The Abbott Government is warming up to introduce yet another tax grab – this time slugging investment in the residential property market which boosts housing supply.
The Coalition dominated House of Representatives Committee on Economics has urged an upfront $1,500 impost on foreign investor residential real estate purchases.
This tax would raise over $150 million over the next four years.
This inquiry has been less about good policy than it has been about getting glaring publicity. Through the course of the inquiry, it was clear the Coalition wanted to tax foreign investors.
Since coming to office, the Abbott Government’s driven out foreign companies like Holden, blocked foreign investment proposals such as Graincorp – now they’re gearing up to tax foreign investment.
And they have sought a new foreign investment impost a week after releasing the China FTA, which was supposed to lower trade and investment barriers between our two nations.
The Coalition members on the Economics Committee have dressed up a new tax on foreign investors as a means to fund improved foreign investment rule compliance by Treasury and the Foreign Investment Review Board.
It’s nothing of the sort. The Coalition was so desperate to recommend this tax grab that they rejected the Opposition’s reasonable recommendation to first review and strengthen Treasury and FIRB’s compliance ahead of introducing this impost.
Based on recent form, the Coalition cannot be trusted to not increase this tax once introduced, potentially impacting on foreign investment within the housing market – investment that evidence has shown increases the volume of housing stock in this country.
The Coalition’s other recommendations for registry changes are unlikely to address major information gaps and will simply add to red tape and investment costs.
THURSDAY, 27 NOVEMBER 2014
Acting Deputy Speaker,
Thanks to the Committee Secretariat for all their hard work and continued diligence. It’s very much appreciated.
However, I must say the one good thing about this inquiry is this: it’s over.
It was an inquiry less focused on good policy than glaring publicity.
And three things underpinned it.
First, a highly questionable and alarmist report by Credit Suisse into projected levels of Chinese foreign investment in residential property.
Second, a constant attempt to prove there were systemic flaws with the way FIRB was enforcing compliance with investment laws.
Finally – and levering off the second point – an obsessive drive to introduce a new tax on foreign investors at time when the focus should be on improving trade and investment relationships.
Inquiries can be very useful means to spotlight areas demanding reform or improvement. But they need firm foundations to achieve this.
This inquiry was sparked by an exaggerated, publicity seeking report by a firm you would expect better of: Credit Suisse. In March Credit Suisse issued claims that inflated the projected scope of likely Chinese investment in residential property.
And when the Committee sought to question them on the report -- they had to be dragged to the inquiry to appear. Not surprising, because they were no doubt embarrassed by their own claims.
They used flagrantly emotive language in their report, including claims that "The Chinese want to buy your house" and "The Dragon discovers the Quarter Acre dream". This fanned reporting of questionable claims $44bn of Chinese investment would be ploughed into residential real estate.
After sustained questioning at a public hearing we learned that Credit Suisse had included within that its calculations, purchases made by permanent residents – who were of Chinese background. A lot of people would wonder how permanent residents can be classified as foreign investors. The answer is: they can’t.
The problem is that this type of hyped reporting is it helped prompt this inquiry – and the inquiry then became a launching pad for a new tax grab.
Make no mistake – the Coalition wanted to grab a much bigger tax take out of foreign investors than finally recommended.
You only have to refer to the media coverage generated during the course of the inquiry to know this to be the case. The new tax has been scaled back. For now.
What this inquiry heard on countless occasions was that foreign investment adds to housing supply in this country.
It generates demand, spurring growth in jobs and economic activity.
It is beneficial to the nation and our economy.
The rules around foreign investment in residential real estate are clear cut: it is permissible for new developments and strict rules prohibit the purchase of existing residential property, other than for temporary residents.
While marginal changes could be contemplated to these rules, there was little evidence submitted to the inquiry of widespread, systemic non-compliance.
This is despite the fact that FIRB’s compliance capabilities were subjected to regular public criticism by the Coalition – little procedural fairness was extended to FIRB, to put the public criticisms directly to them and allow them to respond.
It was extraordinary that the Minister with direct oversight of both FIRB and Treasury - no-one less than the Treasurer himself – either failed to defend these bodies from misplaced criticism or he was happy for Coalition colleagues to launch the criticisms.
And even more extraordinarily – after the Coalition levelled those criticisms – the report acknowledges that FIRB only has an advisory role and that Treasury needs to shoulder more responsibility for compliance.
The concerns about compliance are being used to justify an upfront impost on investors. I’d make a number of points about this:
First, this government needs to work out if it is for or against foreign investment. It’s driven foreign companies out of the country, such as Holden.
Its blocked foreign investment proposals, look at Graincorp.
And now they want to siphon funds out of foreign investors.
And no-one for a minute would be fooled by the words used in this report for a "modest application fee". By the way, the Coalition tried to suggest it would be between $500 and $1,500 – today we learn it’s a flat out $1,500.
You cannot trust that this government – which has introduced a range of surprise new taxes or sudden tax increases – will not be tempted to milk even higher amounts revenue out of these investors down the track.
The Coalition argue that they will use the funds raised by this impost to improve compliance activity in this area.
This simply does not stack up.
There is scope for the Australian National Audit Office to be engaged to review compliance processes and procedures utilised by Treasury and the Foreign Investment Review Board.
ANAO can and does conduct performance reviews and could have easily been utilised to assess the way Treasury and FIRB undertakes compliance – and determine if the resource allocation for this activity is appropriate.
In fact it should be recommended that the ANAO consider doing this as a matter of course ahead of the imposition of any new fee or tax.
But reasonable suggestions have been ignored by a Coalition addicted to finding new taxes.
Some of the recommendations will have questionable effect. The big issue with data in this space is the effect of time lag – for example, the distance between intent to purchase and construct and then the decision to commence actual construction. A new national register logging the residential status of investors will be unlikely to address this lag.
While some good might have the chance to emerge from the Inquiry and some modest compliance measures might make the light of day, one hopes this report dissolves from memory. Fast.
THURSDAY, 27 NOVEMBER 2014