Cutting the capital gains tax discount would give first home buyers a better chance at getting into the property market, Treasury officials have conceded even as the housing industry warns any change would lead to fewer homes and higher rents.
As former Reserve Bank governor and Treasury secretary Bernie Fraser said a “cartel” that included politicians was opposed to any reform that may reduce house prices, Treasury staff told a Senate inquiry that changes to the capital gains tax would ultimately have a “small impact” on the $12 trillion housing sector.
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The federal government is considering a change to the current 50 per cent concession on capital gains tax (CGT) as part of a broader overhaul of the tax system.
Prime Minister Anthony Albanese has refused to be drawn on whether the government will change the concession, which could feature as part of the May 12 budget that Treasurer Jim Chalmers has said will focus on “intergenerational equity”.
Treasury first assistant secretary Shane Johnson told the inquiry on Tuesday that there had been a great deal of analysis into CGT changes, with almost all showing relatively little impact.
He said the biggest impact would likely be on who owns property, with the pendulum swinging back towards first-time buyers.
“It provides an opportunity, essentially, for first home buyers to have a house,” he said.
His comments came ahead of a forceful rejection of CGT changes by the property sector, with the Housing Industry Association and the Master Builders Association both saying housing was already highly taxed.
HIA managing director Jocelyn Martin said extra taxes would result in investors building fewer homes, which would then lead to an increase in rents.
If governments needed more revenue, then they should put in place policies that supported home construction.
“If you want more revenue from housing, build more homes,” she said.
“Whether you are concerned about homeownership, rental affordability, government revenue or fairness between investors and owner occupiers, the answer is the same: build more homes.”
But Fraser, who argued the entire concession be axed, said younger Australians were being shut out of the property market by those with a vested interest in keeping prices high.
“[There’s] this cartel, which comprises of existing home owners, property developers and, not least, lots of politicians who like to see house prices rise and go on rising because there’s votes in it,” he said.
Fraser said the discount was one of the many factors that had led to higher house prices. He said it was hurting young people who cannot get into the property market.
“They must be watching with awful dismay,” he said.
One of the nation’s leading tax experts, Australia National University’s Bob Breunig, told the inquiry that without change to the tax system more young people would become disenchanted and angry with politics.
Pressed by Senator Nick McKim on medieval-era land taxes, Breunig alluded to the years leading up to Napoleon’s dictatorship of France in the 18th century.
“That is the trajectory that we are on. I don’t think we’re back to pre-French Revolution times, but I’m worried about that,” he said.
Breunig, who said changes to the CGT concession would have little impact on the property sector, said the biggest issue was the widening wealth gap among younger Australians.
“If you’re a young person and your parents have a lot of assets, those assets will eventually come to you,” he said.
“The real inequality is between people in the same generation, those who have assets and those who don’t.”
Breunig said older Australians had enjoyed a much larger increase in income over recent decades, largely because of the lift in asset prices.
He said better targeting of government handouts should be examined.
“It’s not that we should be punishing old people. We all want to live in a country where old people are rich,” he said.
“Let’s target assistance to those people who really need it.”
On Monday, Labor doyen Bill Kelty said the current income tax system and its top marginal rate of 47 per cent were hurting young Australians.
Shadow treasurer Tim Wilson on Tuesday signalled the Coalition, which opposed Labor’s tax cuts ahead of the election last year, would look at ways to reduce tax rates.
“I’m hoping this is something we’re absolutely going to look at it and if we can achieve it, it’s something I want to achieve,” he told radio 2GB.
“It’s not fair. It taxes young people in particular when all they’ve got is their physical labour or of course their intellectual labour.”
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Shane Wright is a senior economics correspondent for The Age and The Sydney Morning Herald.Connect via X or email.