A new paper authored by Anthony Asher, associate professor at UNSW Australia, explores the tax advantages of housing systems in Australia and how it fails benefit renters and new homeowners. While owner-occupied houses are exempt from income and capital gains tax, rent assistance given to those on social security is not enough at A$130 a week.

"The government has encouraged banks to borrow hundreds of billions offshore to fund greater mortgage debt—pushing prices higher," Asher wrote. "Foreign depositors are faced with a low 10 per cent withholding tax and have not been subject to adequate money laundering laws."

The resulting increase in housing prices has placed financial stresses on the poor who can only afford to rent the houses they live in. Though the Labor Party is trying curb negative gearing, the current debate on the tax system is more concerned with perceptions of political acceptability. With over 70 per cent of voters owning their houses and only a significant minority borrowing heavily to get into the market, they will suffer once prices drop.

One reform option is by following the recommendations of the Henry tax review, which is "a transition from stamp duties to a land tax, a significant increase in rental assistance, and the removal of the exemption of owner-occupied homes from the means test for pensions."

"Removing capital gains discount and taxing imputed rents should also be considered," Asher said. "The advantage of this is that such a system allows for the tax deductibility of mortgage repayments, so would provide compensation for the minority that had recently bought into the housing market."

Collections: