Jane Hume (Victoria, Liberal Party) Share this | Hansard source

I rise today to speak on the government measures to improve housing tax integrity, the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 and the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Vacancy Fees) Bill 2017. The Turnbull coalition government is committed to improving housing affordability for all Australians and ensuring that investors, both from Australia and from abroad, cannot abuse our tax system and claim tax deductions that are inappropriate or invalid. Indeed, this bill goes to the core of the government's budget announcements highlighting our commitment to reduce pressure on housing affordability. The Turnbull coalition government is committed to ensuring that all Australians have an opportunity to own an Australian home. These measures are designed to make that more accessible.

As many senators in this chamber and members in the other place have said before, there is something uniquely Australian about the idea and the ideal of home ownership. This is by no means a 21st century phenomenon. Considering the Australian housing affordability crisis is part of the lexicon of commentators, academics and politicians, I think it is worth bearing in mind the historical context of how we reached this place. I read recently something that suggested that Australians' obsession for home ownership began at the turn of the 20th century when Australian houses not only housed people but also fed them. While other countries would place their farmland just outside town centres, Australians grew their food in their backyards, and so saw the rise of the quarter-acre block, a truly Australian phenomenon. This was very significant during wartime in particular when there was rationing.

Postwar there was a new challenge, and that was the scourge of communism. During the Cold War home ownership was actually seen as a way to quell revolutionary tendencies. People with mortgages, jobs, families and responsibilities tend not to be the type of people who want to storm the Winter Palace. The waves of postwar migrants who came to Australia saw home ownership as an opportunity that wasn't available in Britain and Europe. By the mid-1970s home ownership in Australia had reached a high point of about 70 to 75 per cent. Financial deregulation in the 1980s changed things up again. It saw the levelling of the playing field between owner-occupiers and investors. Of course the system had been geared around those owner-occupiers. With 17 per cent interest rates and the recession we had to have in the early 1990s seared on people's brains, and on their bank balances in particular, and only a nascent compulsory retirement saving system at that stage, the moment property markets started to rise faster than inflation investors came back into the market, attracted by the idea of being landlords. So housing moved beyond becoming sort of a democratic ideal. Its value then was seen in dollars as well as in dreams.

These sorts of seismic shifts we have seen in the Australian housing market have brought us to where we are today. Home ownership is still very much part of the Australian dream, and the Turnbull government recognises this. It recognises that there is a part for the government to play in assisting Australians to realise this dream. I hate to ever admit that Senator Whish-Wilson is right about anything, but this time he in fact is. The measures detailed in these bills at hand are only one small part of the solution, but they are a very important part. They form a very important part of a greater suite of policy measures designed to ease the burden of housing affordability.

These measures also reinforce the Turnbull coalition government's commitment to removing significant abuses of the tax system. There are three significant measures in these bills that, for the benefit of the chamber, I would like to examine in more detail. While no-one on my side of politics would deny the right of businesses and individuals to legitimately claim on their tax return expenses incurred, it is always incumbent upon the government to ensure that the tax code adequately reflects the reasonable and legitimate degree to which these deductions are accessed. Inappropriate use of tax deductions is essentially tantamount to stealing from the public purse. We have said many times in this place that this is a government that realises the imperative of budget repair to this nation's future economic prosperity. We are committed to ensuring that all taxpayers contribute fairly. There are some deductions that are simply inappropriate and are currently being used to game the system. For instance, travel that is essentially a leisure trip shouldn't be considered wholly tax deductible simply on account of a single viewing of a potential investment property. To claim such a deduction is entirely inappropriate. The phrase used so often in this chamber is, 'It doesn't pass the pub test.' As such, the bills before the chamber tonight go straight to the heart of addressing such abuses of tax deductions for residential property investment.

The Australian Taxation Office has identified areas which constitute excessive and incorrect claims for travel expenses, and it now falls to the government to take a comprehensive and considered approach to clarifying and legislating rules around what actually constitutes excessive and incorrect claims, and to spell out to both current and potential residential real estate investors what is and is not an appropriate deduction. By employing a comprehensive approach, as demonstrated in this legislation, the government goes part of the way to meeting our budget night commitments to strengthen the residential investment property domain as well as ensure a fairer tax system for all.

From 1 July 2017, travel deductions for an individual investor with residential investment properties, including travel costs associated with inspecting and maintaining properties, will no longer be deductible. This denial of deductible status will limit the excessive and inappropriate claims and will send a very strong message that residential property investor status does not confer special privileges. The tax system is not there for people to pay for holidays by claiming travel costs as a rental expense. As the Assistant Minister to the Treasurer, the Hon. Michael Sukkar MP, outlined in his speech to the other place on 7 September this year:

The existing law allows deductions for travel relating to income produced or gained from residential investment properties. When a property is used for a mixed purpose, such as a holiday home and rental; or where the travel is for a mixed purpose, such as travelling to maintain an investment property and simultaneously go on a family holiday; travel expenses need to be split between income-producing and private purposes.

The problem here is there has been widespread abuse around excessive travel expense claims relating to residential investment properties.

As a result of these changes, travel costs for individual investors inspecting and maintaining residential investment properties will no longer be deductible.

For the sake of clarity, it's important to note that the government understands that third parties, such as real estate agents, may inevitably from time to time need to provide property management services, and of course these activities will remain deductible expenses. These measures are in no way an assault on the nature of our tax deduction expenses, which allows for a reasonable deduction of expenses incurred in earning an assessable income.

