Treasurer Jim Chalmers secretly consulting economists in favour of replacing capital gains tax concessions

Treasurer Jim Chalmers is holding a secret meeting with economists who are in favour of scrapping Australia’s capital gains tax concessions on investment properties.

Email invitations were sent out to the chief economists of Australia’s major banks late last week, at short notice, for a Chatham House rules lunchtime roundtable in Canberra’s Treasury building on Friday afternoon.

While senior representatives of the Commonwealth Bank and NAB are unable to attend, Westpac chief economist Luci Ellis has confirmed she will be in attendance to discuss tax reform in the upcoming May Budget.

“It is a Chatham House rules event so I’m happy to confirm that I will be there,” she told The Nightly.

Dr Ellis is a high-profile advocate of replacing the 50 per cent capital gains tax discount with a flat 2.5 per cent indexation rate for every year an investor has owned a residential property.

“There would be issues if you made it retrospective — it would have to be only on purchases from now on, otherwise you end up with some inequities for the people who arranged their affairs on one basis so you do need to think about prospective versus retrospective,” she said.

“Whether the answer is to reduce the discount from 50 per cent to some other number or to do what I’ve suggested which is to have full marginal rate but on the 2.5 per cent indexed gain, which is a simplified version of what we had before 1999.”

Since September 1999, landlords who had owned a property for at least 12 months have been able to reduce their capital gain by 50 per cent on their annual tax return, reducing the prospect of a seller entering a higher marginal income tax bracket.

This replaced a system that existed from 1985 to 1999, where capital gains were indexed for inflation.

Dr Ellis, a former Reserve Bank assistant governor in charge of economic research, also suggested the 50 per cent capital gains tax discount be scrapped for other asset classes like shares, as long as it’s not retrospective.

“Fundamentally, you don’t want to be picking and choosing between assets. There’s a principle around treating all assets the same,” she said.

She also suggested existing capital gains tax concessions could be allowed for just brand-new properties in a bid to boost housing supply.

“One thing you might want to consider, though, is for new builds keeping the full discount. If, from now on, you buy a place that already exists, then that would be subject to the less concessional view,” Dr Ellis said.

Labor unsuccessfully campaigned, at the 2016 and 2019 elections, to restrict negative gearing tax breaks for rental losses to brand new properties. It also advocated halving the 50 per cent capital gains tax discount to 25 per cent for future real estate purchases.

The Commonwealth Bank, Australia’s biggest home lender, has been assuming Dr Chalmers will be announcing changes in the upcoming May Budget after he last month declined to rule out a new policy at a media conference, despite Prime Minister Anthony Albanese scrapping plans to do so in Opposition.

“In our view, the most likely step is a phasing out of the 50 per cent Capital Gains Tax (CGT) discount for housing and/or a cap on negative gearing,” its chief economist Luke Yeaman said in a note.

When it comes to tackling high inflation, Reserve Bank governor Michele Bullock has been accused of being political after she this week defended her monetary policy board’s “dual mandate” of aiming to keep inflation between 2-3 per cent while reducing the prospect of higher unemployment.

“Well, we do have a dual mandate, and we do have to consider employment when we are trying to bring inflation down,” she said.

The remarks were made after new shadow treasurer Tim Wilson suggested in a newspaper interview that the dual mandate be scrapped so the RBA can more heavily focus on tackling inflation, which University of New South Wales economics professor Richard Holden suggested made them political.

“The governor’s speech at The Australian Financial Review Business Summit strayed into politics,” he said an AFR opinion piece.

But Ms Bullock had a defender in Peter Tulip, a former senior research manager at the RBA who is now the chief economist at the conservative Centre for Independent Studies think tank.

“It’s the job of the central bank governor to explain current policy and her views on the framework,” he said.