Exposure Draft – Treasury Laws Amendment (Reducing Pressure on Housing Affordability) Bill 2017 – Downsizing Provisions

Thank you for the opportunity to provide a brief comment on the Exposure Draft – Treasury Laws Amendment (Reducing Pressure on Housing Affordability) Bill 2017.

COTA will address only the provisions relating to the downsizing measure.

Firstly, we wish set the context for our brief comments on the Exposure Draft by outlining our overall view of the measure. COTA believes it may be positive for some older people wishing to downsize, but it is likely only to have a discernible impact on housing supply over the longer term (if at all). There are many other more important drivers involved in older people deciding whether to downsize or not than accessing the capital in a home in a tax effective way. The measure will need to be monitored carefully to assess its impact and particularly to ensure that it does not have unintended consequences for older Australians or on housing prices.

A key response from our members and the older general public to the proposed scheme has been a concern that taking up the option might compromise their Age Pension eligibility by resulting in them exceeding the limits of the Pension income or asset tests.

Therefore, we consider that those most likely to take up and benefit from the measure will be wealthier downsizers who would not qualify for the Age Pension in any case, especially given that the downsizing contribution will not count towards the superannuation non-concessional cap. Some commentators also make the argument that the measure is likely only to be taken up by those who would already have downsized without it. That leads us to question whether a negligible increase in the availability of family homes will be worth the forgone tax revenue that could have been directed towards investment in other initiatives to alleviate the housing affordability crisis.

However, although we have no evidence to support it, there is also a possibility that the measure may be valuable to those at the other end of the socio-economic scale; low-income, low-wealth, older homeowners. This group of people may find that downsizing becomes more attractive with the measure in place. Given that most of the proceeds of the sale of their home will likely go to purchasing another, it is possible (depending on the details of individual situations) that the remaining sum could be modest and (contributed into superannuation under advantageous terms) may not result in loss or reduction of the Pension. We will be interested to see post-implementation evaluation of the measure, especially regarding the type of households taking up the option.