Treasurer Jim Chalmers has confirmed that the government’s focus remains firmly on increasing the supply of homes rather than altering existing tax incentives such as negative gearing and capital gains tax discounts.
Speaking to ABC’s 7:30 from Washington this week, Chalmers said: “I think it is primarily a supply challenge … one of the reasons why we’re not going down the path of changing the negative gearing arrangements, abolishing negative gearing or abolishing the capital gains tax discount, is because we haven’t been convinced that that would have positive consequences for supply.
“We’re focused almost entirely on supply. There aren’t enough homes for Australians to live in. The housing pipeline is not anything near what we need it to be,” Chalmers said.
Last month, Chalmers revealed he had tasked Treasury with exploring potential measures to limit tax concessions for property investors. This admission came amid rising pressure from the Greens to tackle housing affordability, with the party linking support for key housing policies to changes in negative gearing and capital gains tax.
But while keeping Treasury’s modelling under wraps, Chalmers stated this week: “We all need to do our bit when it comes to investing in building more homes, and that’s our focus, and that’s why we’re not going down the path that has been suggested to us by others when it comes to some of those tax arrangements.”
Economists have long argued this perspective. In September, AMP’s chief economist, Shane Oliver, pointed out that tax concessions account for only a “tiny fraction” of the reasons behind high housing costs. He noted that the real issue is the significant gap between housing supply and demand driven by population growth.
“Reducing the after-tax return for investors may lower house prices in the near term as investor demand falls but will likely boost them over the long term as less investors will mean less rental property supply, putting upwards pressure on rents and prices,” Oliver told InvestorDaily.
Similarly, Mark Chapman, director of tax communications at H&R Block, said that while there may be reasons to examine tax policies related to housing, substantial reform of negative gearing alone is unlikely to solve the housing crisis.
“There may be sound policy reasons for looking at aspects of tax policy around housing – many countries only allow losses on investment properties to be offset against other property income, which feels like a broadly sensible idea – but wholesale reform of negative gearing is unlikely to be the magic medicine that cures our housing crisis,” Chapman said.
The Coalition has stressed that there are no circumstances under which it would support any reforms to negative gearing.
