Treasurer Jim Chalmers seems to have put the nail in the negative gearing reform coffin, saying from Washington that advice received was that it would have no positive impact on housing supply.
Treasurer Jim Chalmers seems to have put the nail in the negative gearing reform coffin, saying from Washington that advice received was that it would have no positive impact on housing supply.
Speaking to ABC 7.30 while in Washington for the G20, World Bank and IMF meetings, Mr Chalmers said the government would not abolish negative gearing or the capital gains tax discount.
It comes after weeks of speculation the government could shift its stance on the policies after reports emerged Mr Chalmers instructed treasury to investigate negative gearing reforms.
“We’re not going down the path of changing the negative gearing arrangements, abolishing negative gearing or abolishing the capital gains tax discount, because we haven’t been convinced that that would have positive consequences for supply,” he said.
“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."
Mr Chalmers also denied he instructed treasury to look into the reforms.
“First of all, it’s important to remind your viewers that Treasurers get advice on these sorts of issues all the time," he said.
“It’s not especially unusual to get advice on contentious issues or issues where there is a cost to the budget or where you have to provide a public report about the cost of some of these tax concessions.”
His comments came as Labor struggle to pass its Help to Buy housing assistance legislation through the Senate.
The legislation is aimed at helping first home buyers and those on low and middle income purchase their first home, with the government contributing 40 per cent of the purchase price and only requiring a 2 per cent deposit from the buyer.
But it has stalled in the Senate with the Greens wanting more, including reforms to negative gearing.
In July, the Parliamentary Budget Office analysis, requested by the Greens, showed tax revenue forgone due to the federal government’s policies of negative gearing and capital gains tax discounts will total about $165.5 billion between 2024-25 and 2033-34.
The figures have since been used by the Greens to demand a winding back of negative gearing incentives and a reduction in capital gains tax discounts in exchange for their support in the Senate to pass Albanese’s Help to Buy scheme.
Under negative gearing arrangements, when the cost of owning a rental property is greater than the income it generates, the owner can deduct the loss against their taxable income – therefor paying less tax.
With capital gains tax, people who sell an asset at a profit must pay tax on that profit at the same rate as their taxable income – however, if the person has owned the asset for a period of longer than 12 months, a 50 per cent discount on the tax can be given.
Despite Mr Chalmer's confidence currently supply-focused policies would address the issues, Deloitte Access Economics' September Business Outlook pointed to a downgrade in expectations for housing construction.
In previous iterations of the Deloitte publication, the potential for the construction sector to find its feet underpinned expectations of an upswing in construction activity through 2025.
Deloitte Access Economics Partner and report lead author Stephen Smith said in the latest report that was no longer the case.
"The construction sector has been dogged by difficulties since the onset of the pandemic, including high wage and materials costs, labour shortages, restricted site access and, ultimately, a squeeze on profits," he said.
"Adding to those woes is the fact that although construction costs are no longer accelerating, neither are they declining.
"With permanently higher construction costs, the sector will be both unwilling and unable to lift supply unless property prices also lift."
He said housing affordability was now expected to get worse before it gets better.
"Deloitte Access Economics has revised down the forecast of dwelling activity in this edition of Business Outlook," he said.
"Fewer than 1 million new dwellings are now expected to be built over the next five years, well below the Federal Government’s target of 1.2 million homes.
Deloite Access Economics partner and report co-author Cathyn Lee said housing and rental costs had also been exacerbated by higher interest rates.
"But with inflation decelerating and economic growth weak, the case for a rate cut is getting stronger," she said.
"While the timing remains uncertain, Deloitte Access Economics expects that subsequent inflation prints will lead the RBA to start cutting interest rates in February 2025."