Opposition Leader Mr Bill Shorten, at the NSW Labor conference 13/2/2016, well in advance of the forthcoming federal election, committed a Shorten Labor government to abolishing negative gearing except on new housing from the 1st July 2017. He also announced that the capital gains tax concession would be cut from 50% to 25%, further deterring investment.
The changes may be laudable in theory for the less wealthy, but will they improve home affordability as hoped?
The more important reason for these changes is I suspect the projected increase in revenue of $32.1 billion over 10 years, raised from the more affluent with property investments.
Change is likely, since the coalition is also considering reducing tax concessions for negative gearing. Rather than abolish it, however, the suggestion is to cap the number of properties that can be negatively geared or to limit how much can be claimed as a tax deduction.
These proposals come at a time of growing uncertainty in property markets, especially in Perth after the mining boom ended, and in the over-heated Sydney and Melbourne markets.
The share-market decline this past year (the All Ordinaries share-index has fallen 20% from 6000 points to 4800) has put the Australian economy in danger of recession and is already pegging back property prices.
Australia needs to retain incentives to increase not diminish investment in housing and supporting infrastructure as our population increases and now exceeds 24 million.
Questions Australians should ask themselves when election time comes:
- Will uncertainty deter ordinary homeowners from buying and selling their properties until they know how they will be affected by the proposed changes? How will this affect the real-estate industry?
- Will investors create a property boom prior to the changes in order to qualify for negative gearing?
- What affect will the change have on the ability to find and afford rental accommodation when needed.
- If houses become harder to sell, and prices fall as intended to benefit first home purchasers, will it be more difficult for the elderly to afford units in retirement facilities.
Australians will undoubtedly need to brace themselves for more volatility and uncertainty in the property market in the months ahead.