IN BRIEF
- Business groups and social housing advocates have appeared at the first of two days of a Senate inquiry.
- The inquiry, which has been criticised for its length, is examining the government’s proposed tax reforms.
Amid the growing popularity of One Nation, both the government and the Coalition are facing challenges. Meanwhile, a Senate inquiry is underway, hearing mixed reactions to the tax reforms proposed in Labor’s latest budget.
During the initial day of a two-day Senate inquiry, representatives from business groups and social housing advocates presented their perspectives on the proposed changes to negative gearing and the capital gains tax (CGT) discount.
Matt Grudnoff, a senior economist with the progressive think tank, the Australia Institute, believes these reforms could potentially open up the housing market for younger Australians.
Addressing the inquiry, Grudnoff explained that while young people might not feel the impact of higher taxes, they would certainly notice if house prices, which have steadily increased over past decades, began to stabilize.
“As their incomes grow annually, they’ll find housing increasingly affordable,” he noted. “Instead of resigning to the idea of never owning a home, they’ll start to believe it’s attainable, seeing a path toward homeownership.”
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Meanwhile, the housing industry continued to express opposition to the reforms, with the Property Council of Australia saying the government had yet to make the case that the changes would be “supply positive”.
“Current conditions make it risky to introduce tax changes that Treasury and industry modelling both indicate will reduce housing supply,” the group said in its submission to the inquiry.
The federal government says the measures will help an additional 75,000 Australians buy their first home in the next 10 years, although the tax changes in isolation would result in 35,000 fewer homes being built.
A slight reduction in supply was a worthwhile trade-off for reducing housing inequality, said National Housing Supply and Affordability Council chair Susan Lloyd-Hurwitz.
Under the changes, the 50 per cent discount for capital gains tax will be replaced with a rate tied to inflation and a 30 per cent minimum, while negative gearing will be limited to new houses only from July 2027.
The National Housing Supply and Affordability Council expressed support for the government’s decision that investors retain access to the “full benefits of negative gearing and the 50 per cent CGT discount” on new builds.
In its inquiry submission, it said the move was in line with its position that housing supply be a key consideration in the design of tax reforms.
Independent economist Saul Eslake said that, while he had reservations about some aspects of the proposal, other criticisms of the changes were unwarranted.
“I’m never one to let the perfect, in my eyes, be the enemy of the good, and I think that the changes that the government has proposed would be an improvement,” Eslake told the Senate committee hearing.
The former Treasury economist argued the 30 per cent minimum tax rate on capital gains should be scrapped, the pre-1999 system of income averaging for capital gains be brought back, and a carve-out for start-ups should be applied.
While some of the concerns expressed about the reforms were legitimate, Eslake said the government should not yield to others motivated by nothing more than a desire to retain the favourable tax treatment they had received for decades.
However, the changes were characterised by the Property Council as an additional burden in a sector already facing onerous taxation.
“Housing is already highly taxed. On the cost of a new home, up to 40 cents in every dollar is attributable to taxes and charges across the three tiers of government,” the group’s submission read.
Property Council CEO Mike Zorbas told the inquiry on Monday that the government’s plan would “increase that investment burden on property businesses, large and small, in turn hurting consumers”.
The treasurer’s mid-year economic roundtable last year “appears to have been largely a tax hike forum,” he added.
Two-day inquiry criticised as ‘stitch-up’
The government has also been criticised over the length of the inquiry, with some saying two days is not enough for reforms that will have major consequences for the country’s economy.
Opposition leader Angus Taylor said the inquiry process was a “stitch-up” and the government was avoiding a genuine debate.
Business Council of Australia chief executive Bran Black said: “We’ve got effectively 22 days of inquiry with respect to these reforms, and yet about a year ago we had nine months of inquiry into the question as to whether or not we should remove nuisance tariffs on mushrooms, yarn and horsehair”.
“More time is required in order to consider them properly,” he said.
The Senate inquiry is expected to report back next week, and Labor has said it wants the changes passed by July 2, when parliament rises for the winter break, but the passage of the laws is not guaranteed.
The Coalition has come out against the measures, while the Greens are yet to indicate whether they will back the reforms through the Senate.
Assistant Treasurer Daniel Mulino said talks were still taking place with small businesses on potential concessions to the tax arrangements.
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