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OECD calls for higher tax to prevent bubble

A leading international body last week argued that higher property taxation could prevent a future housing bubble.

In a report titled Choosing A Broad Base-Low Rate Approach To Taxation, the Organisation for Economic Co-operation and Development sets out the best areas for governments to raise taxes as part of their fiscal consolidation.

It argues that property taxation is more efficient, more stable and harder to evade than other taxes and can be more progressive.

The report says: “Owner-occupied housing has a favourable tax treatment relative to other forms of investment in many OECD countries through reduced tax rates or exemption for imputed rental income, mortgage interest payment deductibility and exemptions from Capital Gains Tax.”

It says this preferential treatment has caused market distortion leading to capital flowing out of other sectors and into housing.

It adds that many OECD member countries use outdated valuation methods and a proper system is crucial to effective property taxation.

It says: “The market value of property is not following a stable trend over time as the recent housing bubble and corresponding collapse in prices have demonstrated in many countries. This creates an additional difficulty in using the market value of property as a taxable base.”

But the property industry has reacted angrily to the suggestion of higher taxes.

David Newnes, estate agency managing director at LSL Property Services, says: “Any further tax hike could remove the boom, leaving us only with the bust.”

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