Treasurer Jim Chalmers says Labor will dilute capital gains tax concessions for intergenerational unfairness

Treasurer Jim Chalmers insists Labor’s plan to dilute capital gain tax concessions in the upcoming Budget is about tackling intergenerational unfairness despite a warning that targeting property investors will hurt renters.

Labor ruled out changes to the 50 per cent capital gains tax discount in Opposition, after losing the 2016 and 2019 elections.

But Dr Chalmers on Monday reaffirmed the upcoming May 12 Budget would include a watering down of the concessions that have been associated with unaffordable housing since they debuted in 1999.

“We have been really upfront for some time now in saying that we do think there is intergenerational unfairness in the tax system and in the housing market,” Dr Chalmers told reporters in Canberra on Monday.

“I think the housing market is where some of those intergenerational issues are most obvious and so we are working through a range of options to see if we can deal with them or address them in a responsible way.”

The Federal Government is yet to decide whether to reduce the 50 per cent concession to 33 per cent for investment properties owned for at least a year, or halve it to 25 per cent as it advocated at two elections under former leader Bill Shorten.

Labor is also exploring restrictions to negative gearing, having previously campaigned to confine the investor landlord tax breaks to brand new homes bought after a certain date.

“We’re obviously considering a whole range of changes in the tax system but we haven’t changed those policies, we haven’t taken any decisions on those policies whether the specific ones you mention,” Dr Chalmers said.

“There’s more work to do on our options for tax reform in this Budget.”

The Finance Brokers Association of Australia argued the capital gains tax and negative gearing changes would discourage investors and push up rents.

“While I commend the government for wanting to open up more housing, these changes will disadvantage the very people it seeks to help – younger Australians, as well as many other people on lower incomes,” interim chief executive Peter White said.

“The theory that this will drive down the cost of housing to the extent where someone who can’t currently afford to service a mortgage and enter the property market, will suddenly be able to, is overly simplistic and ignores the many other factors in loan approval.”

Since the 50 per cent capital gains tax discount debuted in September 1999, replacing a system of indexation that had existed since 1985, house price increases have far surpassed wage rises.

But Mr White argued taking away the concession from investors would fail to see an army of renters enter the property market.

“Someone renting with the aim of buying a home won’t be able to save a deposit as easily, while many who are renting because they are already doing it tough will struggle to meet the increased repayments,” he said.

A State Government tax on investors in Victoria to finance COVID lockdowns has coincided with Melbourne’s house price growth being much more subdued than the double-digit annual gains in Brisbane, Perth and Adelaide during the past two years.

But Ray White chief economist Nerida Conisbee said this was more the product of four decades of Victoria having higher building completion rates.

“Melbourne’s affordability hasn’t been created by taxes; it has been built,” she said.

“Over an extended period, Victoria has delivered more housing than any other state, and that sustained development pipeline has kept price growth less elevated than elsewhere.”

ANZ economists on Monday argued paring back the capital gains tax concessions would represent a significant Budget saving.

“Changes to the taxation of investment properties will strengthen the fiscal position over the next decade and provide a path for revenues as a share of GDP to rise,” the bank’s head of Australian economics Adam Boyton said.

Australia’s median house price of $1.019 million in March, based on Cotality data, was well beyond the reach of an average, full-time worker earning $106,677.

Even with a 20 per cent mortgage deposit, someone in a position would be unable to get a home loan on their own because the debt-to-income ratio of 7.6 is much higher than the typical five ratio for owner-occupiers.

For singles, that means being restricted to a small, $700,000 apartment in a big city or a house in a regional area.