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Changes to the CGT could undermine the property sector and reduce the incentive to invest at a time of a booming population, as pressure mounts on Labor to reform the tax break.
Property industry bodies have warned that changes to the capital gains tax (CGT) could have unwanted effects on the industry.
The warnings came amid reports Labor was considering slashing the tax benefit ahead of the May budget, as unions heap pressure on the government and a Senate committee examines the matter.
The Housing Industry Association (HIA) has warned the government against changes to CGT in the federal budget, including increases to the tax rate.
HIA managing director Jocelyn Martin said housing was already one of the most heavily taxed sectors in the economy, and that the proposed changes would increase barriers to building new homes.
“Further tax changes, including to negative gearing or capital gains tax, would undermine investment, reduce feasibility, and worsen affordability,” she said.
Similarly, the Property Council of Australia urged caution on CGT, saying that increasing the tax may reduce the incentive to invest at a time when Australia needed to cater for a growing population.
Former Property Council CEO Ken Morrison said that the CGT discount was recognition that investors should not be taxed for inflation.
“Inflation-driven capital growth is not real growth, and investors should not be taxed for it,” he said.
“Two years ago, as part of the Government’s then push for tax reform, the Property Council stated that a small reduction of the CGT discount from per cent to 40 per cent could occur without slamming the handbrake on investment.”
On the other hand, Morrison said that the Opposition’s plan to cut the discount from 50 to 25 per cent would damage the industry, economy and the security of the livelihoods of many in the industry who rely on construction.
“There is a big difference between a ‘tap the brakes’ approach to CGT and slamming on the handbrake,” he said.
“The government should tread carefully. The sector understands that budget repair and preserving the AAA rating are vital, but as we discovered after the 2014 Budget, repair must occur without damaging confidence.”
“Let’s be clear: the economy is delicately poised. The industry has passed the top of the construction cycle. The risk for the government is that if it moves too far, it runs the risk of tightening housing supply and adding further pressures to housing prices.”
The remarks came as new data revealed the bulk of the $24bn tax benefit has gone to wealthy Australians.
An Anglicare Australia report showed that more than 80 per cent of the benefit of the CGT discount for investors went to the wealthiest 20 per cent of households.
According to the Rebalancing Capital Gains Tax report, only two per cent of the discount went to the bottom 20 per cent of households.
In addition, Oxfam Australia data released in October showed almost 50 per cent of the CGT discount went to just 24,000 people who earned over $1 million in 2022–23.
It showed that, on average, each of the individuals gained about $271,000 from the CGT discount on profits from the sale of assets and investments,
Oxfam said the sum was nearly 1,500 times the benefit an average worker received.
According to the company, scrapping the capital gains discount could restore around $22.7 billion to the federal budget each year.
Jennifer Tierney, Oxfam chief executive, said that findings showed that the nation’s tax system is deepening the inequality crisis by providing significant tax breaks to the wealthiest Australians.
This tax break overwhelmingly benefits a tiny group of already wealthy individuals, while ordinary workers pay tax on every dollar they earn,” she said.
“Ending the discount is one of the simplest and fairest ways to restore integrity and balance to our tax system,” she concluded.
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