It now seems certain that next month’s federal budget will include cuts to the capital gains tax or negative gearing – or both.
The reasoning is simple. The federal budget is bursting at the seams, government spending keeps increasing and that is contributing to high inflation that will lead to interest rate rises and a potential recession.
So the government has to rein things in a bit. It will do this by cutting spending in some places – the NDIS and public service seem the most obvious – and levying higher taxes in others.
Neither are easy to sell to the public. And the government will never outright admit the predicament it has created for itself.
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So, when all else fails, resort to the politics of envy. Pit the rich against the poor and pretend you’re Robin Hood when you’re actually just robbing Peter to pay Paul.
This masthead’s Samantha Maiden reported on Wednesday that the Albanese government would use figures showing a decline in home ownership among young people to justify tax changes to investment properties – the argument being that tightening the screws on property investors will make it easier for first home buyers to enter the market.
It will argue that they are getting a better deal than you, and so it must be changed for your sake (never mind that it also delivers a tax windfall for the government – that definitely has nothing to do with it).
But, unfortunately, the politics of envy is a cynical ploy that appeals to our worst base instinct to hate those doing better than us – thus dragging us all down, because it demonises aspiration.
And it won’t deliver the promised effect of opening up properties to the young. In fact, it will do the opposite. It’s just a smokescreen to justify higher taxes.
The theory goes something like this – cutting the capital gains discount or restricting negative gearing should make investing in property less attractive, because it’ll be less profitable. That should mean fewer investors and their money in the market, so you have more homes at more affordable prices for other people to buy.
It’s a simple idea, but its simplicity defies reality.
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Many of the young people who are meant to benefit from this policy would be renting and not have much left over to save for a deposit.
Even if a glut of properties were to hit the market overnight because mum and dad investors could no longer afford to hold their properties at a loss, most would be unable to afford to buy them.
While some new home buyers may enter the market, it would open a multitude of properties up to even wealthier investors who would take the opportunity to buy while the market is cheap and who could afford to absorb short term losses.
That would, in effect, create a great wealth redistribution from the middle to the higher classes.
It would also – if it had its desired effect – remove rental properties from the pool, thus further tightening an already closed market.
That means higher rents.
Labor discovered this in the mid 1980s when Bob Hawke and Paul Keating abolished negative gearing.
The ban lasted two years before rising rents and razor thin vacancy rates forced their hands.
It would hurt the rental market from every angle.
Existing rental properties would leave the rental market. Already-built properties would be less likely to enter the rental market. New properties wouldn’t be built to enter the rental market. And properties that stay in the rental market would likely have rents jacked up to make up for the new losses.
Whichever way you cut it, rents go up and those least able to afford it end up paying the money the government reaps in tax.
Housing affordability is undoubtedly one of the biggest issues facing Australia, but this is not the answer. It only serves to make things worse for those saving for a home.
The housing market has to be carefully weighted to serve the best interests of all involved – owner-occupiers, renters and investors.
There’s no question the current market is currently weighted against renters and those trying to become owner-occupiers. But fiddling with CGT or negative gearing won’t fix either problem.
It would be a purely cynical cash grab for which the poorest would eventually pay.
