The recent and ongoing debate surrounding negative gearing in the media and in Parliament in recent weeks has been relentless.
The media speculation is just another indication that 2016 is a Federal Election year.
While the Coalition have been in the process of developing some kind of tax reform policy, they have been investigating every possible angle to reduce personal and company income tax and to assist in repairing the structural budget deficit.
The Coalition is reportedly seriously considering imposing an annual cap on negative gearing for ‘wealthy investors’ and limiting those with ‘excesses.’ The speculation has been given some added intensity because the government has not made public its policy in regard to negative gearing.
Meanwhile, the Labor Party has put forward a policy to limit negative gearing to new property only and for the capital gains discount to be reduced from the current 50 per cent to 25 per cent after 1 July 2017.
It is claimed that this will be a fix for improving home ownership for first home buyers and at the same time reduce the cost of housing.
Master Builders’ concern is that the proposed changes are being taken in isolation and are not part of a holistic tax reform package nor about any serious reform to improve housing affordability.
It is about a tax grab to pay for a ballooning structural budget deficit, but since any savings will be relatively negligible, it is a poor one. Yes, the structural budget deficit needs repair, but to tax housing more is a poor policy response. A serious policy response must also include how government spends the tax it raises.
Removing negative gearing will not improve the cost of housing; this will require different policy responses. Master Builders has been calling for competition payments to be made to state and territory governments to remove the structural impediments that limit the supply of housing and which drives up housing costs. Stamp duty reform is also needed as this raises the deposit to enter home ownership.
Although it is argued that there will be a benefit to builders undertaking residential work if this policy is put in place should the ALP win this year’s Federal Election, it ignores the substantial work done in repairing and upgrading established dwellings.
Changing negative gearing will also not result in a major boost in employment in the building industry since the Labor proposals equate to only a small increase in the number of new dwellings and resulting employment.
Master Builders in its comprehensive pre-budget submission has called for a holistic approach to tax reforms which generate economic growth and jobs. This is best done by reducing the company and personal income rates.
Master Builders will continue its advocacy to improving access to affordable housing for first home buyers, but taxing investors - most of whom are mums and dads - by removing negative gearing is not the answer.