Other inappropriate deductions also fall within the net of this legislation. Depreciation is another area of ambiguity that is potentially open to abuse. The tax system currently creates opportunities for plant and equipment to be depreciated by not one but multiple owners of a property, in excess of their actual value. Both previous and subsequent owners of a property can make deductions on the same pieces of plant and equipment. According to the Australian Taxation Office, abuses of residential investment tax deductions for depreciation are very widespread. The legislation before the chamber tonight specifically targets plant and equipment depreciation deductions for investors in residential properties, limiting depreciation claims only to assets that have not been previously used—that is, assets not previously claimed upon by the previous purchaser.

Depreciation is a very important accounting concept for residential investors, and, claimed appropriately, it recognises the allocation of cost of an asset over its useful life. But, in residential property investment, we must consider the use of such deductions on such things as dishwashers or air-conditioning systems, claimed not once to their actual value but well in excess of the asset's actual value, by multiple successive owners of the same property. So you can see how the changes proposed to deal with this interpretation of successive ownership and depreciation will actually improve the integrity of the tax system. Importantly, too, however—and I think this is an extremely salient issue—this means that investors who have purchased a newly-built residential investment property are not, in fact, disadvantaged when no other person has claimed a depreciation deduction.

So, while it may seem on face value to be a purely administrative amendment, I cannot overemphasise the importance of these measures. The government knows that part of the equation to ease the burden of housing affordability is to encourage investment and growth in the market for new residential property—not existing but new residential property. The measures specified in this bill ensure that deductions for assets in residential investment properties are consistently and fairly treated.

The other major component of these measures is the so-called ghost tax, where a penalty is raised on foreign owners of properties who leave their properties vacant. I had no idea how common this was, but apparently 11.2 per cent of houses on census night were recorded as unoccupied. That is one in 10 properties. I find that quite extraordinary. That's more than one million dwellings. In a period of apparent housing crisis, such a statistic is, indeed, startling. So, once again, the Turnbull coalition government has listened to public concerns and is taking appropriate action. This year's budget papers announced:

To discourage foreign investors from buying residential properties and leaving these vacant, the Government will now charge foreign owners of residential properties an annual charge if the property is not occupied or available to rent for at least six months in each year.

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Where a foreign-owned residential property is left vacant for more than six months in a year, a charge will be levied on the foreign owner equivalent to the foreign investment application fee which was paid at the time of application.

The new charge builds on the Government's existing foreign investment regime which seeks to increase the number of houses available for Australians to live in. The charge provides a financial incentive for the foreign owner to make their property available on the rental market if they do not intend to reside there.

This regime, the ghost tax, will be ably administered by the ATO, the Australian Taxation Office, and is expected not only to increase the number of homes available to Australians who wish to rent but also to generate revenue of over $20 million over the forward estimates. That's a very significant contribution to budget repair. This is clearly a supply-side measure and it will also effectively increase the available housing stock.

The Turnbull coalition government understands Australia's housing affordability issues. It has deep dived into this issue, and this is just one component of a suite of measures. Housing affordability is not something that has occurred overnight. It's occurred through a series of economic phenomenon and political decisions, many of which have been fundamental to the prosperity of our nation over many, many decades, but some have had unintended consequences. Australia's housing affordability issues are not something that can be fixed with easy answers, a glib response or ill-considered or populist policy that will inevitably create a cure that is potentially far worse than the symptoms. Also, it is not a universal phenomenon; it is something that occurs far more in our capital cities and, in particular, in Sydney and in Melbourne. It is not a nationwide issue. No-one has yet articulated what the objective of a successful housing affordability policy looks like. There is a reason for this. The reason for this is that the answer is different for everyone on the continuum—and the continuum is what is so important here. The continuum starts with homelessness, and it moves beyond homelessness to social housing, beyond social housing to first home buyers, on to investors, to downsizers and eventually those moving into aged care. This is the spectrum of housing affordability. A successful housing affordability solution looks different to those in Sydney and Melbourne than to those in Adelaide or Hobart, and it looks very different to those in Shepparton or Moree. While the answer is very different to everyone, it remains an important issue to thousands of Australians.

The government is targeting the whole of the housing spectrum. As the federal Treasurer, the Hon. Scott Morrison, said in his budget address in May:

There are no silver bullets to make housing more affordable. But by adopting a comprehensive approach, by working together, by understanding the spectrum of housing needs, we can make a difference.

There is so much more to this issue than just a knee-jerk reaction on capital gains tax or negative gearing. There is so much more than just dealing with homelessness or just dealing with social housing or just dealing with first home buyers and the demand side of the equation. There are no silver bullets. Most importantly, there is no city-centric solution; it has to be a solution that covers the regional areas as well and covers things like decentralisation of services and infrastructure investment. The measures that have been outlined in the legislation tonight go some way to addressing the issue of housing affordability. It is one part of a much broader suite of policy objectives.

I can only implore my colleagues opposite and on the crossbench—and I was very pleased to hear Senator Whish-Wilson's support for these measures tonight—to support the legislation. Housing accessibility and affordability, as well as a fairer tax system, are truly important matters for this chamber to consider. It is not just one issue—not just first home buyers, not just homelessness, not just social housing, not just downsizing. It's so important to address the whole spectrum of housing affordability issues. I urge my colleagues opposite to consider this legislation seriously and support these changes that have been put to the chamber tonight.