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CGT changes likely to cause investors to flee, not lift supply
Debates around capital gains tax (CGT) have been ongoing since the beginning of the year, with sources indicating that Prime Minister Anthony Albanese has been considering cutting the discount from 50 per cent to 33 per cent in the upcoming budget.
The Treasury said the reforms were part of the government’s focus on “intergenerational equity” in the May budget.
While, in its current form, the CGT encourages investment in the property sector and increases the supply of new homes, it also intensifies competition faced by home buyers seeking an owner-occupier property.
By slashing the discount, the government said that more homes would be available to owner-occupiers.
Increasing housing supply, and thereby affordability, has long been a goal for Albanese’s government, which introduced a target of producing 1.2 million new homes by 2029 in 2023.
A source told the Australian Financial Review that the government’s adjusted discount would not apply retrospectively or extend beyond housing.
However, Housing Industry Association (HIA) managing director Jocelyn Martin said that changes to the CGT discount would not help the government reach its housing target.
“Housing is already one of the most highly taxed sectors in the Australian economy,” Martin said.
“Changing CGT arrangements will be akin to a new tax on an already overburdened market.”
“If we increase the tax on investors, there is little doubt that they will seek opportunities elsewhere, or if they remain in the housing market, there will be upward pressure on rents to compensate.”
Martin said any move that drives investors out of the market would be detrimental to housing supply.
“Every investor that leaves the market represents one less rental property, not an additional family into their own home,” she said.
“The only way that Australia’s housing crisis for both owner-occupiers and renters will be addressed is through building new homes.”
“If we want to ease inflation, improve productivity and restore affordability, we must remove the barriers preventing new homes from being built.”
Real Estate Institute of Australia president Jacob Caine said a policy change that risks reducing private investment in housing was “problematic”, as six out of seven rental homes are provided by investors.
“We accept there is an intellectual case for reform,” Caine said.
“But housing tax changes must follow, not precede, structural supply reform.”
“Sudden shifts risk undermining confidence at the very moment we need more homes built, not fewer.”
HIA chief economist Tim Reardon said looking for a solution to the nation's housing crisis through a CGT discount was the wrong tactic going forward.
“Australia doesn’t have a tax concession problem; it has a housing supply problem.”
“If you want more revenue from housing, build more homes,” Reardon concluded.