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Housing industry plan to cut GST job losses

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M EDIA RELEASE February 5, 1999



Australia’s peak building industry association HIA has warned that the cost of new homes could rise by 8 per cent and more than 20,000 jobs in the short term could be lost from the housing industry following the introduction of a GST unless fair compensation is provided to new home buyers.

HIA's Managing Director Dr Ron Silberberg told the Senate Select Com m ittee on a New Tax System .today that analysis of the long-term effect of a 10 per cent GST and other tax changes on the construction industry based on economic forecaster Econtech showed:

■ The cost of new dwellings could rise by between 5 (long term) and 8 per cent (short to medium term) ■ Dwelling rents could increase by 3 per cent ■ New housing would be less affordable ■ Building activity and employment levels in the housing industry would be reduced by 2.4 per


■ Building activity in the black economy could increase dramatically ■ The additional cost of repairs and renovations would work against the maintenance and upgrading of the existing housing stock.

“Under the current proposal, housing will become relatively more expensive and this will result in a long term permanent decline in residential building activity of more than 2 per cent and a loss of jobs" Dr Silberberg said.

Dr Silberberg said the ramifications would be significant for the building industry and the wider economy, with home construction and alterations and additions accounting for as much as 5 per cent of Australia’s GDP and almost 30 per cent of private investment. Residential construction jobs account for approximately 3.5 per cent of Australia’s total employment.

Dr Silberberg told the Senate Inquiry that while the Federal Government had recognised the negative impact of the GST on housing affordability by providing for a First Home Owners Grant of $7000, the compensation package was inadequate. HIA’s major concern is that $600 million of the $830 million set aside for the FHOS grant will go to buyers of established dwellings, the sale of which is GST free.

Instead, HIA is proposing a three-pronged Fair Compensation Plan which would see:

■ The exemption of stamp duty on the first $250,000 of a new or established home purchase ■ Half of the net GST cost increase rebated on the first $250,000 of a new dwelling purchase, which would be linked to contracted building work in the formal economy, and ■ A similar rebate arrangement for renovations and additions between $3,000 and $30,000.

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Housing industry proposal to minimise GST job losses ..2

“Through better targeting, HIA’s Fair Compensation Plan cuts the long-term price rise for new housing from 5.0 to 1.9 per cent, reduces the rise in house rents from 3.0 to 0.3 per cent and cuts the fall in residential construction activity from 2.4 per cent to 0.7 per cent," Dr Silberberg said.

“We are confident that this plan will soften the negative impact of the tax plan on the residential building industry and its clients and benefit the overall economy."

Dr Silberberg also told the Senate Inquiry that the building industry faced a number of transitional issues which required consideration by the Government, including:

• The strong “pull forward” effect on the completion of new construction before June 30, 2000, with a likely large drop in demand in the second half of 2000. ■ The “unworkable" requirement to value all partly completed building projects throughout Australia at June 30, 2000 with all valuations to be completed within one month. ■ The immediate application of full GST from July 1,2000 being only gradually offset by phased

in reductions in motor vehicle sales tax, for example. More than $2 billion in indirect taxes will not be removed until the second year of GST. ■ The unknown level of risk to builders offering fixed price contracts for completion after June 30, 2000.

“These uncertainties and prospective market turmoil are likely to make new home buyers and builders very cautious during the transitional period, potentially resulting in a very significant drop in economic activity right across the housing industry in the 2000-2001 financial year," Dr Silberberg said.

Econtech Model - Summary of Long Term Building Industry Effects

Current Tax Plan HIA's Fair

Compensation Plan

Residential Building Activity -2.4% -0.7%

Building and Construction Activity 0.7% 1.5%

Residential Building Employment -2.4% -1.0%

Building and Construction Employment -0.2% 0.6%

New House Prices 5.0% 1.9%

Dwelling Rent 3.0% 0.3%

CPI 0.8% 0.1%

GDP 1.8% 1.9%

FURTHER INFORMATION: Please contact Dr Ron Silberberg on (02) 6249 6366 (W) or (02) 6299 3553 (AH) or HIA's Executive Director Services and Policy, Shane Goodwin on (02) 6249 6366 (W) or 0418 568 990 (mobile)