Existing property investors likely to avoid more tax under possible CGT changes in Chalmers’ May budget | Jim Chalmers
Existing property investors look set to avoid paying more tax under Labor’s controversial changes to the CGT in next month’s budget, after Jim Chalmers said he “wanted to make sure we recognize the decisions people have made in the past” and signaled any reforms would not generate “huge amounts of revenue”.
The Treasurer is expected to replace the flat 50% tax allowance on profits from the sale of assets held for more than a year, potentially returning to the pre-1999 model where capital gains are adjusted for inflation.
While negative guidance rules are also on the government’s agenda, investors and some experts have called for any changes to tax rules to apply only to new investments.
Chalmers said the government was paying attention to “transitional issues” regarding the tax changes.
“Without making assumptions about policies, what you’re trying to do is make sure we recognize the decisions people have made in the past,” he told the CommBank View podcast.
In response to a question about changes to the CGT, Chalmers said: “One of the things that I think is not well understood in the speculations is that even if we go down the path that has been speculated about in the areas you’ve asked me about, people shouldn’t expect this huge amount of new revenue to come into the budget over the next few years.”
The Grattan Institute calculated that halving the capital gains tax cut and phasing that cut in on all investments over five years would add $6.5 billion a year to the budget.
Previous work by the Parliamentary Budget Office suggested scaling back CGT and applying it only to new investment would make up a very small proportion of this.
The treasurer also signaled that reducing tax breaks for homeowners would not necessarily make homes cheaper but could rebalance the “mix” of home ownership away from investors and towards homeowners.
“We’re not necessarily trying to target a specific change in price,” he said.
“I think it’s a long-term trend for anyone who looks at it from an objective perspective, homeowners and homeowners and investors, that homeownership rates are decreasing over time and also proportionally.”
“I think even if you go back to the turn of the century, the changes to capital gains [to the current regime in 1999]You can see that this has an impact on the composition of the housing market.
“We’ve been clear for some time that we think there are generational issues in the tax system and in the housing market. We’re working on ways to try to resolve that.”
Economic modeling suggests changes to tax settings for investors could reduce house prices by between 1 per cent and 4 per cent, but increase homeownership rates by three percentage points as investors are deterred from buying property.
Increasing housing supply is the “main game” for more affordable homes, he said.
“We care about having affordable options for people. The biggest challenge in the housing market is that we don’t have enough homes, but we’re also focused on the composition of the homeownership base.”
