Supercharged inequality: rich investors stifle budget
Analysis shows that taxpayers could miss out on nearly $200 billion in lost income over the next decade due to tax breaks for real estate investors.
Research published on Friday by the Parliamentary Budget Office at the request of the Greens predicts that capital gains tax (CGT) relief and negative gearing cuts on investment properties will cost taxpayers more than $24 billion a year by 2035/36.
The findings were backed by Greens treasury spokesman Nick McKim, who is leading the Senate inquiry into the CGT cut and will submit a report by March 17.
“The rollback of CGT relief will help tenants, first home buyers and the budget,” he said.
“The evidence presented at the Green-led Senate inquiry made the case for change overwhelming.”
The PBO found negative gearing and the CGT reduction together will result in a loss of $15.4 billion in revenue this financial year.
Almost $110 billion has been given up since 2015/16 and a further $190 billion is expected to increase over the next 10 years.
But Peter Tulip, chief economist at the free market think tank the Center for Independent Studies, warned that reforming the CGT allowance would be unlikely to recoup that amount of revenue for the federal budget.
He said most flagged proposals would generate little extra income in the first few years due to elements allocated to existing assets.
Investors will also change their behavior as a result of new tax incentives, prioritizing other assets or postponing sales by delaying realizing their gains, which will lead to less income.
As well as the cost to the budget, proponents of the change also pointed out that the concession benefits overwhelmingly favored wealthy Australians.
Analysis by the Australian Council of Social Service, also released on Friday, found 22 per cent of CGT rebate spending accrued to Australia’s five wealthiest voters; these were all in Sydney and Melbourne.
“This is money that can be invested in social housing, essential services, income support and support in the communities that need it most,” ACOSS CEO Cassandra Goldie said.
“Instead it is used to reinforce inequality.”
Wentworth, in Sydney’s eastern suburbs, had the biggest benefit, with the average resident receiving a CGT cut of $13,450 a year.
Meanwhile, Western Sydney Blaxland voters, where the average taxable income is $53,542, receive an average CGT concession of $333.
Independent Wentworth MP Allegra Spending published a white paper on Wednesday calling for the CGT discount to be reduced from 50 per cent to 30 per cent.
Dr Tulip said the most attractive model for reform would be a return to the pre-1999 tax regime, where capital gains were discounted for inflation, so investors were taxed only on the actual income they received from the asset.
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