The Federal Government is conducting a Senate Inquiry into the GST and a new tax system. One of the areas that will be addressed is "the effect on public, community and private housing, including the levels of rent." The National Association of Tenant Organisations (NATO) is making a submission to the Senate Inquiry principally in order to address this question.
This article summarises the NATO submission:
The cost of housing is generally the largest single household expenditure. It is therefore a key factor in determining a households standard of living. It is axiomatic that unaffordable housing precipitates poverty.
Affordable housing is considered to be that which costs no more than 25% of household income. The Australian Institute of Health and Welfare found, in 1997, that 888,000 households are living in unaffordable housing, and that more than 25% of all low income private renters paid more than 25% of their income in rent. This compares to 15% of purchasers and 13% of public housing tenants. Sole parents were the worst affected household type, with 27% paying more than 25% of their income for housing.
According to the ABS 1996 Census of Population and Housing, more than 4.5 million Australians live in rented accommodation. Of this number, private renters in the lowest 20% of income distribution are paying an average of 59% of income in housing costs. Clearly, the cost of housing for low income tenants in the private rental market forces many into poverty.
Any changes to the tax system that result in higher rents in the private rental market will disproportionately disadvantage the people who can least afford it, and who are already living in housing related poverty.
In the Financial Review, 15 August 1998, the President of the Real Estate Institute of NSW said "As it stands now, rents are not subject to a GST, but what is likely to happen is that costs of the inputs to the owners will go up. They're going to be reliant on passing these costs on to the tenant."
Therefore, although rent itself does not attract a GST, rents will rise due to rising costs to owners, and all tenants will be affected.
The extent of the impact of the GST on rents is not entirely clear. Depending on the model used to predict its effect, estimates of the weekly rent increase range from $5.00 to $30.00. NATO is not committed to a particular figure, as there is a huge number of variables that may affect the level of rent increase, and these cannot be definitely taken into account through economic modelling.
The Housing Industry Association estimate an 8% increase in the cost of a new home, and a 4% increase in the cost of an existing one. This will flow on to most rents.
In the Financial Review, 15 August 1998, the President of the Real Estate Institute of NSW.
The GST will increase the expenses of both landlords and tenants. Landlords incur expenses for maintenance and repair, and the costs of both materials and labour used will attract a GST. Similarly, for the tenant, the costs of materials and labour used to maintain the premises in a reasonable state of cleanliness will attract a GST and will increase.
For landlords however, such increases can be passed on to the tenant, by way of increased rent. As a result the tenant bears both the increases in their own costs, and those of the landlord. The tenant cannot pass these increased costs on to anybody.
Landlords can also claim such expenses as deductions against their taxable income. So some landlords may be able to "double dip", claiming both a rent increase and a tax deduction. Tenants gain no relief for their increased expenses.
In addition. most tenants will have great difficulty determining whether the rent increases that are imposed are legitimately based on a landlord's increased costs, or simply an opportunistic ambit claim by the landlord. Most Australian states have very weak laws protecting tenants from unfair rent increases.
Clearly, those low income tenants in the private rental market, who have little hope of ever owning their own home, will be hardest hit by the GST.
To date, the impact of the GST on residential tenants has not rated a mention in the taxation debate. Rather, the debate has focused largely on upper middle income earners, with a "what's in it for me" emphasis. Tenants are absent from government case studies, and no specific rent related mitigation measures have been developed to dampen the negative impacts on tenants.
NATO is concerned and disappointed that renters have been left out of the GST equation, and believes that compensation measures must be put in place to protect those on low income.
NATO has made a number of recommendations to the Senate inquiry, with the aim of ensuring that tenants, and particularly tenants with low incomes, are not unfairly disadvantaged by the introduction of a GST, and any other changes to the taxation system that may occur.
(For a list of final recommendations, or more information on the GST and rents, contact TAS.)
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