Encouraging workers to move north into the Pilbara may require a fresh approach to tax, particularly on home ownership.
Helping workers buy their own homes will underpin long-term population growth in the Pilbara, according to Brendon Grylls.
Changes to concessions around housing are just one tax revision that has been touted to help develop regional areas.
While a return to politics is off the agenda for the former state leader of the National Party, Mr Grylls is still passionate about regional communities.
He told Business News the pandemic had only strengthened the case for encouraging workers to shift from a fly-in, fly-out lifestyle to take residence up north.
“COVID-19 has shone a light on the fact long labour supply chains are problematic,” Mr Grylls said.
“Many of the helicopter pilots of offshore rigs were in New Zealand at the time of the lockdown.”
There were about 5,000 workers living on the east coast and employed in the Western Australian resources industry at the time state borders were closed, he said.
Mr Grylls has been pressing the case for changes to fringe benefits tax concessions for home ownership.
Under the existing system, homes owned by businesses and provided to their workforces have more favourable tax treatment than housing that is owned directly by employees, and supported by financial allowances from employers.
Businesses receive a full tax deduction of expenses for a FIFO workforce, against a 50 per cent deduction for housing allowances that fund employees building their homes.
“It’s very hard to attract and retain a workforce if you don’t have the fundamentals,” Mr Grylls said.
“Fringe benefits tax has been identified for a long time as a challenge.
“It penalises a (live-in) workforce and incentivises a fly-in, fly-out workforce.
‘It is judged, probably correctly, that a provision by a mining company of a flight, donga, food … is not of individual benefit.”
But paying an employee an allowance to own a home was considered equivalent to an income stream and ruled to bring personal benefit, he said.
Hundreds of members of the long-term (non-fifo) Pilbara workforce live in company houses because of the better tax treatment, Mr Grylls said.
An additional problem for individual homebuyers is how the commodity and construction cycle causes big moves in demand and supply, with a dramatic impact on prices.
From a high of more than $850,000 in 2013, the median residential sale price in the Pilbara fell below $300,000 by 2016, according to work by the Pilbara Development Commission last year.
It has not surpassed the $300,000 ceiling since.
“Pilbara property prices fell off a cliff,” Mr Grylls said.
“Everyone knows someone who lost their shirt or made a million in the mining property cycle.”
This price uncertainty means buyers get poorer bank terms, he said, leading to higher deposit requirements.
“Most people can save $50,000 for a home … but $200,000 takes it out of most people’s reach,” Mr Grylls said.
A solution would be to designate mining towns as special zones that receive a higher rate of fringe benefits tax discount for home purchasing, enabling workers to salary sacrifice directly into a home without paying tax, he said.
It would attract more people and would be inexpensive for the government, Mr Grylls said.
In fact, it would likely be more cost effective than the $200 million invested in housing under the Pilbara Cities program.
“(It’s) much smarter than collecting money and directing it into government-funded housing,” Mr Grylls said.
Mountway Finance principal Jordan Ralph has worked with Mr Grylls on the proposal. He said the existing system distorted the market away from home buying towards workers renting from businesses.
Mr Ralph said a higher threshold for when fringe benefits tax kicked in on housing allowances could be a solution.
Many businesses in the north struggled to recruit workers, and it could sometimes cost as much as $75,000 per employee trying to get them up there, he said.
He agreed that the commodity cycle caused extra problems in the Pilbara housing market.
“There’s a very high cost of building, prices have fluctuated wildly and they’re still below replacement cost,” Mr Ralph said.
“It’s very difficult to get finance in the north-west … for a house.
“When it comes to borrowing money, you need a much larger equity portion, (around 40 per cent of house value).”
Brendon Grylls continues to be a strong advocate for regional communities. Photo: Attila Csaszar
Some of the tax concessions for regional Australia were no longer justified, a Productivity Commision report released in February found.
One example was the zone tax offset, which reduced the tax burden for people living in remote areas.
“The economic development of a particular region succeeds or otherwise based on that region’s advantages and disadvantages, as well as its vulnerability to economic shocks,” the report said.
“Attempts by governments to create an artificial advantage for a remote community, or to attract people to live in high-cost areas through tax concessions, are unlikely to be effective and typically result in net losses to the broader Australian community.”
Fringe benefits tax concessions for remote areas were too generous and complex, the commission said, although they helped to address inequities in the system.
The commission called for tighter treatment of housing provided by employers, moving to a 50 per cent concession, and recommended removing the concession for employee-sourced housing.
“Remote Australia is home to 2 per cent of the national population,” the report said.
“In general, remote Australians experience lower unemployment, higher labour force participation, and (in many cases) higher incomes than non-remote Australians.
“But this hides major disparities within and between remote and very remote areas.”
A spokesperson for the Chamber of Minerals and Energy told Business News it was pleased the federal government had rejected the commission’s recommendations.
The review had been a missed opportunity to extend the schemes to prompt workforce mobility, she said.
“For example, CME proposed to the commission an extension of FBT concessions for employer-subsidised childcare services, (which) could have a transformational impact on increasing workforce diversity and the attractiveness of relocating to the regions,” she said.
CME’s submission to the commission also said that 57 per cent of women cited lack of childcare in the regions as a barrier to work opportunities.
Stamping out a burden
Stamp duty is another tax that has been in the crosshairs for its impact on the regional community.
The duty is levied on property transactions, reducing returns for sellers and raising prices for buyers, limiting turnover in the market.
A 2017 report by the Productivity Commission cited academic work which suggested a 10 per cent lift in stamp duty would lower housing turnover by 6 per cent over a three-year period.
Last year, the Victorian government announced a 50 per cent transfer duty concession for industrial and commercial property for businesses relocating into regional areas.
Other jurisdictions have moved to cut stamp duty and replace it with higher land tax.
Mr Grylls said stamp duty might have an impact by making home buying a bit more expensive.
“(But) I don’t think that’s the difference between doing it or not,” he said.
“The nexus you’re trying to break here is that (big miners) will buy a house.
“To convince someone to buy their own house, you need to give them something better than that.”