The political appetite for changes to capital gains tax (CGT) continues to grow with the Greens unveiling a plan that would raise $119.5 billion over 10 years.
Currently, investors receive a 50 per cent discount on CGT when selling assets, such as investment properties. This costs the country’s budget $6 billion a year in missed revenue. Labor has announced that it would cut this discount to 25 per cent for assets bought after 1 July 2017, generating $32 billion over 10 years, but the Greens’ proposal would benefit the Federal Budget by almost four times that amount.
The Greens suggest cutting out the 50 per cent discount altogether, reducing it by 10 per cent each year over five years. This would run in parallel with Labor’s plan.
And it’s not just property that will be affected, with the Greens proposing that any asset subject to capital gains, be it art, housing or investments, would be included in its plans. Senator Scott Ludlow, co-deputy leader of the Greens and housing spokesman for Western Australia, said, “This is because tax on other forms of income, such as weekly earnings and interest on savings, receives no such discount, so we can’t see any justification for any part of capital gains to be tax-free,” he said.
The plan has been costed by the parliamentary budget office and would raise a little over $7 billion by 2019 and $119.5 in total over the next 10 years.
While both parties also state that their plans would lead to the slowing of growth in housing prices, making homes more affordable, Prime Minister Malcolm Turnbull believes any changes to CGT would hamper investment and slow economic growth. He also states that adding the end to negative gearing to investment properties into the mix would “amount to a tax on investment” would end investment in the economy.
However, chairman of the Committee for Economic Development of Australia (CEDA), Paul McClintock, said any impact on investment would be marginal and manageable. On increasing capital gains tax he said it, “doesn’t mean it is a bad activity, but you can say there is too many billions of dollars going into that activity and we cannot afford that”. “How much support are we prepared to give to a particular activity?”
“With things like negative gearing, a system that was designed to compensate people for high inflation rates, the inflation rates are lower, there is a strong argument to suggest you can lower that and still produce an environment where people are willing to invest,” he said.
“Our judgment call is that, yes, of course it will have some marginal impact, so will everything, but it’s a manageable impact.”
Despite progressive policies to raise revenue, the Government insists that the greater issue is cutting costs to meet shortfalls on funding for health and education.
Read more at Theguardian.com
Whether revenue raising or cost cutting, every possible means to help balance the budget should be considered by the Government in the lead up to the Federal Budget 2016/17. And with the two other parties on board, surely CGT and negative gearing changes are a no-brainer?
Of course, the finer details would need to be ironed out; especially the actual effect changes would have an investment in an already shaky economy. But when so many people are saying they are essentially good ideas, then surely they’re worth more consideration?
Taking money ‘away’ from those who can afford to invest in property may be seen as political suicide for a Government whose economic principals appear to be looking after those with cash to splash. But if houses became more affordable, the investment by those currently unable to get their foot on the property ladder, may just be enough to give the budget the boost it needs.
Balancing the budget of a country that has pinned all its hopes on a resources boom, only for the boom to end without capitalising on any future benefits, is no mean feat. I get that. But failure to fully examine and consider proposals that could not only help to balance the books, but also give a much needed boost to those people who are desperate to invest in this country by buying their first home, is just foolish.
It may well be an election year and yes, increased taxes do not make for palatable politics when on the campaign trail. But if the Government is indeed committed to the future of this country then it’s time for it to have the courage to make the hard decisions and to be judged on those actions.
Do you think changes to CGT and negative gearing should be included in the Federal Budget 2016/17? Is it a risk to investment in the economy to cut such ‘incentives’?