Tax Reform Now Off the Table Warns Housing NFP
26 April 2016 at 9:56 am
Australia faces not having any realistic tax reform for the next five years after the the federal government rejected calls for changes to capital gains tax and negative gearing at the weekend, according to housing advocacy organisation National Shelter.
The claim comes as a new Not for Profit Grattan Institute report found that changes to negative gearing and capital gains tax would save the federal government about $5.3 billion a year.
Executive officer at National Shelter, Adrian Pisarski, told Pro Bono Australia News he welcomed the Grattan Institute’s report saying it was further evidence that: “The combination of the two taxes is inflating Australia’s house prices out of reach of the younger generations and it has a terrible impact on the rental market.”
“The federal government ruled out on Sunday any changes to capital gains tax or to negative gearing and its seems to me that they are really doing that not only against the best interests of the country but against their own better instincts I think. They know that these tax settings are not quite right but they have a need to have a fear campaign against Labor. It’s shallow politics.
“Because they have chosen to do nothing and with a continuing scare campaign against labour it would be a brave future government that went back to tax reform for a very long time.”
The Grattan report, Hot property: negative gearing and capital gains tax reform, showed that negative gearing primarily benefited those on high incomes.
“Overall, the top 10 per cent of income earners before rental deductions receive almost 50 per cent of the tax benefits of negative gearing,” the report said.
“Despite claims from the Property Council that lower paid workers such as nurses, teachers and clerical staff are the ‘primary beneficiaries’ of negative gearing, analysis of Australian Tax Office (ATO) data shows that a higher proportion of workers in high-wage occupations negatively gear and receive larger average tax benefits when they do so.
“To bring their budgets back to balance, governments will need to undertake reforms on both the revenue and spending side.”
The report recommended that the capital gains tax discount should be reduced from 50 to 25 per cent, and that negatively geared investors should no longer be allowed to deduct losses on their investments from labour income.
“A smaller discount would save about $3.7 billion a year, while the change to negative gearing would raise $2 billion a year in the short term, falling to $1.6 billion as losses start to be written off against positive investment income,” the report said.
Grattan CEO and report co-author John Daley said: “The reforms would provide relief to the budget in tough times and slightly improve housing affordability with little impact on how much people save.”
“We estimate property prices would be up to two per cent lower under these reforms than they would be otherwise.
“Contrary to urban myth, rents won’t change much, nor will housing markets collapse. The effects on property prices would be small compared to factors such as interest rates and the supply of land.”
National Shelter’s Adrian Pisarski said his main concern was for the lowest income household.
“They are just being pushed further and further away from good opportunities, good places to live where there’s work and education, access to health care and so on . Poor people are just getting pushed out at the margins because we have an obsession now with allowing people to invest in rental housing instead of encouraging owner occupation,” he said.
Earlier this month welfare peak body ACOSS called for negative gearing income tax concessions to be removed and partly ploughed back into concessions for institutional investors, who tend to be less interested in short-term speculation and more open to long-term tenancies.
Shadow Treasurer Chris Bowen said that while the report from the Grattan Institute doesn’t represent Labor’s policy, it nevertheless represents a compelling argument for reform.
“The government is simply swimming against the tide, with this report a huge embarrassment for a government that just days ago confirmed it wasn’t going to make any changes to negative gearing or capital gains tax,” Bowen said.