Following the announcement by the Federal Government on Sunday that it would leave negative gearing and capital gains tax concessions untouched, the Grattan Institute has released its latest report, Hot property: negative gearing and capital gains tax reform.
The report, which was shown to the Federal Government before the Sunday announcement, finds that the two concessions cost the federal budget $11 billion a year and changes to these concessions could save $5.3 billion a year. The research shows that the top 10 per cent of earners collect almost half the negative gearing tax deductions and three-quarters of concessionally-taxed capital gains.
Grattan Institute chief John Daley believes that a few small changes would make a huge difference to the federal budget going forward. Halving the 50 per cent capital gains tax discount over 10 years would raise an estimated $3.7 billion a year. While abolishing the income tax deduction after a phase-out period of years would tip another $1.6 billion annually into federal coffers. The effect on rents, house prices and development would be minimal.
The Grattan Institute research endorses Labor’s plan to cut the tax discounts for capital gains and to restrict negative gearing deductions to non-wage incomes, but its plan differs to Labor’s, in that after the phase-in period, existing investors would not be exempt, nor would those investing in new properties.
The Grattan Institute research is damning of a system where concessions have been set up to deliver benefits to everyone, but have resulted in benefiting those with the highest income.
The wheel just keeps on turning for those with the most power and money in Australia. We continue to see multinational companies pay just a fraction of the tax expected of them, making use of offshore loopholes, while small businesses make up for the shortfall. In addition, as shown in the recent leaking of the Panama papers, we continue to see high network individuals moving money offshore to avoid paying tax.
I’m not shocked or surprised to see the highest earning individuals in Australia taking advantage of these concessions, as they would be foolish not to. What I am surprised to see is our Federal Government taking no action to fix these concessions, which are costing it $11 billion a year to prop up the investment fund of millionaires.
What do you think? Should the negative gearing and capital gains tax concessions be changed immediately? Will the current Federal Government’s stance on this issue change how you vote at the next election?
Cuts to CGT could save budget