased housing costs. Those who will not be eligible will include purchasers who are not buying their first home, such as sole parents establishing a new household after a separation and older people moving to a smaller home. In addition, the value represented by the FHOS will vary depending on the housing market. [62]

11.52 HIA stated that the FHOS grant will be available for homebuyers purchasing established dwellings, the sale of which is not subject to a GST. [63] UDIA also expressed the view that in relation to established properties the rebate is a `give away' and will compound the price disparity when the GST is imposed on new homes. It also is a net loss in tax revenue for government. The Institute noted that this price disparity will suppress demand for new homes – `this may further accentuate the expected downturn in the property market in mid-2000 and result in more unemployment'. [64]

11.53 MBA argued that the FHOS arrangements could be improved by a ten-year guaranteed period for FHOS, after which it would be subject to review; an annual adjustment to the lump sum payment under FHOS linked to the ABS New House Price Index; priority given under FHOS to buyers of new homes to encourage economic activity and employment; and lower and uniform exemptions for first home buyers from stamp duty on property transfers, to further improve housing affordability. [65]

11.54 HIA submitted that a more appropriate way of addressing the cost impact of the GST on new homebuyers would be to make compensation available to homebuyers purchasing new dwellings. This would involve the exemption of stamp duty for first homebuyers under the FHOS and a targeted GST rebate on new houses and renovations. HIA argued that the FHOS should provide for the exemption of stamp duty on the first $250,000 of a new or established home purchase. A first home buyer purchasing a dwelling at the average price of $203,000 would receive a stamp duty exemption worth up to $7,000. HIA also proposed that under its new home rebate proposal, 50 per cent of the net GST cost increase would be rebated on the first $250,000 of a new dwelling purchase, inclusive of land. The rebate would be available to first homebuyers, purchasers of new rental property and other new home purchasers. [66]

Costs of Home Ownership

11.55 Treasury has estimated that the costs of home ownership will increase by 2.3 per cent. DFaCS argued that this impact will be lessened by the FHOS, which it was claimed will reduce the overall price increase for housing. [67]

11.56 These figures were contradicted in evidence to the Committee. HIA argued that the GST and other tax changes on the residential construction industry will increase the cost of new house prices by 5 per cent in the long term and 8 per cent in the short to medium term. As a result of these higher prices (and rent increases) the consumption of housing services will fall by about 2 per cent. HIA noted that housing will become `relatively more expensive, and people will use less of it by choosing fewer, smaller or lower quality houses'. [68] HIA stated that the FHOS will only be available to about 15 per cent of new homebuyers. [69]

11.57 The report of the Select Committee on a New Tax System also found that the residential housing sector will also be adversely affected by a GST. Mr Murphy of Econtech suggested the price of house construction will rise by around 6 per cent and the price of a house and land package by about 5 percent. [70]

Housing Affordability

11.58 Evidence to the Committee from housing industry bodies argued that the new tax arrangements will adversely affect housing affordability. UDIA provided compelling evidence on the adverse impact that the GST will have on the construction of new homes and objected to the fact that the GST applies only to new homes. New homes are often the most affordable for first home buyers and Australian families with low to medium incomes. The Institute noted that prices of homes in new suburbs will rise as a result of the GST. The implementation of the GST on new homes but not established homes will lead to pricing disparity in the market that will depress demand for new homes and land.

11.59 The GST on a sub-divided block without a house is based on the difference between the price of the land when it was purchased and the price of the land when it is sold. The Institute noted that therefore all improvements to the land (roads, drainage, sewerage, water and power supply) will be taxed. UDIA stated that a block of land costing a developer $45,000 and sold (after improvements) for $140,000, will have a margin of $95,000. This will be subject to the GST and therefore the GST payable will be $9,500. The builder/homebuyer will then build a house for say, $90,000. That will bring the total land package to $230,000. The GST on the house will be $9,000 (10 per cent of $90,000). Therefore the GST on the house and land package will be $18,500. [71]

11.60 The tables below are taken from the Master Builders Australia Inc submission which show the expected price affects of the tax package. [72]

