Property investor Damian Collins weighs in on potential changes to Australia's capital gains tax discount.
The familiar sound of the call for changes to Australia’s Capital Gains Tax (CGT) discount is again increasing in volume, with a Senate Select Committee on the Operation of the Capital Gains Discount likely to recommend a reduction in the discount, which translates into higher taxes.
Based on what’s been floated by the government in the press, it feels almost inevitable that a reduction from the current 50 per cent discount is coming. The extent of it we don’t know, but it's possible it will be restricted to residential property.
The government talks about intergenerational equity and focusing on making housing affordable, especially for the next generation of homeowners.
Those are important aspirations but the illusion that increasing taxes on investors will unlock supply or reduce prices is just misleading.
Data from leading industry analysts like PropTrack and Cotality tells us that investor activity is primarily a response to our tight rental market, not the root cause of unaffordability.
In many places around Australia, rental vacancy rates are at or near historical lows, which is translating into higher rental prices.
What will reduce rents is more supply of rental properties, not less. You don’t solve a supply problem by penalising those who provide homes to rent.
The push for CGT changes is fundamentally based on the premise that a higher tax burden will result in a more affordable housing market, as investors reduce their appetite for property, allowing more homeowners to enter the market.
But even the Grattan Institute, which is hardly a pro-investor lobby, conceded that such a change would reduce house prices by just 1 per cent.
The real drivers of price growth are far more fundamental; the undeniable imbalance between demand and supply.
Homes aren’t suddenly going to become more affordable because investors have to pay a higher rate of tax when they profit on a sale. The outcome is likely to be the opposite of what’s intended.
Property, for a vast majority of investors, isn’t a get-rich-quick scheme; it’s a long-term wealth building strategy.
Treasury research shows property investors are long term holders. WA Treasury commentary shows that residential investment property in WA is predominantly held long term, not traded frequently.
NSW Treasury goes into more detail, with the mean holding period for investors being 13.7 years.
This is a clear indication that most property owners are long-term asset holders. So, what happens when you hit them with a higher CGT? You don’t encourage more sales.
You incentivise investors to hold onto their properties for even longer to avoid paying a higher tax on exiting the asset.
Already some investors have stated to me that they will hold their properties until they retire and sell when they are in a much lower tax bracket.
Australian property owners are already forking out an estimated $67 billion annually through stamp duty, land tax, and capital gains tax alone. This asset class already pays more than its fair share.
We have a clear, pressing target to build 1.2 million homes over five years. If we are genuinely serious about intergenerational equity and getting more people into home ownership, then our focus must be on supply-side solutions.
That means tackling planning bottlenecks, addressing infrastructure shortfalls, and particularly the labour shortages in the construction industry.
Increasing a tax that impacts long-term investors, whose role is often to meet rental demand when supply is scarce, is nothing more than a distraction from the real work that needs doing.
Let's stop talking about penalising property owners and start talking about how we get more homes built. That’s the only path to genuine housing affordability.
