Under the measure, anyone who spends money on eligible home renovation items would be able to claim a temporary 15% income tax credit. By spending a minimum of $1,000 up to a ceiling of $10,000, Australian renovators could receive up to $1,350 in tax relief, just like their Canadian counterparts.
Falconer says that this is just the type of stimulus measure called for by IMF Chief Economist Olivier Blanchard. Mr Blanchard told The 7.30 Report’s Kerry O’Brien this evening that temporary tax cuts that brought forward the timing of demand were better than randomly distributed funds that consumers tended to save rather than spend.
He cited the temporary subsidies to French and German consumers who turn in a clunker and buy a new car as an example. A Home Renovation Tax Credit would do just as well.
The eligible items should include alterations to a home or its yard that are enduring in nature, not ordinary maintenance items. Examples might be renovating a kitchen or bathroom, installing new carpet or timber floors, building an addition, deck, fence or retaining wall for example.
Such an initiative would have a significant effect on the economy. Part of the reason is because the Australian renovation market is larger both in value and the number of individual building jobs than the new home building market.
According to industry forecasters BIS Shrapnel, the yearly value of the new home industry is about $ 24 billion and involves the construction of about 100,000 detached homes. In contrast the yearly value of the renovation market is about $26 billion and involves about 160,000 ground and upper floor additions and over 1.2 million kitchen and bathroom renovations.
The First Home Buyer Grant is used to help fund the construction of a new home versus the purchase of an existing home, in only about 20 % of the occasions - which does stimulate construction jobs growth. However in contrast, all of the Home Renovation Tax Credit would stimulate jobs growth.
As the Canadian Prime Minister said when he launched their initiative as part of his government’s Economic Action Plan: “Every time Canadians invest in home renovations, they are helping to create construction and building-supplies jobs in their own communities. By providing an incentive for Canadians to invest in their homes, we are also encouraging them to invest in local jobs.”
Falconer says that we could encourage Australians to do the same. She recommends however that renovators consider what alterations will add most value. Re-doing kitchens and bathrooms need to be done cannily to break even in the short term. Other value-adding alterations to consider may maximise the $10,000 ceiling as well as energy efficiency. “New energy efficient windows might be an example of something that helps lower energy bills today as well as increasing the selling price of your home tomorrow,” she says.