Price and Home Affordability Impact of an Effective GST of 5.1% on Housing
With Tax Cuts But No Up-Front FHOS Payment

Median Size House

* House sizes & prices based on unpublished ABS data

Average Size

* House sizes & prices based on unpublished ABS data
* includes 7% margin

Prepared by Master Builders Australia

Tax on a Tax

11.61 UDIA was also concerned about the fact that the GST is a `tax' on a tax. Most of the taxes that affect the housing industry will not be removed by the Government's tax reform package. Stamp duty and land taxes on property (State taxes) will remain. The GST will be a tax on a tax for all of these taxes and government charges. In some cases $20,000 in Government taxes and charges will become $22,000 under the GST. There is little WST on new homes as it stands, therefore the loss of WST means very little to the housing industry.

11.62 Most economic experts, including the Commonwealth Bank, Bankers' Trust, BIS Shrapnel and IPC are forecasting a downturn in the housing industry by mid 2000. This is based on the effects of a GST and the downturn after the Olympics. The effect on unemployment in the sector will be dramatic. HIA also argued that there would be a long term permanent decline in residential building activity of over 2 per cent and the consequent loss of jobs. [73]

Home Maintenance Costs

11.63 While the sale of the family home is not subject to a GST, services such as real estate agents fees, insurance and legal costs are subject to a GST. The costs of renovating and redeveloping existing homes will also be subject to a GST, together with maintenance and repairs. These input costs will contribute to increased prices for existing homes. [74]

11.64 The proposed tax changes will also affect the ability of many households to maintain their home to an adequate standard, especially low income homeowners and pensioners. For example, evidence suggested that many elderly people who may be `asset rich' but `income poor' will find it increasingly difficult to pay for the costs of house maintenance and repairs. The Council on the Ageing (COTA) noted that the increased cost for household services are a `particular concern' of older people because they are more reliant on outside services to maintain a home and garden. COTA noted that household services commonly used by older people that will be subject to a GST include gardening and rubbish removal, housekeeping and cleaning services and repair and maintenance of household durables. [75]

Commonwealth-State Housing Agreement

11.65 Concerns were raised by several housing groups concerning the future of the CSHA in the light of the changing Commonwealth-State financial relations under the proposed tax changes. Under the new arrangements, from 1 July 2000, the Commonwealth will transfer all the revenues from the GST to the States, with Financial Assistance Grants to be abolished. [76] Some groups also argued that this called into question the future of Specific Purpose Payments such as the CSHA. [77]

11.66 The current CSHA is due to expire on 30 June 1999, and is currently being re-negotiated. DFaCS stated that the funding offer for the new Agreement `is money that is currently contained in the forward estimates, which is essentially current money less efficiency dividend'. [78] National Shelter noted that the CSHA has been declining in real terms in recent years and there have been less funds available for public and community housing. [79] Shelter Victoria stated that:

What has been happening in housing assistance funds since the 1980s has been an erosion of [these] funds in real terms, particularly since 1996 when the federal government applied efficiency dividends to housing assistance funds…in real terms, housing assistance funds from the Commonwealth to the states have been declining over the last decade or so. [80]

11.67 Shelter Victoria noted that if state housing authorities in the future are treated as commercial entities and therefore subject to a GST on their input costs `the situation will be that a lot of the money that comes from specific purpose payments for housing assistance will be lost to general or consolidated revenue'. [81]

11.68 The Committee notes that State Housing Ministers recently refused to sign a new CSHA. They issued a statement that the Commonwealth had failed to adequately compensate the States for the increases in costs for State Housing Authorities under the GST. The Ministers in their Communique stated that:

Housing Ministers…unanimously agreed they could not sign the Commonwealth's proposed new four-year CSHA as the offer would lead to significant reductions in housing services around Australia. The Commonwealth offer does not include any compensation for the impact of the GST on the States and Territories. The impact of a GST on, in particular, housing for the aged, people with disabilities and the homeless, should be fully discussed and understood. [82]

11.69 State and Territory Housing Ministers have recently called for $700 million in additional funding for public housing, including $390 million to compensate the States for the introduction of a GST. The Ministers' argued that the present Commonwealth funding offer represents a reduction of more than $730 million of housing assistance funding over the next four years. [83]

11.70 In 1995-96 Commonwealth funds to the CSHA were $1.023 billion with State funding of $520 million. In 1996-97 this level was maintained without indexation. In 1997-98 Commonwealth funds through the CSHA were cut by $92 million. [84] This decline in real funds will be exacerbated by the impact of the GST.

