CGT share changes will ease home prices, treasurer says
Chancellor of the Exchequer Jim Chalmers claims controversial tax changes on shares and businesses will prevent more money being poured into existing homes.
The business community has been relatively positive about Labour’s decision to roll back tax cuts for property investors.
But changes to capital gains tax relief on share sales have been criticized by critics who say it will deter business investment and limit productivity growth.
The Chancellor of the Exchequer has consistently defended the decision to extend the changes beyond ownership; He argued that this would introduce another distortion into the market and lead to capital being allocated for tax reasons rather than pure economic fundamentals.
Speaking at the summit hosted by investment bank Morgan Stanley in Sydney, Dr. Chalmers explained why the government chose not to disrupt the market in the other direction and provide businesses with more generous tax treatment than existing homes.
“If the reforms apply only to residential property and equities continue to be given a fixed discount, this could perversely funnel more investor money into existing homes because, in times of high inflation, it could leave property investors better off than equity investors,” he said on Thursday.
The Australian Chamber of Commerce and Industry has argued that the current 50 per cent discount on capital gains for businesses should be retained.
“The removal of CGT relief for all asset classes fails to distinguish between ‘passive’ investments, such as existing residential properties, and productive, risk-taking investments in businesses,” the business group said in its submission to an inquiry into the tax changes.
But Dr Chalmers said productivity had been poor in the two decades following the introduction of the CGT cut and the status quo could not be maintained.
The Treasury found that the discount overcompensated for single-family home investment but was neutral on average for equities, undercompensating in some periods and overcompensating in others.
“An important design feature of these reforms is that they are applied broadly and impartially across assets,” Dr Chalmers said.
“This encourages investment decisions for economic reasons rather than tax consequences, which will support productivity over time.”
Housing affordability charity National Shelter said the changes would pave the way to homeownership for tens of thousands of Australians and help direct investment into new housing supply.
Auction rates show that tax changes have already eased some pressure on the housing market.
Economists at Morgan Stanley have estimated that the proposed changes, combined with higher interest rates and the impact of war in the Middle East, could cause a drop in home prices of up to 10 percent.
Westpac has witnessed a 20 per cent drop in property investor loan applications since the budget, head of consumer banking Carolyn McCann told an investor call on Thursday.
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