Treasurer Jim Chalmers has defended Labor’s capital gains tax changes as a measure to protect first homeowners locked out of the housing market. He rejected claims of an “ambition tax” when grilled about the impact on existing homeowners on Sunrise on Tuesday.
Billboard Campaign Against Tax Changes
Billboards have been erected outside Canberra airport, claiming that “getting ahead just got taxed”. Chalmers acknowledged the opposition, stating, “I understand that when you’re making difficult tax reforms, ambitious tax reforms, which are all about cutting taxes for workers and making things fairer for first home buyers, there won’t be unanimous support for that.” He added, “It's always the case in this country, when you’re engaged in difficult economic reform and particularly tax reform, that it will be contested, there will be people who campaign against that, and that’s what we’re seeing now.”
The billboard slamming the new capital gains tax changes has popped up outside Canberra Airport, claiming small business owners will be among those “punished” by the tax changes. However, the government has stated that over 90 per cent of active businesses are eligible for CGT concessions which will “reduce or completely remove tax on any gains”.
Understanding Capital Gains Tax
Capital gains tax (CGT) is the tax you pay on the profit you make when you sell an asset for more than you originally paid for it. While it is most commonly associated with property and shares, it can apply to almost any asset held for investment, including cryptocurrency, managed funds and valuable collectables. CGT was calculated differently before 1999, when the Howard government brought in a 50 per cent discount policy allowing investors to pay tax on only half of the capital gain made on assets held for more than 12 months.
Housing Market Distortions
Chalmers said this was when the housing market began to transform. The CGT change made 25 years ago was framed as a way to simplify the system and encourage investment, particularly in shares. But it ramped up investment in the more stable housing market, instead. Chalmers said the new changes will work to fix a distortion that was created in the economy. “We think that some investments have been undercompensated,” Chalmers said, referencing shares. “The big overcompensating has been for established housing, and this is the main reason we’re making this change. For too long now house prices have far outstripped income growth, since the original change was made in 1999. We’re applying a fairer more neutral calculation to the capital gains tax — there is still a discount after these changes come in, it's just calculated differently.”
Impact on House Prices
Sunrise host Nat Barr asked Chalmers whether Treasury is asking property owners to “suck it up” so that first homebuyers can get their foot in the door of the housing market. But Chalmers argued that housing investment is a long-game, and that the Treasury assumption is that prices will continue to grow, just more slowly. Chalmers referenced housing data from over a 20-year period, but was questioned over more recent market prices. Barr pressed him about falling property values in Sydney and Melbourne, where there have been price drop predictions of $120,000 and $80,000 respectively over the next year. He said that the “softening” in house prices over the last year “is about more than budget changes. It’s about interest rates and broader economic conditions as well.”
Investor Flight Concerns
Barr also questioned Chalmers over whether investors would leave Australia and head to Singapore or New Zealand, which do not impose CGT, but Chalmers said the data doesn’t reflect “those kinds of outcomes.” Fleeing to invest in CGT free nations would not necessarily benefit Australian residents, either, as the ATO also considers capital gains on overseas assets.
The changes come as the government prepares to deliver another tax cut from tomorrow, along with higher wages, an extension of paid parental leave and extended petrol tax relief.
