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New research warns tampering with housing taxes could cost Australia $58 billion


According to new research, altering negative gearing and capital gains tax concessions could result in a $58 billion loss for the Federal Government over the next decade and significantly reduce the supply in the rental market. This comes in the wake of Prime Minister Anthony Albanese breaking his election promise to fully support stage three tax cuts, leading to speculation of broader tax reforms. The Property Investment Professionals of Australia (PIPA) conducted modelling that suggests if Labor’s earlier policy of limiting negative gearing to new homes and reducing capital gains tax discounts were enforced today, it would not only push investors away but also leave a large deficit in the federal budget.

The Australian Taxation Office reported approximately $26.4 billion in individual real estate capital gains for the financial year 2020-2021. Peter Koulizos, a PIPA board member and property economics academic, commented on the findings, “Investors already pay more than six times in capital gains tax than what they receive in negative gearing benefits over a 10-year period, so, the government is well ahead financially as it is.” He highlighted an example where an investor purchasing a property at $925,000 could see $20,415 in negative gearing benefits over ten years, against $116,336 in capital gains tax, netting the government a gain of $95,921.

PIPA’s modelling predicts that changes could lead to a cost to the government ranging between $19.3 billion and $58 billion over ten years. A reduction in investment properties would likely increase rent prices and further challenge first-home buyers in entering the market. The research outlines scenarios where a decrease in investment activity could lead to a significant reduction in properties available for rent, ranging from 166,600 to 499,000, depending on the extent of the decrease in investment activity.

Nicola McDougall, PIPA Chair, pointed out the flawed rationale behind the belief that reducing the number of investors would benefit first-home buyers. She stated, “The ability to save a property deposit won’t improve by attacking investors. In fact, those hoping to buy their first home will have even less money to save if their rents suddenly skyrocket because of a mass exodus of landlords.” McDougall also mentioned that the 2023 PIPA Investor Sentiment Survey indicated that 38% of landlords considered selling their properties due to recent tax and tenancy reforms.

Koulizos further warned that the longer-term impact could be more severe with fewer investors paying tax on their positively geared properties and capital gains tax on equity growth. He cautioned, “Making changes to negative gearing and capital gains tax provisions in the midst of a housing crisis isn’t smart and Anthony Albanese should carefully consider his next move. It won’t just be renters who pay dearly – but the budget’s bottom line.”

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