As political debate continues around the option of increasing the rate of GST as part of the wider tax reform process, concerns remain that this move could prove detrimental to those developers operating in the residential housing sector.

Sales of new residential property are subject to GST, therefore any increase in GST, together with the cascade effect of increased stamp duty, will see developers profit margins eroded unless the cost can be passed on to new home buyers. However, residential developers are effectively price takers with the market determining the price that will be paid. With new stock being weighed up and the value determined alongside existing housing stock available to the market that does not attract GST – there isn’t much room to move in pricing for developers. The impact could be a fall in new housing supply which will lead to affordability issues when demand outstrips supply and rental increases.

Therefore, any increase in the rate of GST at the federal level would need to be made in conjunction with an offsetting cut in direct property taxes (for example stamp duty) by each of the states. This is why the review of the federation model in conjunction with the tax review is crucial and why change can’t occur without bilateral and bipartisan agreement.  

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