catallaxy files

catallaxy in technical exile

Imputed Rent

with 4 comments

One of the more silly ideas going around is that owning your own home is some sort of tax rort. To overcome this rort some public finance economists argue that imputed rent should be included in the tax base. Earlier this year I went along to the Henry Review tax conference held in Melbourne. Several of the speakers argued that a tax should be included on imputed rent but, ho ho ho, the punters are too stupid to understand the benefits of ‘good tax policy’. As it turns out, the ‘punters’ understand all too well what a tax on imputed rent would be – an open invitation to be skinned alive by the tax authorities.

This brings me to this comment by ‘Pegasus’.

It’s a wonder Sinclair didn’t propose the GST be imposed on married people.

Well using the same logic as a tax on imputed rent, it could be. Afterall married people tend to form households that undertake a range of activities that could be contracted out. Food preparation, cleaning, companionship and conjugal rights could all be subcontracted in a market and would be liable for GST. The government could collect that tax too.* Of course, this is an absurdity and the ‘punters’ recognise it to be so. Yet so many public finance economists don’t seem to understand the aburdity, rather choosing to mock the layperson taxpayer rather than recognise their aversion to being fleeced.

It seems the Henry Review itself won’t propose taxing imputed rents on the family home.

The review panel has not fallen for the obvious traps of taxing the family home, or extending the land tax base to households in exchange for the abolition of stamp duty on home sales.

* If you use this logic, one of the biggest tax rorts is library books. Every time you borrow a book from the library you avoid paying GST on the book.
Update: Regular commentator badm0f0 doubts that economists support the notion of taxing imputed housing rents. Here is an article by Ross Gittins, a speech by Ken Henry, a paper by Richard Disney – at the Henry Tax conference, and calculations made by the Australian Treasury. As for the mocking laughter that I heard at the Henry Tax conference you’ll have to rely on my memory.

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Written by Sinclair Davidson

December 30, 2009 at 1:44 pm

Posted in Uncategorized

4 Responses

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  1. “Yet so many public finance economists don’t seem to understand the aburdity, rather choosing to mock the layperson taxpayer rather than recognise their aversion to being fleeced.”

    Are you able to update the post with some relevant quotes and links to support this assertion? It shouldn’t be too difficult with “so many public finance economists” to choose from.

    badm0f0

    December 30, 2009 at 2:12 pm

  2. By the logic of imputed rent for home ownership, what about imputing the cost that people in partnerships would rack up if they had to make recourse to commercial sex by way of call girls, prostitutes, masseurs etc? Maybe The Chaser crew could do something with that idea.

    I would like to see John Cleese playing the role of a tax auditor interviewing a (possibly) delinquent taxpayer.
    “ONE occasion in the period 1 July 2008 to 30 June 2009 Dr Davidson? Any why are you looking so cheerful?”
    “Tonight is the night for fiscal year 2009/2010”.

    Rafe

    December 30, 2009 at 2:43 pm

  3. […] Posted by techapilla under 1 | Tags: libraries, taxation | Leave a Comment  Interesting article by Sinclair Davidson on imputed taxation. He points out the absurdity of this, using some admittedly ludicrous examples, […]

  4. If imputed rent is taxable, mortgage interest will have to made deductible (as the interest would have been incurred in earning taxable income). Not only will this benefit higher-income earners more than lower-income earners, it will also benefit inner-city home owners more than outer-surburban and flat-owning residents (who ‘enjoy’ higher imputed rental yields).

    Sleetmute

    December 30, 2009 at 5:05 pm


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