Speaking to the media in Beijing on Friday, Treasurer Jim Chalmers clarified that he was the one who requested Treasury to conduct an investigation into the issue, countering Prime Minister Anthony Albanese’s earlier suggestion that the department may have initiated the inquiry independently.
“It is not unusual at all for governments or for treasurers to get advice on contentious issues which are in the public domain, including in the Parliament,” he told media upon his return from China.
“It is not unusual for treasurers to do that, but we have made it very clear through the course of this week that we have a broad and ambitious housing policy already, and those changes aren’t part of it.”
Last week, both Chalmers and Albanese confirmed that Treasury officials are working on options to scale back negative gearing and capital gains tax, with the Treasurer insisting the review is “not unusual”.
When asked who requested the work, Albanese said he hadn’t and wasn’t sure if Treasurer Chalmers had either.
“I don’t know because I’m not the Treasurer. And the Treasurer is on his way to China as we speak,” the PM said.
While he hasn’t explicitly confirmed it, there is strong belief that the Treasurer is considering changes due to growing pressure from the Greens to address housing affordability.
Namely, two key elements of the government’s housing policy – a tax incentive for private developers to build rent-capped apartments and a subsidy scheme for first home buyers – are stalled in the Senate due to a lack of support from both the Greens and the Coalition, with the Greens demanding changes to negative gearing and capital gains tax in exchange for their backing.
The Greens issued a statement on Friday, claiming that “Labor is cracking under pressure from the Greens”.
“Last week the Greens told Labor we wanted to wind back negative gearing and capital gains tax discounts as part of passing the government’s weak housing bill,” the leader of the Australian Greens, Adam Bandt said. “Labor said it was impossible. Now they admit it’s possible. They must commit to doing it.”
Speaking to InvestorDaily, AMP’s chief economist, Shane Oliver, said the Labor government is clearly worried about losing seats to the Greens at the next election.
“While the Greens are never going to get as many seats as Labor does, Labor only has to lose two and then they are in a minority government, so they are trying to sure up their position relative to the Greens,” Oliver said.
“By the same token, they don’t want to get too radical, because then they’ll lose a lot of middle Australia.”
Oliver noted that although there is a rationale for reducing the capital gains tax discount and limiting excessive negative gearing within a broader tax reform, such measures “won’t improve housing affordability and could actually worsen supply”.
“The basis problem in the housing crisis is a an undersupply of housing and debating negative gearing and the capital gains tax discount are populist sideshows,” he said.
Oliver elaborated that the ability to offset investment costs against income is a key feature of Australia’s progressive tax system, benefiting both high earners and ordinary investors.
“The concessions mainly benefit the rich because they pay more tax, but the Australian tax system is already very progressive – with the top 10 per cent paying nearly 50 per cent of the income tax revenue going to Canberra – and over 2 million taxpayers have an investment property and most of these are ordinary income earners,” Oliver said.
“Reducing the after-tax return for investors may lower house prices in the near term as investor demand falls but will likely boost them over the long term as less investors will mean less rental property supply putting upwards pressure on rents and prices.”
Oliver also pointed out that these tax concessions are only a “tiny fraction” of the reasons for high housing costs in Australia, with the main issue being the significant gap between housing supply and demand driven by population growth.
Similarly, Mark Chapman, director of tax communications at H&R Block, said that while there may be reasons to examine tax policies related to housing, substantial reform of negative gearing alone is unlikely to solve the housing crisis.
“There may be sound policy reasons for looking at aspects of tax policy around housing – many countries only allow losses on investment properties to be offset against other property income, which feels like a broadly sensible idea – but wholesale reform of negative gearing is unlikely to be the magic medicine that cures our housing crisis,” Chapman said.
The Coalition has stressed that there are no circumstances under which it would support any reforms to negative gearing.
