If Treasure Jim Chalmer's latest financial plan really is "the most important budget in decades", there can be little doubt housing-related tax reforms are at the centre of it.
as equivalent to reversing about a decade of decline in home ownership in Australia. The budget papers contain official estimates for the impact the reforms - a broken election promise the government has tried to justify by arguing they're absolutely essential - will have on rents, house prices and supply.
Rental prices were the number one battering ram adopted by opponents of the decision to limit negative gearing to new builds from July next year and replace the flat 50 per cent capital gains tax discount with a less generous inflation-linked policy. In the lead-up to the budget, rental prices were the number one battering ram adopted by opponents of Labor's heavily signposted move to crack down on negative gearing and capital gains tax.
But the analysis contained in the budget papers is much more sober, pointing to a "small impact" of less than $2 a week for someone paying the median rent.
"We're delivering a fairer tax system for workers, first-time buyers and young people," Chalmers promised. "This will help rebalance a system which is more generous to assets than it is to labour, and help rebalance a system where house prices have decoupled from incomes. "Since 1999 house prices have risen over 400 per cent more than twice as fast as average incomes. Our tax changes will help about 75,000 Australians achieve the dream of home.
" Nine finance editor Chris Kohler said it seemed clear making rental properties to own would drive up rental prices. The analysis contained in the budget papers points to a "small impact" of less than $2 a week for someone paying the median rent. "That in there, it says that we estimate that as a result of this $2 a week increase in rents.
Leading property economics expert Dr Lyndall Bryant also raised concerns about the impact on renters, warning of possible unintended consequences in a complex system.
"Proposed changes to negative gearing and CGT are designed to disincentivise property investors, making room for owner occupiers," she said. "The only trouble is, 33 per cent of Australian households are renters, and every renter needs a landlord. Leading property economics expert Dr Lyndall Bryant also raised concerns about the impact on renters, warning of possible unintended consequences in a complex system.
The whole point of the policy is to reduce demand for housing from investors, particularly those with lots of debt, driving down prices and giving younger people a chance to buy their own home. The government's numbers claim it will lead to 75,000 additional people owning their own homes over the next decade, reversing roughly 10 years of declines in that number.
"Treasury modelling suggests housing prices will temporarily grow by around 2 per cent less over a couple of years relative to no tax policy change," the budget papers state. "This means that a buyer purchasing a home at the current national median price would save around $19,000. "Housing supply to drop Of course, this is economics, so any change will have flow-on effects in other areas.
In this case, the numbers suggest that means 35,000 fewer homes built over the course of a decade. That's potentially a huge problem for a government that has spent years pushing the idea that a lack of housing supply is the main driver of skyrocketing prices. Fortunately Chalmers has the $2 billion Local Infrastructure Fund in his back pocket to ward off criticism on that front.
It promises to build "essential infrastructure to support new housing", such as connecting water, power, sewerage and roads. Urbis partner and housing sector lead Mark Dawson welcomed funding targeted at unlocking feasible, more affordable homes but said it didn't address the chronic compromise of housing.
"Housing feasibility is like a Rubik's cube, not a single switch. The Budget is turning more than one face, and that matters," he said.
"But if approvals, infrastructure, build cost and financing don't move together, the bottleneck just shifts and the pipeline stays stuck. "Broken promise criticised No matter your opinion on the reforms, there's no doubt they break Labor's explicit election promise not to mess with either negative gearing or the capital gains tax Most of Chalmers' night was spent trying to justify the decision and reassure voters they could trust him.
Chalmers said the promises "reflected our position at the time" but problems with tax policy and the housing market had become "increasingly clear".
"I think it's appropriate that when a government comes to a different view, as governments do from time to time, that they explain why, and that's what we're doing," he said. The opposition, which opposes both tax changes, appears certain to absolutely hammer this topic over the coming weeks, with shadow treasurer Tim Wilson describing them as "built on a house of broken trust".
"The government and the prime minister was clear about this 50 times over, red hot with rage, saying how dare anyone suggest that he was doing this before the last election," he told 9News political editor Charles Crouch on budget night. "They've now broken this promise, but let's be very clear about the consequences. The government's own budget papers show it will lead to 35,000 fewer homes being built and rents increasing.
"Now, I don't know about you, Charles, but if the objective is to get young Australians into a home, building fewer houses and increasing rent and then adding a tax if you invest your house deposit to get ahead doesn't seem like the way you get there. " The great unknown is whether enough voters believe the changes are in their best interest - as they did with the broken promise on stage 3 tax cuts - and reward the government for change rather than punishing it for a broken promise.
Negative gearing is when an investor has expenses associated with a property, like interest on mortgage repayments, that are greater than the profit it makes. Investors are then able to deduct many of those expenses from their taxable income, meaning they pay less during tax time. Negative gearing became more popular when the Howard government introduced the 50 per cent capital gains tax discount in 1999.
Coupled together, the generous concessions made it more attractive for investors to hold a property in the hopes that it increases value in the long-term and leads to a greater profit when they sell. Get your breaking news and exclusive stories first by following us across all platforms.
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