The prime minister has conceded he broke an election promise not to reform negative gearing, but has argued the change of heart will benefit the nation by shifting the dial on home ownership rates.
The controversial reforms will bring on a contest over tax at the next election with the Coalition vowing to fight the changes and Opposition Leader Angus Taylor attacking the government for a projected decrease in the building of homes and marginal rent rises.
Labor revealed in Tuesday night’s budget it would limit negative gearing and the capital gains tax discount to those who invest in newly built homes from July 2027. The changes will be grandfathered, meaning those who already negatively gear their investment properties – new or old – can keep doing so until they are sold.
“We’re convinced that this was the right thing to do,” Anthony Albanese told ABC News Breakfast during a media blitz the morning after the budget.
During the election campaign, Albanese repeatedly ruled out touching the investment incentive. “Yes. How hard is it? For the 50th time,” he told a reporter in April last year when asked whether the change was off the table if he was re-elected.
On Wednesday, the prime minister said the about-face would not hamper ambition, but would redirect investment in a way that would benefit the country.
“You can still negatively gear a property. The difference between the change in the system when it comes in is, as well as being able to invest in an investment property to help yourself and your future income and wealth, you’ll be helping the nation if you invest in a new home rather than an existing home that’s already there.”
Albanese said the current tax settings had created two classes of Australians – those who own a home and those who don’t – and that the division was eroding social cohesion.
But the opposition leader said the budget would fail to tackle the housing crisis and vowed to fight the winding back of tax breaks.
“We’re certainly not going to support Labor’s broken promises, their higher taxes, their lower living standards and their fewer homes,” Taylor told Radio National on Wednesday.
“The extraordinary thing is that they admit in their own budget papers that their tax changes are going to bring about fewer homes being built, and that’s the opposite of what we need.”
The budget papers show Treasury has modelled 35,000 fewer homes are expected to built over 10 years as investors seek alternate investments because of changes to negative gearing and capital gains tax. The government is arguing that other measures – such as a $2 billion fund for local infrastructure to support housing development – will offset the losses and lead to a net increase in housing supply.
Taylor said he supported the infrastructure fund, which the Coalition took to the last election, but “whacking Australians with taxes” would not solve intergenerational inequity.
Asked whether the reforms were needed to shift home ownership to owner-occupiers rather than investors, Taylor said: “They admit that this is going to drive up rents – that’s in their own budget papers. There’s going to be less supply.”
The budget papers say the government’s changes are expected to increase rent “less than $2 per week” for a household paying the median rent.
Shadow treasurer Tim Wilson said the Coalition would consider repealing Labor’s tax reforms if they took office at the next election.
“We’ll take every measure to make sure that we stop and fight them and defeat them,” he told Sky News. “But of course, if necessary, we’ll look at repeal as well.”
Taylor said he would support the $250 working Australians tax offset that would kick in from next year, but warned bracket creep would quickly wipe out the benefits for taxpayers.
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Brittany Busch is a federal politics reporter for The Age and Sydney Morning Herald.Connect via email.
Emily Kaine is a national news blogger at The Sydney Morning Herald.Connect via email.