For both major political parties, a slight realignment of the tax system to favour younger generations represents the first meaningful step toward promoting home ownership. This move is seen as crucial in tackling Australia's escalating housing crisis, where affordability has become a pressing concern for many citizens.
A Rare Political Opportunity for Labor
With a commanding majority in parliament, a disorganised opposition, and the Greens eager to collaborate, Labor finds itself in a unique position to address the housing crisis head-on. Despite losing two previous elections with policies aimed at rethinking capital gains tax, the current political climate offers a perfect storm for meaningful reform.
Defence Property Sales and Housing Potential
When Deputy Prime Minister Richard Marles announced the sale of over 60 major Defence department properties, including barracks, airfields, warehouses, and the Maribyrnong site in Melbourne's west, questions immediately arose about their potential for housing development. The Maribyrnong site alone could accommodate up to 6,000 new homes after remediation, though Marles emphasised that maximising financial value, not housing, was the primary goal.
This announcement initially seemed like a missed opportunity for Labor to leverage a key political issue. However, behind the scenes, discussions were underway regarding potential changes to the capital gains tax discount, a significant factor in Australia's overheated property market.
The Capital Gains Tax Discount: A Legacy Issue
Introduced in 1999 under the Howard government, the 50% capital gains tax discount applies to investments held for more than 12 months. Alongside generous negative gearing rules, it has been criticised for encouraging housing as an investment vehicle for wealthier Australians, thereby disadvantaging first-time buyers and owner-occupiers.
Originally intended to stimulate business investment, the discount now costs nearly $250 billion over the next decade, according to Parliamentary Budget Office figures, with retirees and high-income earners benefiting the most.
Historical Context and Political Shifts
Labor previously proposed scaling back the CGT discount and negative gearing under Bill Shorten in the 2016 and 2019 elections, but both attempts ended in defeat. Today, under Anthony Albanese's leadership, the political landscape has transformed dramatically. With a substantial majority and an opposition in disarray, the conditions for tax reform are more favourable than ever.
Housing has emerged as a critical political issue, with Australians facing prolonged deposit-saving periods and inadequate accommodation options. Treasurer Jim Chalmers has expressed openness to bold tax reform ideas ahead of the May budget, reaffirming a commitment to addressing intergenerational inequity.
Proposed Reforms and Expert Recommendations
The Greens are intensifying pressure on Labor through a parliamentary inquiry, calling experts to advocate for reining in the CGT discount, possibly via new structures or grandfathering arrangements. Nick McKim, Greens treasury spokesperson and inquiry chair, hinted at involving notable figures from past political eras.
The Grattan Institute recommends halving the CGT discount to 25% for individuals and trusts, with a five-year phase-in period. This change could raise approximately $6.5 billion annually, funds that could reduce the tax burden on younger Australians and support low-income families. The institute estimates property prices might drop by less than 1%, benefiting first-time buyers over investors.
Robert Breunig from the Australian National University's Tax and Transfer Policy Institute advises against grandfathering existing provisions, warning that it could lead to lock-in effects where investors avoid asset turnover to evade taxes. He advocates for immediate, universal application of any changes.
Political Implications and Voter Dynamics
From a political standpoint, reforming CGT to assist younger voters is strategic. The Liberals have preemptively rejected any reform, with Shadow Treasurer Ted O'Brien criticising efforts to increase taxes. However, the Liberals face a demographic challenge, as their base skews older, wealthier, and more likely to own homes. To rebuild support, they must appeal to younger voters, for whom home ownership is a key to financial stability.
Smart Liberal MPs recognise home ownership as a critical stepping stone to prosperity, emphasising that this opportunity should not be limited to a select few. For both parties, adjusting the tax system to favour younger generations is not only a step toward promoting home ownership but also a savvy political move.
Conclusion: A Path to Reform Legacy
Realigning the tax system slightly in favour of younger generations could mark the beginning of a significant reform legacy for the government. With housing affordability at the forefront of national discourse, Labor's potential changes to the capital gains tax discount represent a pivotal moment in addressing intergenerational inequity and reshaping Australia's property market for the better.
