Budget 2008 Housing Incentives

It always strikes me as disappointing that visitors to our beautiful country, having arrived at one of our international airports then travel through housing areas where millions of South Africans still live in dire poverty.

While one must acknowledge the progress made in the past decade in the delivery of housing to the millions of homeless, there is a sense that this task remains an overwhelming one for our government. It would also seem that the failure to deliver more homes is not driven by lack of funds but rather by a lack of capacity in the public sector to deliver. That having been said, one possible solution would be for this delivery to be partly shifted onto the private sector through a form of tax incentive initiative.

Start with big business. There are currently very few significant tax incentives for employers to provide housing to employees. Corporates employing a large unskilled workforce could be incentivised to develop and provide housing to employees through the provision of tax-free subsidies (granted on successful completion of a housing project) or through the granting of beneficial tax deductions of the costs incurred in developing housing for employees, or a combination of these two options.

These homes could then be disposed of to employees at a market-related price (so as to avoid any fringe benefit implications) or alternatively at a discounted price, with a corresponding “capped exemption” in the fringe benefit provisions to avoid this benefit triggering a tax liability for the employee. These house purchases could be funded through independent financial institutions, this funding possibly being administered through the employer so as to minimise the risk of default.

Obviously while this may seem a very simplistic solution to an undoubtedly complex problem, there are a number of “safeguards” that one could build into the process so as to ensure equity and fairness and avoid any unwanted incidence of tax abuse. Examples would include limiting the eligibility to employers of a certain size, instituting a “means test” for qualifying employees and placing a monetary cap on tax benefits and allowances offered to both employers and employees.

Having said that, the risks inherent in such an initiative, may well be a small price to pay for ensuring that resources and capacity in the private sector are effectively harnessed and used to address this dire need in our country. And if an initiative of this nature proved to be successful, there is no reason why it could not in time be extended to a broader employer base that would include smaller business and even households that employ many homeless South Africans as domestic workers.
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