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Taxing foreign buyers of Australian housing

This measure – discussed in today’s AFR – is (apart from its cost-recovery role*) is effectively an export tax on housing.  As such it will diminish the gains from international trade in Australian property markets. It will however (in accord with the standard theory of export taxes) reduce the price of property to Australian consumers.   Currently the economic effects here will be small since the size of the charge – at maximum it seems to be $1500 – is small but a much larger charge could be considered.  There are at least two reasons for this. While export taxes penalise property owners by reducing the size of the market they can sell into they also distributionally advantage local purchases on property at the expense of relatively limited deadweight losses.  Second, a large enough charge would take some of the heat out of a overheated local housing market and limit the likelihood of adverse macroeconomic externalities associated with possible banking and other corporate failures.   I’d consider this move as a reasonable (very partial) policy response toy the problem of ridiculously expensive Australian real estate that to some degree owes its origins to the limited possibilities for buying decent land and housing in China.

* Partly these charges are intended to reflect costs of Foreign Investment Review Board applications by foreigners and partly to cost a crackdown on illegal purchases.

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