Some say this controversial plan will destroy Australia’s housing market. But others argue negative gearing “fearmongering” is “bollocks”.
It’s one of Labor’s biggest policy proposals and is shaping up to be one of the defining issues of next year’s federal election.
But the ALP’s plan to reform negative gearing and capital gains tax continues to divide opinions long after it was first announced, as Australians are bombarded with conflicting opinions and reports on the controversial issue.
Under a new Labor government, negative gearing would be limited to newly built properties, with the Party also wanted to halve the 50 per cent capital gains tax discount in a bid to help Aussies buy homes.
But while supporters say the plan would end the supposed unfair advantage now enjoyed by investors at the expense of first homebuyers, critics argue it also has the potential to damage the housing market.
According to the Property Investment Professionals of Australia (PIPA) and the Property Investors Council of Australia (PICA), new modelling has shown the proposed changes “will decimate the property market”.
PIPA chairman Peter Koulizos said independent research commissioned by Master Builders Australia found the financial impact of the policy could cause a multibillion-dollar hit to already struggling markets.
“Property investors provide housing for 30 per cent of Australians at a time when spending on social housing is at an all-time low,” he said.
PICA chairman Ben Kingsley said: “There seems to be a fundamental misunderstanding of the laws of demand and supply in Labor’s approach to property taxation.”
And in an exclusive interview with news.com.au last month, Prime Minister Scott Morrison warned the proposed changes could even “invite a housing market crash.”
“If you now take a sledgehammer of negative gearing and capital gains tax changes – if you abolish negative gearing as we know it – then you’re inviting a housing market crash. And that’s good for nobody,” Mr Morrison said.
However, a new Deutsche Bank report has poured cold water on claims the plan would spark a “slump” in the construction of new homes.
According to Fairfax Media, Deutsche Bank chief economist and report author Phil O’Donoghue believes Labor’s changes could actually cause a slight boost to new home supply.
“If a reduction in the ‘after tax return’ available to property investors was perceived as imminent, we would expect to see … a temporary surge in approvals as investors sought to access the ‘grandfathering’ clause in Labor’s proposed policy. As yet, there is no evidence of this,” Mr O’Donoghue said in the report. “This lowers the likelihood of a ‘slump’ in dwelling approvals of the proposed policy is implemented, in our view.”
And Australian economist Saul Eastlake told Fairfax claims changes to negative gearing would speed up a drop in house prices were false.
“All that’s bollocks … if you’re an opponent now is never the right time to do it, and I think that should just be seen through,” Mr Eastlake told Fairfax.
According to the official ALP policy, the reforms would come into effect “from a yet-to-be-determined date after the next election” and would “help put the Australian dream of home ownership back within the reach of middle and working class families.”
Daily News (Warwick), 3 November 2018, Page 4
Chronicle (Toowoomba), 3 November 2018, Page 29