ANDREW BRAGG: Moves to cut CGT discount and limit negative gearing show Labor’s out of ideas

The Labor Government looks confused about what to do on housing and the capital gains tax, on negative gearing, on most things.

But one thing Labor should remember is that higher taxes won’t solve Australia’s national housing supply crisis.

More than 3.5 years after they came to power they don’t have a tax plan. There’s no comprehensive tax reform package on the table. Nothing since the Henry Tax review 16 years ago.

And they don’t have a spending plan. It’s hard to have a tax plan and cut taxes if you don’t know what spending is productive and can be reformed.

Even if they pull a rabbit out of the hat in the upcoming Budget and announce major changes to either taxes or spending, none of that would have been put to voters in the 2025 election.

The temporary windfall from the current oil crisis will be just that. The Budget will remain in structural and actual deficit — especially over the medium-term.

So, knowing their Budget is in trouble and they can’t fix spending, Labor are reverting to type. To piecemeal tax hikes.

They seem to want to lift taxes on housing by cutting the CGT discount, and limiting the negative gearing tax discount.

It is completely irresponsible to lift any taxes on housing in the midst of a housing crisis.

Some options being touted are: paring back the current CGT 50 per cent discount to 33 per cent; imposing limits on negative gearing; and leaving the current CGT discount on new housing.

Knowing it won’t raise much revenue as investors shift their behaviour, Labor are looking at more drastic changes. This includes retrospective tax changes. This bad tax practice, it breaks the principle of policy certainty and creates sovereign risk.

Most recently Labor have come to the realisation that higher taxes for investors will cut housing supply.

So they are now looking to even decrease the current CGT rate for new builds, but hike taxes for old builds. How would that be administered in practice without leading to more rorts is unclear.

It is just more of the same from Labor. Recently they announced a retrospective CGT dating back 20 years to 2006, that could discourage future investment in Australia and affect mining, energy and infrastructure investment.

And then the Australian Tax Office said it will use this proposed legislation to scrutinise property-related sales by foreign investors over the past four years to try to make them pay more CGT.

None of this tinkering matters for the main game: lifting housing supply.

I said this clearly in the Coalition’s report on the Senate’s CGT inquiry.

Both Treasury and key economists say the same thing: it won’t do anything for supply.

The risk is that it actually damages supply. Abolishing the CGT discount or playing with negative gearing will discourage construction, undermine housing supply, raise rents, and discourage investment.

Modelling by the housing industry of various scenarios says changes to the CGT and negative gearing will result in a collapse of housing construction supply by up to 46,000 dwelling starts, reduce GDP by more than $3 billion and lead to more than 4000 job losses in the construction industry.

Labor has lost the plot on housing supply. Since June 2022, when Labor formed government, Australia’s population has grown by 1.9 million, but dwelling completions have only increased by less than 615,000. We simply are not building enough homes for our record-high population growth.

Labor is spending $80 billion to build 30,000 fewer houses each year. That’s the scoreboard.

Analysis using Household, Income and Labour Dynamics in Australia data cited in my Senate report shows Australians are paying the highest average income tax rates in more than two decades.

Increasing CGT would further entrench Australia’s uncompetitive tax settings. The ANU’s Tax and Transfer Policy Institute has pointed out that rental income from investment property is the most highly taxed savings vehicle in our system.

This research shows that owner occupied housing faces a marginal effective tax rate (METR) of 9 per cent, reflecting stamp duty.

Investment property is subject to personal income tax on rental income, capital gains, land taxes, and stamp duty. For high income earners, the METR on rental income is just under 100 per cent.

And the housing industry further warns that around $200,000 is raised in direct tax imposts alone from each new house – even more in some markets. It’s even higher when other fees and charges are added, up to 50 per cent of the cost of a new home.

It is completely irresponsible to lift any taxes on housing in the midst of a housing crisis. It doesn’t matter if it’s for new or old housing.

You cannot tax your way out of a housing supply shortage. Labor have mismanaged the Budget and are simply looking for a tax grab. It’s not a housing policy.

Senator Andrew Bragg is the shadow housing minister