Updated ,first published
Treasurer Jim Chalmers has made it clear that any changes to capital gains tax and negative gearing will be accompanied by transitional arrangements that will provide protection for people who already have wealth, ignoring proposals to increase income from housing reform.
Prime Ministers are expected to sign key elements of tax reform in the May 12 budget in the coming days, with cuts to CGT agreement and the adjustment of negative gear two important components of the package which is also expected to provide new incentives for business investment.
A previous analysis of the elimination of negative gearing – the process by which a landlord can reduce their total taxable income through losses on their rental properties – estimated it could raise up to $5 billion a year.
But Chalmers told a podcast with the Commonwealth Bank that the proposals for a large and rapid increase in income were wrong.
He said that if the government continues with any changes, it will consider the previous decisions of investors, suggesting that transition plans will be put in place or those with existing assets.
“People think that all of a sudden, a large amount of revenue will appear that you can give directly and immediately, and most people who think deeply about the tax changes that you asked me about would understand that there will not be a pile of revenue,” he said.
“Without getting into abstract theories about policy, what you’re trying to do is make sure we recognize the decisions that people made in the past.”
In a separate interview with Channel Seven on Thursday morning, Chalmers doubled down on his warning that people shouldn’t expect big increases in incomes.
“People should not expect to have this large amount of new revenue over the next few years in the budget,” he said.
Chalmers told Seven that all the housing changes were aimed at giving young people “a foothold” in the property market.
He said increasing distribution remains the best way to help young people.
“I think most of us are very concerned, over time, about how there are fewer and fewer young people who can buy their own homes. So housing supply is the main game,” he said.
Apart from tax changes, the budget is expected to contain a package of savings and measures aimed at increasing the rate of economic growth without increasing inflation. Data released Wednesday showed inflation at a three-year high of 4.6 percent, partly due to the war in Iran and its impact on gasoline prices.
Chalmers told the Commonwealth Bank podcast that productivity, from reducing compliance costs to the use of AI, will be a key element of the budget.
“What people will see in the budget, if I can get this productivity package in the next week or so, is that people will see a real effort to do a lot on productivity. Part of that is AI, but there’s a lot of other things in there as well,” he said.
Property tax changes are being signed off as the government lays groundwork but remains behind its target of building 1.2 million homes by mid-2029.
The National Council on Housing Supply and Access has this morning released its third “state of the housing system” report.
It found that in the five years to 2029, the country is now on target to build 980,000 houses. That’s 42,000 above his estimate from last year, but still more than 200,000 behind the 1.2 million target. But the council warned that the war in Iran has added uncertainty to the outlook for housing supply, with higher oil prices adding to pressure on the construction sector.
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Shane Wright is senior economics writer for The Age and The Sydney Morning Herald.Connect through X or email address.
