Bill Shorten will today unveil bold plans to limit negative gearing to new houses and halve capital gains tax concessions from July next year, but faces a backlash from the property industry which has warned it could restrict the supply of housing in major cities.
In a speech to the NSW ALP conference today, the Opposition Leader will move to trump Malcolm Turnbull on the tax debate, promising “the most important structural budget reform in a decade’’.
Under the policy, negative gearing concessions will be removed from existing housing in purchases made after July 1 next year and limited to new houses. Properties purchased before July 1, 2017, will be grandfathered. About 1.3 million taxpayers currently claim negative gearing tax concessions.
Labor will also promise to halve from 50 per cent to 25 per cent the CGT discount for all assets held longer than 12 months that are purchased after July 1, 2017. All investments made before this date will also be grandfathered. Labor says the policy changes will not affect the family home or investments by superannuation funds, and the CGT discount will not change for small business assets.
Labor’s tax announcements come after the Prime Minister released documents ruling out changing the GST, with his focus shifting to spending restraint and smaller revenue measures as ways to pay for income tax relief at the coming election.
Parliamentary Budget Office analysis predicts Labor’s overhaul of negative gearing and CGT will provide a $32.1 billion boost to the budget bottom line over a decade and $580 million over the next four years. Labor believes the tax concession changes will encourage the building of thousands of homes every year, increasing housing supply, and will help lower rental costs. It predicts the tax concession changes would result in an additional 25,000 jobs.
Mr Shorten will today tell the NSW ALP conference that negative gearing and CGT discounts cost taxpayers $10bn a year — more than the government spends on higher education.
He will say that negative gearing has failed in its intent of boosting the housing supply because 93 per cent of new investment loans go to people purchasing existing housing stock and only 7 per cent of the subsidy goes to new housing.
Mr Shorten will warn that negative gearing “does nothing to tackle the growing housing affordability crisis in our cities and suburbs’’.
The policy is set to ignite a row with the property industry. Property executives slammed the plan yesterday, saying it had the capacity to take investment away from the property market at a time when capital cities were facing a persistent undersupply of housing.
Stockland chief executive Mark Steinert said: “Last time they cut negative gearing on rental properties, it was reinstated within a few months because it had such a devastating impact on the rental market.
“I can’t see how this will be any different … The affordability challenge is that you need more rental property, and negative gearing goes directly to meeting that.”
Aussie Home Loans founder John Symond warned the policy could lead to house price falls on properties owned by investors, many of whom were on average incomes and had fought hard to make the investment.
“Eighty per cent of residential investors are PAYG, hardworking mums and dads, and this will have an impact on the value of their homes,” Mr Symond said.
Property Council of Australia chief executive Ken Morrison warned the proposed changes were “dangerous’’.
“It is a real risk playing with the property market like this when it is such an important part of the economic growth story for the country,’’ Mr Morrison said.
Grattan Institute chief executive John Daley agreed that the policy could lead to house price falls of less than 10 per cent, but would create a market where renters would find it easier to become homeowners, arguing that it would make the buying environment fairer.
“It will probably reduce house prices relative to where they are now, bearing in mind the impact won’t be huge — it won’t be as large as the swings you’d get in a normal housing cycle, but it will lead to an increase in more long-term home ownership … it’s a terrific thing,” Mr Daley said.
Labor is pitching the policy as cracking down on high-income tax concessions as the Coalition comes under pressure over its lack of a coherent tax policy. Mr Turnbull and Treasurer Scott Morrison have rejected GST changes, ruling the economic gains are too small to justify the risk, and are now looking at spending restraint and smaller revenue measures as a way to deliver income tax cuts.
Labor policy documents cite NATSEM figures showing the top 20 per cent of income earners receive about half of negative gearing benefits and the top 10 per cent receive 70 per cent of CGT discounts.
Mr Shorten will argue the tax system is acting like a “leaky bucket’’ and is “subsidising people and firms who don’t need government hand-outs’’.
The Australian