Why removing CGT from Australian property could work

“Over the past five years now, Auckland certainly experienced some rapid house price growth there at the same time as Sydney did as well, though there’s been a lot of common experiences across the two housing markets over the past five years.”

In May, Australia decided to keep interest rates at 1.5 per cent, while New Zealand decided to cut their interest rate by 25 basis points down to 1.5 per cent. The last time they saw movement was a cut in November 2016.

A month later, Australia then decided to cut their interest rates by 25 basis points to a new record low of 1.25 per cent, with the last movement before that being a cut in August of 2016.

While the end numbers are different, both nations saw a similar length of record-low rates left on hold before then deciding to deliver a cut to a new record low.

“In retrospect, we may look back on this downturn of building activity and conclude that the interest rate cut in Australia came too late,” Mr Reardon said.

Scrapping CGT

While the two markets can be viewed as similar, one difference between the two is taxation policies; Australia has a strong reliance on stamp duty, while New Zealand recently dismissed the notion of introducing capital gains tax.

If Australia were to follow in New Zealand’s footsteps, Mr Reardon said the impact on the Australian property market would be very beneficial.

“If you were to remove capital gains tax from housing, we would have a much more efficient housing market. No other way of looking at it,” he said.

“The other side of it is, I think it’s interesting looking at New Zealand at the moment that they too are going through a cycle where they’re seeing fewer housing transactions occur and because they’re not as reliant on taxation on housing for their source of government revenue, the downturn of housing has not have as significant impact on government revenue.

“That way, they’re avoiding the scenario that we’re seeing in Victoria at the moment, which as the number of transactions decline, they’re looking at raising the... tax on housing so that the state governments collect as much revenue as they did in the past.”

Meanwhile, the taxation policy of importance in Australia that Mr Reardon views as “problematic” to the property market is stamp duty, as he claimed “it’s inefficient, it’s inequitable and it’s highly unreliable”.

To stress his point, Mr Reardon used Victoria as an example, which is currently experiencing a write-down of $4.8 billion in stamp duty revenue due to the current softening of the property market, and estimated that NSW could see over a $10 billion write-down.

“Our concern is that, just like with Victoria, that we may get that reduction in revenue from housing, but they look to increase related tax on housing, but of course that causes a deterioration and therefore [afforda]bility challenge,” he said.

“What we need to move to is more efficient, more equitable so there’s not such a heavy reliance on, from the state, on stamp duty.”