11.71 The GST will have the effect of transferring funds from the CSHA to consolidated revenue. National Shelter stated:

The GST causes a leak from housing funds into consolidated revenue as inputs are taxed but credits cannot be claimed. It is true that there is no loss to the system as a whole because it is government funds that are being “recycled”. However, the CSHA –because it is a tied grant– loses significant amounts out of what was previously a closed system. Once the funds have gone into consolidated revenue, they will be difficult to track and reclaim. [85]

Footnotes

[1] Submission No.633, p.11 (National Shelter); Submission No.68A, p.8 (ACOSS).

[2] Submission No.603, pp.1-2 (DFaCS).

[3] Submission No.603, p.13 (DFaCS).

[4] Submission No.603, p.13 (DFaCS).

[5] Submission No.68A, p.8 (ACOSS); Submission No.633, p.11 (National Shelter); Submission No.328, p.1 (Central Sydney Region Public Tenants Council).

[6] Committee Hansard, 4.2.99, p.238.

[7] Committee Hansard, 4.2.99, p.370.

[8] Submission No.68A, p.9 (ACOSS).

[9] Submission No.789, p.8 (NATO). See also Submission No.1088, pp.iv-v (Queensland Government); Submission No.664, pp.10-11 (Shelter WA and Tenants Advice Service); Submission No.304, pp.4-5 (Geelong Catholic Social Justice Committee).

[10] Committee Hansard, 23.2.99, p.809.

[11] A New Tax System (Goods and Services Tax) Bill 1998, Bills Digest, No.97, p.16.

[12] Submission No.633, p.11 (National Shelter). See also Committee Hansard, 23.02.99, p.808.

[13] Submission No.68A, p.8 (ACOSS).

[14] Submission No.633, p.11 (National Shelter).

[15] Submission No.633, p.11 (National Shelter).

[16] Submission No.849, p.18 (NSW Federation of Housing Associations).

[17] Submission No.660, p.11 (Shelter Tasmania).

[18] Submission No.675, p.11 (Shelter Victoria).

[19] Submission No.633, p.12 (National Shelter); Submission No.68A, p.8 (ACOSS).

[20] Submission No.633, p.12 (National Shelter); Submission No.677, p.4 (CHFA).

[21] Committee Hansard, 4.2.99, p.368.

[22] Submission No.603, p.13 (DFaCS).

[23] Submission No.633, pp.12-13 (National Shelter). See also Submission No.675, p.12 (Shelter Victoria).

[24] Submission No.660, p.14 (Shelter Tasmania).

[25] Submission No.675, p.12 (Shelter Victoria). See also Submission No.664, p.11 (Shelter WA and Tenants Advice Service).

[26] Submission No.677, p.6 (CHFA).

[27] Committee Hansard, 4.02.99, p.368. See also Submission No.677, pp.6-7.

[28] Submission No.663, p.12 (National Shelter).

[29] Submission No.677, p.8 (CHFA).

[30] Submission No.633, p.13 (National Shelter).

[31] Submission No.801, p.10 (ATSIC).

[32] Submission No.633, p.12 (National Shelter).

[33] Submission No.677, p.7 (CHFA).

[34] Submission No.677, p.7 (CHFA). See also Committee Hansard, 4.2.99, p.369.

[35] These types of accommodation are to be treated as `commercial residential premises' (Division 87 of the Bill) defined in the legislation as a hotel, motel, inn, hostel or boarding house, caravan park or a camping ground. See Explanatory Memorandum, p.127.

