Treasurer Jim Chalmers has ignited a familiar campaign against any property tax concessions. Photo: Michelle Kroll.
Have you noticed that every time reforms to the capital gains tax discount or negative gearing are floated, the same chorus springs into action?
It happened again the moment Treasurer Jim Chalmers hinted the next budget might examine these concessions. Property lobbyists, think tanks and multiple home-owning politicians all rushed to the microphones to explain why this terrible idea must never be contemplated.
The only problem is they’ve never been able to get their story straight.
Scott Morrison once warned that changing negative gearing could cause house values to plummet. The Property Council, meanwhile, has claimed reform would actually push house prices up. Then there’s the Centre for Independent Studies (CIS), which insists the whole debate is pointless anyway because tinkering with tax concessions will barely move house prices at all.
So which is it? Will prices crash, soar, or barely budge? Apparently, all three – depending on which scare story best protects the same old tax rort. These arguments aren’t meant to make sense. They’re designed to muddy the water just enough to keep the gravy train rolling.
Unlike countries such as Singapore, which, strangely, treats housing as a form of shelter, Australia has decided that homes are primarily a wealth-creation vehicle for investors who already have plenty. The tax system reflects that choice perfectly.
Under negative gearing, if you borrow money to buy an investment property and the costs of owning it exceed the rent you collect, the government lets you deduct that loss from your taxable income. Then, when you sell the property, you only pay tax on half the capital gain. So it’s a leg up on your way in and a reward on the way out. It’s a neat trick, if you’re one of the 10 per cent of Australians who can afford to play.
But take a step back and ask a very simple question: why do we give tax breaks at all? In theory, tax concessions exist to encourage activity that benefits society — innovation, productivity, job creation. We lower taxes to incentivise people to take risks that create something new.
Buying existing housing stock does none of that. It doesn’t create a job, it doesn’t build a home, and it doesn’t add a single bedroom to the housing stock. All it does is push first-home buyers out of the market while investors enjoy a taxpayer-subsidised bidding war.
The Centre for Independent Studies itself argues that removing these concessions wouldn’t have much impact on house prices. Great. If that’s true, then why are we handing billions of dollars in tax breaks to wealthy investors for a policy that achieves precisely nothing?
And while The Daily Telegraph reliably wheels out the cleaner or truck driver supposedly devastated by property tax reform, the data tells a different story. Those who negatively gear are more likely to be surgeons or members of parliament.
The CIS, however, says we shouldn’t worry about any of that because the real solution is increasing supply. That sounds sensible until you look at the evidence.
The Australia Institute’s Matt Grudnoff has pointed out that housing construction has been growing faster than population growth. In other words, supply has been rising — yet affordability keeps getting worse.
Economist Cameron Murray has explained why. No one who sells a product ever campaigns for its price to collapse, yet we pretend housing is different. Even when planning restrictions are loosened, homes are drip-fed onto the market to protect prices. The problem isn’t a lack of land or cranes; it’s a system designed to keep values high and tax breaks flowing.
If governments genuinely want to give people a tax break, there’s an obvious place to start: wages and salaries. Income tax is the Federal Government’s biggest single source of revenue, and it actively discourages work at a time when we need higher workforce participation. Employment is linked to better health, stronger communities and higher productivity — yet we tax it relentlessly, while subsidising property speculation instead.
Housing should be somewhere you live, not a tax strategy. If the defenders of negative gearing and the CGT discount want to keep arguing against reform, the least they could do is agree on which disaster is supposed to happen. Until then, Australians are entitled to suspect the contradictions aren’t accidental — they’re the point.
Original Article published by Oliver Jacques on Region Canberra.
