GST rise would add $15,000 to new home build

Increasing the GST to 15 per cent would add an extra $15,000 to the cost of constructing a new home, says an equity research note by investment bank Credit Suisse.

The government is preparing a tax reform package that could include increasing the GST from 10 per cent to 15 per cent.

Credit Suisse said such an increase could "severely distort" the timing of building activity, which occurred when the goods and services tax was first introduced in 2000, and hurt building materials supply companies.

"Raising the GST when the housing cycle is slowing could have a material adverse impact on new home construction," the note said.

"Based on the average cost of a newly constructed detached home – $300,000 excluding land – a 5 per cent increase in the GST to 15 per cent would add $15,000 to construction costs.

"Lending requirements are tight and with housing affordability already stretched, a GST-led increase to house prices has the potential to amplify dwelling construction volatility and create a shock in one particular year."



Fresh speculation about a GST rise emerged over the weekend and senior government ministers have not ruled out the change.

In the 12 months prior to the GST's introduction, dwelling commencements increased by 15 per cent to 172,000 before falling to a record low of 115,000 the next year. In financial year 2002, commencements rebounded to 165,000.

Despite the volatility, the dwelling commencement average over the three years from financial year 2000 to financial year 2002 was 150,000, which was in line with the long-term average.

"This implies that the absolute number of new homes built did not change over that three-year period but the timing of the activity was severely distorted," the note said.

Nevertheless, the result was a "double whammy shock", it said.

"While building product volumes significantly fell post the introduction of GST, the impact to company earnings was exacerbated by a lack of price growth as the market, including home builders, adjusted to the new environment."

For example, over the three-year period Boral's building product divisional revenue fell 33 per cent, while earnings before interest and tax (EBIT) was down by 47 per cent.

For CSR, building product divisional revenue fell 15 per cent with EBIT down 30 per cent.

Source::: The Australian Financial Review, dated 02/11/2015.........