Here we go again. Treasurer Jim Chalmers trotted out the same line politicians always do when quizzed by journalists on something the don’t want to answer saying, ‘it’s perfectly normal for Treasury to model all manner of things in preparation of a budget.’ The Treasurer was responding to questions about changes to negative gearing and capital gains tax (CGT) discounts on property to ‘address intergenerational inequality’. The Albanese government is well positioned to make changes here. An opposition in disarray, excessive government spending fuelling inflation, a cost of living crisis that can be neatly blamed on the war in Iran – the stars are aligning.
On one side, those that would seek to abolish or change negative gearing or CGT such as the Greens, Teal ‘independents’ and some economists point to the cost to government, potential revenue lost through tax concessions and (by discouraging investors) lowering house prices making it more affordable for first home buyers. These are admirable pursuits but not without challenge.
The 2021 Census revealed there are about 3.25 million rental properties (about 31% of all homes) across Australia with 91% of them supplied by private investors. Applying pure logic, a disincentive to investors to provide rental homes will impact supply and rents will inevitably rise in a market that’s well known to be under-supplied. And given any changes are likely to be grandfathered, existing investors are not likely to sell those assets, they just won’t buy any more leading to less development, less supply and more pressure on rents and house prices. Investors holding existing homes will pressure supply especially in established areas forcing buyers to outlying areas away from the developed parts of our cities encouraging urban sprawl.
Any plan to mess with the current negative gearing provisions is challenging because it is deeply entrenched (it’s been part of our tax system for more than 100 years) and therefore interlinked with our vast and complex tax system. Tinkering with one part of it inevitably impacts on others. Even small changes such as halving the CGT discount or limiting negative gearing allowances to two properties would have an impact.
The States would have much to lose too as it will be them and their taxpayers that will need to come to the aid of those no longer able to afford the rent and provide them housing in a system already short on supply and resources.
About 80 percent of the 2.912 million investment properties are owned by mum and dad types who only have one investment property. They are the champions of delivering affordable rental homes to millions of Australians. Governments have failed to deliver enough houses for a variety of reasons and there is little chance they’ll get close to assisting in delivering the promised 1.2 million homes by 2029.
With fewer everyday investors, rents rise and if government can’t provide the housing, why discourage those that can?
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