In a joint press release on April 24th, the Prime Minister and Treasurer confirmed that the Liberal party will not make any changes to the current negative gearing regulations. According to the government, nearly two thirds of Australians who make a capital gain on their investments have a taxable income of $80,000 or less.
“Driving down the value of the most important asset for most Australians is not a strategy for economic growth and enhanced prosperity. The Australian Prudential Regulatory Authority (APRA) has already taken action to ease risks in lending practices,” said the press release.
“The evidence is that the previous growth in housing prices has moderated and that housing affordability across Australia is improving.”
At a doorstop in Sydney, the Prime Minister doubted that the announcement had come as a surprise and said that the key to retaining affordability was not to decrease tax breaks but to increase supply.
“The reason that housing has become less affordable in Sydney for example, but especially, has been because there has not been enough supply. It has been a supply side problem. Look can I say to you we want to see more houses built, more apartments built, we want to see more construction and more construction jobs.”
So what has the response of industry been to the announcement.
Master Builders Association
Master Builders has strongly backed the government’s announcement.
“Confidence in the residential building sector will be boosted by the Government’s announcement that it has out ruled out any change to the current negative gearing arrangements in the forthcoming May Budget,” Wilhelm Harnisch said.
“The retention of negative gearing provisions for new and established homes is a long held policy by Master Builders and therefore Master Builders strongly backs today’s announcement,” he said.
“The Prime Minister’s announcement means $8 billion of investment each year spent on renovation of private rental properties will continue and thereby boost economic growth and jobs for tradies,”
Housing Industry Association
The Housing Industry Association has also welcomed the announcement.
“Negative gearing promotes private investment in the residential rental market, stimulates economic activity and relieves pressure off social housing and ultimately the public purse,” said HIA Chief Executive Industry Policy and Media, Graham Wolfe.
“With an ageing workforce and mounting pressure on publicly funded services, retaining negative gearing will support the delivery of a larger stock of rental accommodation, increasing access to shelter, while promoting wealth creation and self-sufficiency in retirement for hundreds of thousands of ‘mum and dad’ investors.”
Urban Development Institute of Australia
The Urban Development Institute of Australia also welcomed the announcement, calling the current combination of Negative Gearing and Capital Gains Tax a rational incentive for private investment in low-yield housing.
UDIA modelling, validated independently by MacroPlan Dimasi, demonstrates that a median investment house under current NG & CGT arrangements still delivers between $43,897 to $71,699 net revenue to the Federal Budget bottom line.
“The current NG & CGT arrangements are already a boon for Government as they are a net contributor to Federal Budget revenues and also reduces Federal Government housing expenditure by billions of dollars,” said National UDIA President, Michael Corcoran.
Chartered Accountants Australia & New Zealand
Chartered Accountants Australia & New Zealand acknowledged the practicalities in retaining the negative gearing status quo, and said that negative gearing changes should not be seen as a silver bullet solution.
“For example, the tax deductions for negatively geared real estate are just one factor affecting housing prices. The CGT main residence exemption and the CGT discount are also relevant in a tax context,” said Head of Tax Michael Croker.
“There are also non-tax factors at play, such as the supply of residential land, the lending practices of financial institutions and demand from foreign investors.
“Although there are legitimate concerns about inequality in our society, any crackdown on negative gearing will not impact those who currently enjoy positive cash flows from their investments” he said.
Business Council of Australia
“The announcement today that the government will not make any changes to negative gearing in the forthcoming budget will be good news for property investors, owners and renters alike,” Business Council Chief Executive Jennifer Westacott said.
“The Business Council had warned in its recent paper, Tax Directions for a Transitioning Economy, that negative gearing was a complex area to change and that any proposals to adjust negative gearing arrangements would carry risks and needed to be considered very carefully. The reality is that negative gearing is used extensively as a savings vehicle by a broad cross section of the community.
“Changes in this area carry the risk of distorting the property market and causing unintended consequences to property values and rents, potentially disadvantaging vulnerable people,” Ms Westacott said.