Property Council opening statement: tax hikes will shrink investment, confidence and new project supply
The Property Council has opened the first business comments at the Senate Inquiry into CGT and Negative Gearing tax increases, saying the rushed process shows last year’s economic Roundtable was about tax hikes not reforms.
Speaking to the Inquiry in Canberra, Chief Executive Mike Zorbas said despite appropriate and long-awaited approval changes, the damaging scale and variety of the additional tax changes had to be considered against the $130 billion in taxes already extracted from the property sector and left many of the firms that create and run the country’s commercial, industrial and residential projects and the jobs that go with them clearly worse off.
The Property Council opposes the changes on the four grounds laid out in the statement, below.
Opening statement
(Check against delivery)
Chair and Senators, thank you for this opportunity. I’m Mike Zorbas, Chief Executive of the Property Council of Australia whose 2700 member organisations are the largest and leading organisations that invest in, develop and operate the key industrial, commercial and residential assets of Australia’s capital and regional cities. I also recognise my valued MBA and HIA colleagues appearing here today.
I make the following remarks in sorrow and frustration on behalf of my members over the cumulative impact of these proposed tax hikes. Government over-spending at Federal and State levels by all parties and lack of actual tax reform on the GST among other taxes has left us taxing the life out of new property projects and existing operating assets at a time of rising capital, labour and construction costs.
Taken as the sum of its outputs, last year’s Economic Reform Roundtable now appears to be a tax hike forum. The damage to investment arising from the Roundtable, including the double tax hikes on trusts which should be scrapped, overshadows the appropriate infrastructure and assessment improvements it produced.
Investment in industrial, commercial and residential property in this country is already taxed like tobacco at Federal, state and local government level to the tune of $130 billion a year. These Bills increase that investment burden on property businesses large and small, in turn hurting consumers. Take housing for example, the cost of each new home is now almost 40 per cent federal, state and local government charges.
In coming months, business organisations must regroup around the pro investment changes needed if we want to grow the economic pie for all Australians.
In the meantime, the Property Council strongly opposes these Bills on four grounds.
- Australia’s housing challenge is a supply challenge and these Bills will cut new homes by 35,000. Despite recent efforts, no party in this parliament has yet come close to the scale of reform needed to lift us by 100 homes per thousand people to the median housing supply level of other advanced economies. Regrettably, the infrastructure measures announced in this and previous budgets arrive too late and are still too small to offset the reduction. It is vital the committee understand projects do not proceed unless they stack up. Established and new housing markets are intimately connected. Projects are financed against confidence in future market conditions and expected exit value. If you allow these Bills to pass those terminal price outcomes are eroded and project feasibility harmed before construction starts.
- Taken with the business damage caused by proposed trust changes this is a project feasibility killing set of new taxes. Property markets around the country have faced huge materials, labour and capital cost escalations as well as infrastructure bottlenecks and slow post-approval processes over the past five years. This damage increases with the flagged 30 per cent minimum tax on family enterprises and private capital that use trusts for legitimate commercial purposes.
- Rushed design features present a real risk of damage to project feasibilities and costly additional red tape and should not be left to delegated legislation. I challenge proponents of the Bills to name three packages of serious tax reform that have been rammed through with this speed.
- Creating and operating commercial, industrial and residential property assets of all kinds is already taxed like tobacco, damaging supply and affordability and ultimately costing consumers.
Independent modelling commissioned via us, the MBA, REIA and HIA confirms that even with the government’s Local Infrastructure Fund, dwelling starts are still down 8,700 over four years. If the Parliament makes the mistake of proceeding despite these impacts, grandfathering and the carve-out for new builds must be retained in full to avoid diabolical market disruption.
The regime must also avoid further damage to vital housing solutions such as build to rent, retirement living, land lease, purpose-built student accommodation and co-living that will each deliver homes at scale.
The first and best outcome remains that the Committee recommend the Bills not pass.
