Federal budget an opportunity to deliver bold tax reform, says Barbara Pocock

Senator Barbara Pocock is encouraging the government to deliver major tax reform on housing in the upcoming budget, following recent discussions around changes to negative gearing and capital gains tax.

The Australian reported last week that Treasury is now considering new rules that would limit the use of negative gearing to a maximum of just two investment properties.

The government is also considering winding back the CGT discount from 50 per cent to 33 per cent as part of its May budget package.

The Greens said discussions around these changes indicated that momentum for tax reform was growing.

The party said it had long campaigned for winding back the most inequitable tax concessions, particularly negative gearing and the capital gains tax discount, to minimise investor demand.

Greens spokesperson for finance, housing and homelessness Senator Barbara Pocock said the Greens campaign to end unfair handouts for wealthy property investors had forced negative gearing reform back onto the table.

“Unfair tax discounts just make housing more expensive and give billions to super-wealthy property investors. Ending these tax concessions will help more people have a roof over their head," said Pocock.

“Massive tax breaks for wealthy property investors are cooking our housing system. Negative gearing and the capital gains tax discount let cashed-up investors outbid everyday Australians — and young people and first-home buyers are the ones paying the price."

Pocock said the current housing system was "rigged for the wealthy" and was designed to drive up the cost of housing.

“During the Greens-led inquiry into CGT discounts, expert after expert said wealthy property investors shouldn't get these massive handouts," she said.

“This next budget is a huge opportunity for the government to deliver bold, ambitious tax reform that puts renters and home buyers first.”

Last week, the Senate heard a wide range of views on the CGT discount from industry associations, economists and tax specialists as part of the Select Committee on the Operation of the Capital Gains Tax Discount's inquiry.

Building industry associations argued that reducing the discount would negatively impact housing supply by discouraging investment.

Former Treasury secretary Ken Henry told the Committee that the tax breaks received by investors on capital gains from property are "neither fair nor efficient" and are creating a distorted property market.

OECD economist Diana Hourani similarly stated that reducing the discount could have economic benefits, including positive impacts on equality, efficiency and government revenue.

Policy think tank the e61 Institute modelled the economic consequences of different policies, including the CGT status quo, a 33 per cent discount, a return to cost base indexing, or an ‘ILT-neutral’ system that dampened the effects of inflation, leverage and timing.

The e61 Institute found that the broad-based CGT discount was generating significant horizontal inequality among Australia’s highest earners, and simply reducing the discount would not mitigate this issue.

Based on a simplified sample population, the modelling indicated that a 33 per cent discount would raise slightly more revenue than the 50 per cent discount, approximately $2.85 billion annually compared to $2.02 billion.

A more complex ILT-neutral income-averaging system, or a return to pre-1999 cost-base indexing, would raise $3.52 billion and $3.41 billion per year, respectively.