Investor tax-break cuts no ‘silver bullet’ for housing
Labor appears determined to reduce tax concessions for property investors, in a move welcomed by economists and social housing advocates.
But although it will increase intergenerational equity and budget income, experts warn the impact on housing affordability will be relatively small.
A Greens-led parliamentary inquiry published on Tuesday found that the 50 per cent capital gains tax cut is tilting the housing market in favor of investors at the expense of property owners and wealthier Australians.
Labor senators Ellie Whiteaker and Richard Dowling, who signed the report, added that young Australians face increasingly different economic circumstances than previous generations.
They said any tax reform should be guided by principles agreed at Chancellor of the Exchequer Jim Chalmers’ 2025 economic reform roundtable, including making the tax system fairer for young people.
This is the government’s clearest indication yet that changes to capital gains tax relief will be included in the upcoming budget.
The Treasury is understood to be working on a number of options, including reducing the concession to 33 per cent, as well as reducing the negative tax relief for property investors.
Grattan Institute economist Brendan Coates said the inquiry’s reduction of the capital gains deduction would be positive for budget sustainability and economic growth.
“As a measure to improve affordability, it falls far short of supply-related measures,” he said.
Field chief economist Nicola Powell said adverse effects and capital gains tax were not the main drivers of the price increase.
“There is no magic solution, but wider reforms such as switching from stamp duty to land tax, reviewing policies that hinder the efficient use of housing and investing in infrastructure to unlock supply could make a real difference,” he said.
Commonwealth Bank research found that reducing the discount to 25 per cent would lead to prices settling around four per cent below the baseline within a few years; This is less than the growth many Australian capital cities will see in a single quarter in 2025.
Rents will be about 0.2 percent higher than the baseline over the decade.
Dr Chalmers said there had been no change in government policy but left the door open for the budget.
“I’ve tried to be frank in telling your listeners and others that we’re working on some options,” he told ABC Radio on Wednesday.
“I’m not going to get into what those options look like, but there’s certainly an appetite for more tax reform if we can achieve it.”
Greens Senator Nick McKim, chair of the inquiry, said he was pleased Labor had made it clear the “most unfair tax cut on record” was on the table.
“This is a historic opportunity for the government and we hope they seize it,” he told ABC Radio.
Maiy Azize, a spokesperson for social housing advocacy group Every’s Home, called on the government to invest extra income as capital gains relief is brought back into social housing.
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