Scott Morrison is canvassing bold tax reforms designed to persuade retirees to downsize to smaller homes and plough more money into retirement-income products in a move that would boost the housing supply for younger families and create a boom in the use of annuities.
The plan would include a one-off exemption from stamp duty on the purchase of a smaller house.
As an extra incentive, profits from the sale of the family home would be excluded from the Age Pension assets test provided they were channelled into an approved retirement product such as life annuities and aged-care bonds.
Since being appointed Social Services Minister late last year, the Treasurer has argued that the burden of the Age Pension could be reduced by allowing retirees to tap the wealth captured in their homes.
As Treasurer, he has tasked his tax white paper team to work on the idea, and it will be included in the draft to be released next year.
Mr Morrison is expected to discuss stamp duty exemptions in his next meeting with state and territory treasury ministers next month as he attempts to win agreement for a tax package that would include both an increase in the goods and services tax and cuts to personal income tax. The ACT introduced a discounted stamp duty for pensioners downsizing in 2008, and the commonwealth hopes its success might encourage other states to follow suit.
NSW Treasurer Gladys Berejiklian said yesterday her priority in tax reform was to close the gap in health funding over the next two decades. “When it comes to housing, the NSW government is focused on increasing supply,” she said.
The proposal for stamp duty concessions from state governments would be tied to an exemption from the pension assets test for the profits of the sale, provided they were rolled into approved investment products.
This would expand the life annuities sector and deliver a fillip to companies focused on that sector, such as Challenger Group.
The former Labor government included a similar idea in its final 2013 budget, but the conditions governing where the funds could be invested were seen as too restrictive and it was scrapped in the Coalition’s 2014-15 budget.
The government’s financial system inquiry argued both for greater development of annuities and for unlocking the value of the family home for retirees.
The head of the inquiry, David Murray, said although the proposals being considered in the tax white paper were not directly linked with his report, they accorded with the “general spirit” of reforms advocated by the FSI.
He said measures aimed at providing greater retirement income security were “very healthy”.
Mr Murray also welcomed any changes to the stamp duty tax and said the abolition of these charges in favour of “broader-based taxes is generally the right way to go”.
The chief executive of the Council of the Ageing, Ian Yates, said while the ACT stamp duty concession had been successful, the broader treatment of the family home, taxes and retirement incomes needed careful assessment.
“We want to see how much real effect it has and how it fits into an overall package, but it is a constructive discussion to start,” he said.
Many tax analysts have argued it would be more sensible to replace state stamp duties altogether with a land tax, with aged people on low incomes allowed an exemption, subject to this being recouped from the eventual sale of their home.
Mr Morrison has consulted widely on the reforms with industry players and bodies.
Challenger, which stands to gain by the reforms, confirmed it had held talks with the Treasurer’s office. A spokesman said Mr Morrison’s office had sought Challenger’s views on how retirees could efficiently “downsize their homes to create income streams to improve living standards in retirement”. “Challenger supports innovation that gives retirees more choice to better manage the challenges they face in retirement,” he said.
A Productivity Commission research study into the housing decisions of old Australians, to be released next month, will shed light on whether there is a large potential surplus from people downsizing. Mr Yates said many retirees spent as much on their smaller home as they received from the sale of the family home.
Source: THE AUSTRALIAN -