[36] Submission No.371, p.1 (Park Residents Association); Submission No.3, p.4 (Affiliated Park Residents' Associations of NSW); Submission No.440, p.1 (Caravan and Relocatable Park Residents' Association); Submission No.1177, p.1 (Palms Avoca Residents' Council).

[37] Submission No.350, p.5 (Park and Village Service).

[38] Submission No.633, p.10 (National Shelter); Submission No.68A, p.10 (ACOSS).

[39] Submission No.971, pp.1-2 (UnitCare Services).

[40] Submission No.633, p.6 (National Shelter); Submission No.777, p.9 (Tenant and Community Initiatives Program); Submission No.68A, p.6 (ACOSS).

[41] Submission No.509, p.6 (UDIA).

[42] Submission No.603, p.12 (DFaCS).

[43] Committee Hansard, 2.2.99, p.130.

[44] Submission No.603, p.12 (DFaCS).

[45] Submission No.592, p.2 (HIA).

[46] Committee Hansard, 23.2.99, p.812.

[47] Committee Hansard, 23.2.99, p.842. See also Submission No.664, p.5 (Shelter WA and Tenants Advice Service); Submission No.750, p.10 (Queensland Shelter).

[48] See Select Committee, First Report, p.83.

[49] Submission No.68A, p.7 (ACOSS).

[50] The cameos are representative of households living in housing related poverty. Calculations are based on various household types in receipt of Centrelink pensions or benefits and RA. Rents are based on 90 per cent of the median rent in Sydney. The model assumes an 11 per cent increase in rents. See Submission No.849, pp.22-26 (NSW Federation of Housing Associations).

[51] Submission No.849, p.5 (NSW Federation of Housing Associations).

[52] Submission No.849, p.6 (NSW Federation of Housing Associations).

[53] Submission No.633, p.6 (National Shelter); Submission No.777, p.9 (Tenant and Community Initiatives Program).

[54] Committee Hansard, 23.2.99, p.842.

[55] Submission No.633, p.7 (National Shelter).

[56] Submission No.603, p.11 (DFaCS).

[57] Committee Hansard, 23.2.99, pp.831-32.

[58] Tax Reform Report, p.97; Submission No.603, p.11 (DFaCS).

[59] Submission No.603, p.11 (DFaCS).

[60] Submission No.509, p.6 (UDIA).

[61] Submission No.592, p.3 (HIA).

[62] Submission No.675, p.7 (Shelter Victoria).

[63] Submission No.592, p.3 (HIA).

[64] Submission No.509, p.6 (UDIA). See also Committee Hansard, 23.2.99, p.833.

[65] Submission No.338, p.11 (MBA).

[66] Submission No.592, p.3 (HIA).

[67] Submission No.603, p.12 (DFaCS). See also Tax Reform Report, pp.97, 172.

[68] Submission No.592, p.2 (HIA). See also Submission No.778, pp.1-4 (Migrant Resource Centre Forum of NSW).

[69] Submission No.592, p.3 (HIA).

[70] See Senate Select Committee on a New Tax System, First Report, February 1999 p.83.

[71] Submission No.509, p.3 (UDIA).

[72] Submission No. 338, Attachment B3, p.1.

[73] Submission No.592, p.2 (HIA).

[74] Submission No.675, p.7 (Shelter Victoria).

[75] Submission No.795, p.7 (COTA).

[76] Tax Reform Report, p.25.

[77] Submission No.675, p.14 (Shelter Victoria); Submission No.633, p.14 (National Shelter).

[78] Committee Hansard, 2.2.99, p.127.

[79] Submission No.633, pp.14-16 (National Shelter).

[80] Committee Hansard, 11.2.99, p.682.

[81] Committee Hansard, 11.2.99, p.682.

[82] State/Territory Housing Ministers' Meeting, Communique, 5 March 1999.

[83] The Australian, 23.3.99, p.6.

[84] Submission No.675, p.15 (Shelter Victoria).

[85] Submission No.633, p.15 (National Shelter).