Homeowners and investors are quaking in their boots after Prime Minister Anthony Albanese dodged questions about changes to negative gearing and capital gains tax regulations.
According to the Sydney Morning Herald, the Labor government is apparently inquiring with the Treasury for advice on making changes or reforms to the current policy in an effort to make housing more affordable for prospective first-home buyers and put a cap on the tax deductions that homeowners and investors can claim.
When asked about these proposed changes, Albanese did not give a direct answer but did not rule out potential reforms.
“I have seen those reports, and what we do is we value the public service. So from time to time, I’m sure the public service are looking at policy ideas, that’s because we value them,” he said at a press conference in Tasmania.
However, back in February, Albo said he had “no intention” to change these reforms. Interesting.
For renters and young people struggling with the cost of living crisis, these changes could be a really good thing. But, if we’re all being honest here, these terms and changes can be a little bit confusing.
So, in an effort to keep things as clear as possible, here’s your explainer on the proposed changes, negative gearing, the capital gains discount and what it all means for young Australians.
What is negative gearing?
Negative gearing is a term used to describe when an investment has higher expenses than income earned from the asset. Although we most commonly think of negative gearing in relation to the housing market, it can be used for any kind of investment. However, in terms of home ownership, these expenses can be things like interest rates and the cost of maintenance.
When these expenses occur and outweigh the income amount, the owner or investor can deduct the total loss amount from their other income source, hence reducing their taxable income.
What is the capital gains discount?
Capital gains tax is the tax you have to pay when offloading assets like property, shares or crypto if you sell for a profit. However, if you sell the asset after owning it for at least 12 months and are an Australian resident, you’re eligible for the capital gains tax discount which means you only pay tax on half of the profit you made.
Although it’s often referred to as a separate entity, it’s actually just part of regular old income tax.
Who benefits from the current negative gearing and capital gains laws as they stand?
According to The Australian Institute, negative gearing and the capital gains tax discount benefit high-income earners and distort the housing market.
They reported that in 2020-2021, the top 10 per cent of income earners received almost $13 billion in benefits from these expenditures. This was more than the bottom 90 per cent combined.
In a report from 2018, The Australian Institute found that young people were the biggest losers when it came to the negative gearing game.
“Negative gearing has not only pushed young people out of the housing market by pushing up house prices but the tax concessions also overwhelmingly goes to those over the age of 40,” the report reads.
“About 70 per cent of the benefit of negative gearing goes to those aged over 40 while just 30 per cent goes to those aged 40 or younger. This represents a double hit for young people. They are missing out on the negative gearing tax concession and they’re being priced out of the housing market.”
Ouchie mama.
What changes are the Labor Government rumoured to be making?
Rumour has it that the Albanese Government is looking into the possibility of scaling back negative gearing and capital gains tax discounts. If it does so, this could be one of the biggest talking points for the upcoming election. So far, we don’t know exactly how these laws could change but it is hypothesised that it could involve a cap on how many properties investors can claim the negative gearing deductions on.
However, it’s not the first time changes to negative gearing and capital gains have been floated by the Labor Government. Back in 2016 and 2019, Labor attempted to cut the captain gains tax deduction by 50 per cent and restrict negative gearing to new properties but this was put on the back burner.
In fact, it’s commonly thought that this proposal was one of the reasons Bill Shorten lost a pretty locked-in election to Scott Morrison in 2019.
What do people think about these changes and who benefits?
If you have a geez at any big newspaper or listen to Peter Dutton, it seems like people are pretty worried about these upcoming changes.
But other political groups like The Greens are all for it.
“Property prices and rents are growing way faster than wages, putting home ownership even further out of reach for millions of people, and we can’t fix this until the government stops handing out billions of dollars in tax concessions to big property investors,” Greens housing spokesperson Max Chandler-Mather said.
As a renter in my 20s who is slowly losing all hope of buying property, I hope these changes will be considered by the big dogs in charge. While the rich and powerful might lose a bit of cashola, it might just give many of us the break we need to get ahead, even if only by a iddy biddy bit.
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