Capital gains tax grab risks baking higher house prices into the system

The makers of a brand of pastry used to have a TV commercial that talked about “layer upon layer upon layer.”

The same refrain applies to policy failures when it comes to housing markets in Australia. The mooted move against capital gains tax is just another blunder in a long line of blunders.

First, what’s with this narrative that capital gains tax is somehow a “discount” that is “costing billions”? 

It’s a tax that already generates a lot of revenue. It’s a tax on 50 per cent of capital gains over time. The proposal the Federal Government is clearly toying with is that tax should now be levied on 75 per cent of the gains. That’s a big increase. It is not a reduction in any discount. Perverted logic rules supreme.

Incredibly, it seems neither the ATO nor ABS publish a figure for the total amount collected as capital gains tax, because the tax is calculated as part of the individual’s income (thus income tax). But they do provide estimates of the cost of the CGT “concession” to the budget.

Paul Keating once said you should never stand between a treasurer and a bucket of money. Same applies to the ATO it seems. Talk about gaslighting!

More tax, less housing investment

The likely response of increasing taxes on a thing you want more of – being housing – is always that you deter investment in that thing.

So, the likely outcome of an increase in the tax on capital gains will be a decrease in investors putting their money into housing.

Indeed, depending on whether housing is isolated or the CGT changes apply to all gains, they may just withdraw investment capital in traditional assets and pursue alternatives. Who knows what, or where?

It remains to be seen if the Federal Government will also move on another concession, that being negative gearing.

Allowing losses on an investment to be offset against other sources of income to arrive at a net income figure is hardly a concession, but there have been enough voices pushing for negative gearing to be limited to think it must be on the cards also.

Myriad forces pushing up property prices

Both supposed reforms are intended to deter speculative investment in real estate, which promoters claim has driven up house prices beyond the reach of young Australians.

To an extent, there’s some truth in that. But the same promoters of that “reform” idea seem to have no issue with running immigration levels at a rate that is clearly beyond the market’s ability to supply (demand exceeds supply, you dummies. We know what happens as a result!).

Nor do they seem to have an issue with the recent 5 per cent deposit scheme for first time house buyers, without the usual required deposit of around 20 per cent and without mortgage insurance. The IMF is already warning this has driven up prices.

Neither does there seem to be much appetite to recognise that layer upon layer upon layer of ‘reforms’ to the National Construction Code have added tens of thousands of dollars to the cost of building a compliant new home. Or that regulatory complexity due to planning ‘reforms’ now mean the number of planners per house has increased seven-fold in the last 30 years.

Or what about the fact that the GST alone adds 10 per cent to the cost of every new house built, but doesn’t apply to the sale of established stock? That 10 per cent is part of the 40 per cent cost impact of taxes and regulations now embedded in the cost of every new home, compared with only around 3 per cent to 4 per cent in stamp duty on established homes.

Let’s not mention any of this. Instead, we are now seriously countenancing a budget measure that – despite all the various obstacles already thrown in the way – will potentially make investment in housing less attractive.

Just when we desperately need more investment and more supply. It’s pure genius.

Layer upon layer upon layer of policy may win applause in Canberra, but it is everyday Australians who are likely left to swallow the cost.