Housing taxes can be made more efficient and equitable and there are several reform options to achieve this, the OECD believes, noting that any reform must take into account macroeconomic developments, such as changes in interest rates.
At a time when they face pressure to increase their tax revenues and observe “an unprecedented rise” in house pricesThere are several options for reform in property taxation that can be evaluated, indicates the Organization for Economic Co-operation and Development (OECD) in a report dedicated to the taxation of housing, published today.
Among these reform options is the consideration of a limit to the capital gains tax exemption that many OECD countries grant to those who sell their own permanent home, and in the case of Portugal this happens when the value is reinvested in a new home for the first time.
Creating a cap, the report says, would aim to ensure higher-value capital gains are taxed, reinforcing progressivity, while easing pressure on upward trending prices. However, the OECD advocates that the measure be designed to ensure that most families continue to benefit from the exemption.
Another way to increase the efficiency, fairness and revenue potential of property taxation is in a redefinition of the beneficiaries of the fiscal benefits attributed to the rehabilitations aimed at increasing the energy efficiency of homes.
Several countries offer this type of tax relief and data shows that this type of measure encourages homeowners to carry out reforms that increase the efficiency of their homes.
However, says the document, “these tax incentives often subsidize, at least partially, works that the owners would have carried out anyway.” In addition, a “disproportionate use of these benefits by high-income families” ends up reducing their efficiency and reducing progressivity.
Among the options to reform real estate taxation, the OECD also puts the elimination or gradual limitation of the deduction of interest on loans. This is because, according to the document, although measures of this nature aim to help people buy their own home, “there is empirical evidence that this does not happen and contributes to higher prices in places where supply is scarce“.
According to the report, each generation reveals less ability to own a home than the previous one, with data indicating that real estate wealth is concentrated in high-income and older homeowners.
The document also proposes that countries take special care in designing tax benefits that encourage the purchase of real estate due to the impact that such measures may have on access to housing.
The report further concludes that housing tax policies can help address challenges in access to housingbut warn that they may not be the best way to do it.
In addition, he stresses, “tax reforms in the field of housing” must be undertaken at the right time, taking into account “macroeconomic developments, that is, the evolution of interest rates and their possible impact on the real estate market and the families”, and the impacts of this type of reform on different types of households must be “well evaluated”.
Source: Observadora
