Labor will introduce its changes to negative gearing and capital gains tax by January 1 next year if it wins the upcoming election in May – but the announcement has sparked backlash from property industry groups.
The ALP will limit negative gearing to new housing. All investments made before this date won’t be affected by this change and will be fully grandfathered – meaning investors who purchase existing properties before January 1 can still claim net rental losses against wage income.
The capital gains tax discount will be halved for all investments entered into after January 1. This will apply to both new and existing properties.
In a statement on Friday, Shadow Treasurer Chris Bowen said the changes would raise $2.9 billion over four years and save the budget $32 billion over ten years.
“If you already use negative gearing, nothing changes. It’s not retrospective. And you can still use it for new houses,” Mr Bowen said.
“Federal Labor’s plan is good for the budget, good for housing construction jobs and fair for first home buyers.”
But a number of industry bodies have spoken out against the proposed changes since this morning’s announcement.
The Property Council of Australia has said it remains strongly opposed to the tax overhaul and deeply concerned about the potential impacts it may have on housing markets and the broader economy at this “uncertain time in the cycle”.
“In particular, we are concerned with the impact of these tax changes on new housing construction, with a survey of investors commissioned for the Property Council indicating that this policy will not create the stimulus for new housing construction that the ALP has assumed,” the group said in a statement.
“We are relieved that the Opposition has taken account of industry views and does not intend to rush this change in for a 1 July 2019 start date if they were to win government.
“To do so would have required retrospective legislation, rushed drafting and no opportunity to take expert advice from Treasury and stakeholders.”
The Real Estate Institute of Australia (REIA) has also reiterated its strong opposition to the Labor Party’s negative gearing and capital gains tax policy.
“The REIA has always been concerned with the impact the policy would have on housing markets, buyers, renters, and economic activity,” REIA President Adrian Kelly said.
“The concern is magnified in the current market. There is almost truck loads of analysis and reports showing the adverse impacts of the policy on mum and dad investors, home owners, renters, the construction industry, state governments and the economy.”
The latest research came last week, when SQM Research showed house prices would drop by as much as 12 per cent by 2022, while rents would increase by as much as 15% under the policy.
“For first home buyers, who according to Labor, should see improved housing affordability by a “leveling of the playing field” will now face a faltering economy, lower employment prospects, the possibility of higher interest rates under a Labor government and higher rents while they save for a deposit.”
SQM Research Managing Director Louis Christopher said that while they take the view negative gearing reform is a good thing over the long term, making such a tax change during a housing downturn is a “risky move”.
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