Scary alert! Like negative gearing? Buy shares!

Michael Pascoe I thought that no budget had a greater savings than this. Apparently…

In summary, this Chalmers budget is hugely optimistic on housing investment, kind to small business, increasingly better on productivity issues, doesn’t give the Opposition much to be angry about, picks up the low-hanging fruit more fairly in taxing discretionary trusts, introduces a new acronym (WATO! Working Australians Tax Offset) and, for all the headlines, does little to help our housing crisis.

Despite all the noise about capital gains tax and adverse practices, the government claims the changes will only “help around 75,000 homeowners get into the market” “in the next ten years” (emphasis mine).

The government says it will promote the same previously announced $2 billion for infrastructure, spread over four years:much” 65,000 extra homes for over ten years.

So on average we expect only 14,000 extra homes per year. This is almost a marginal figure, given our housing deficit and how far the government is behind its target of 1.2 million new homes.

Negative gear life!

And the message to retail investors who have grown to love the concept of negative gearing is: Buy shares! Buy commercial property! Buy the plan! Buy a new home! Buy through your retirement fund! Negative gear life! Heck, you can keep the current capital gains tax regime on new homes if you want.

Yes, the negative gearing only applies to existing homes purchased from July 1, 2027.

It’s not that big of a deal, right?

Alongside CGT reform, the aim of the policy is to deter retail investors from buying existing homes (which they often do), while reducing competition for landlords and developers who want to demolish existing homes to build higher density.

And even if you insist on purchasing an existing home (perhaps a vacation home you plan to eventually retire to), Gentleman Jim will allow you to carry forward any property losses in excess of the rental income to use when you reduce the mortgage over time and the rent rises above the covering interest.

Contrary to the Central Bank’s pessimistic forecasts last week, the Treasury thinks the tax changes will cause a sharp increase in housing investment. Without knowledge of the changes, the RBA predicted housing investment would shrink by 1.1 per cent in 2027-28.

Treasury says it will increase by 3.5 percent. Good luck with this.

homeowner subsidies

What should be the budget headline is: We’re spending $7 billion on Commonwealth Rent Assistance this financial year and $7.4 billion in the new financial year; We are effectively subsidizing landlords for 1.4 million tenants who would otherwise not be able to pay the asking price.

This is the cost of governments’ wholesale move away from social housing over the last three decades, roughly halving the percentage of homes suitable for social housing.

This budget, like previous budgets, does nothing to fundamentally change this failure.

It barely maintains the status quo.

But the usual suspects of the MSM don’t care. With the negative gearing shift somewhat understated, the Opposition in both Parliament and the media will be left to rail about the inflationary impact of the deficit and that some people will fairly pay more tax on capital gains in the future.

That’s just scary

It is then a measure of equality. It has become the norm for rich people to get richer because most of their income comes from lightly taxed capital gains. Read Harry’s piece.

Chalmers’ budget. From homeowner’s paradise to smart land?

No, there was no mass exodus of our entrepreneurs to New Zealand and Singapore during the 14 years that the CGT rebate was actually based on the inflation rate. And Jim Chalmers says the allegedly tricky part for the minority of highly successful startups is open to “further consultation”.

Economist Christian Gillitzer showed in a calm and rational AFR article, unlike the paper’s recent opinion columns, that even for someone with a top marginal tax rate whose investment appreciates at 9 per cent a year (i.e. has a good investment), yes, more tax will be paid, but capital gains will still be treated more favorably than ordinary income. For investments that gain an average annual value of 5 percent, The difference with the current system is marginal.

What about the deficit?

As for the deficit, yes, inflation would be lower if we cut government spending to get to the surplus quickly. A recession will do that for you.

Essentially, maintaining public sector spending at its current share of the economy will help us maintain our weak economic growth with a marginal impact on inflation. Of course, the government needs to spend smarter, but the figure is not scary on the OECD scale.

Despite the budget’s business investment incentives, the Treasury forecasts total business investment growth will fall from 4 per cent this financial year to 2.5 per cent next financial year and 2 per cent in 2027-28. Not flash.

Three random observations when my time is up:

*The treasurer is seeking a headline $59.4 million that would go to public housing providers specifically for people ages 16 to 24 who are at risk of homelessness. This would not go very far and is comparable to an additional $110.0 million “to support housing and related services for personnel deployed to the Western Submarine Rotational Force.”

Housing for the American submarine base in WA.

*Always focus on what politicians do rather than what they say. Despite all the talk about the fight against terrorism and drugs, spending on “public order and security” is planned to be cut by 11 percent from $9.7 billion of this budget over the next four years. Border protection spending fell from $2.1 billion in 2026-27 to $1.7 billion in 2026-30. Will AI do everything?

*I write to predict what will be the inevitable list of winners and losers for fish packers in a budget lock-in.

The biggest winners must be accountants who charge by the hour.

Any tax changes keep them busy, and CGT indexation changes will help keep them busy in the future. Moreover, a number of R&D and small business measures (loss refundability for start-ups, loss carryback, instant write-off of assets) will mean that AI will not yet replace accountants.