Capital gains tax concessions and negative gearing: Labor MPs lobby Treasurer Chalmers before Budget

Labor backbenchers in marginal seats are urging Treasurer Jim Chalmers to dilute capital gains tax concessions and negative gearing in a bid to tackle Australia’s housing affordability crisis.

Ahead of the May 12 Budget, Treasury is understood to be modelling changes to the existing 50 per cent CGT discount on investment properties owned for at least a year.

The Labor-aligned McKell Institute think tank last year proposed restricting the concession to brand new houses and increasing it to 70 per cent for higher-density housing like apartments in a bid to boost construction activity.

Rob Mitchell, a Melbourne-based MP holding the marginal seat of McEwen, said he had told the Treasurer that he supported restricting tax breaks for housing investors to brand new properties but grandfathering the changes for existing landlords.

“Jim knows my view on it. I have discussions with Jim about different policy things as often as I can,” he told The Nightly.

“I’d certainly support changes to capital gains tax and I would support changes to negative gearing.

“Some of the stuff that gets raised these days is about limiting the number of homes, I don’t think that’s an unreasonable thing.”

Labor lost the 2016 and 2019 elections with a plan to limit negative gearing to brand new residential properties and halve the existing 50 per cent capital gains tax concession to 25 per cent for all investment properties bought after a certain date.

But since the COVID pandemic, house prices have been surging by double-digit annual figures in cities like Brisbane, Perth and Adelaide, which had previously been affordable for middle and average-income earners.

“Every generation will tell you that they’ve never had it harder, but I think these younger generations are copping it a lot more. It is getting more difficult,” Mr Mitchell said.

“If you’re only looking at things as a financial asset, it’s always going to get more difficult, but we’ve got to start looking at things as a place to raise families, for people to live, and we’ve got to explore all different options.”

While former Labor leader Bill Shorten lost two elections with a plan to dilute tax breaks for property investors, two-thirds of Australians now back the idea of changing capital gains tax concessions and negative gearing, a poll of 4000 Australians for policy change charity AMPLIFY found.

“Australians across every demographic measured are saying it’s time for housing tax settings to change,” AMPLIFY chief executive Georgina Harrisson said.

“It would be hard to design a tax system less suited to solving Australia’s housing crisis than the one we have.”

Greens senator Nick McKim, who chaired an inquiry into capital gains tax concessions, last month called for the abolition of capital gains tax concessions and negative gearing without any grandfathering for existing investors.

Former Liberal prime minister John Howard’s government introduced the 50 per cent capital gains tax concession in September 1999 to replace a system of indexation for inflation that had existed since the CGT debuted in 1985.

Since then, house price increases have far surpassed annual wage rises.

The CGT concession was designed to boost the supply of rental properties but in the year to March 31, national rents have soared by 5.7 per cent, new Cotality data released on Wednesday showed.

“Vacancy rates remain very tight nationally and the volume of available rental properties is well below where it needs to be. Until supply catches up meaningfully with demand, rental growth is likely to stay elevated,” Cotality head of research Gerard Burg said.

Renters are now spending a third of gross median household income paying a landlord, up sharply from 26.2 per cent in September 2020 during the pandemic, the Cotality data showed.

Population growth is also adding to rental demand with 478,910 permanent and long-term arrivals in the year to March, based on preliminary Australian Bureau of Statistics data that can count international students multiple times as they leave and re-enter the country.

Dr Chalmers admitted the Middle East conflict would push up building costs and compromise Labor’s plan to build 1.2 million homes in the five years to June 2029.

“Obviously there’s very substantial pressure on housing at the moment, and particularly on construction costs as a consequence of the war in the Middle East, and we had some inflationary pressures even before the dramatic escalation of hostilities earlier this year, so we recognise that,” he told reporters in Brisbane on Wednesday.