October 18, 2017
I am pleased to be able to resume my contribution to the debate on the so-called reducing pressure on household affordability measures. I was talking about how I as an MP with a good salary was priced out of my own suburb in my electorate. The asking price for the house we were renting was almost $2 million, and we just couldn’t afford that. So you can imagine the difficulty facing millions of Australians: young Australians, first home buyers, working- and middle-class Australians who have worked hard but can’t get anywhere near the dream of homeownership.
No party has a particular monopoly on good ideas. We hear that all the time. But let’s make no mistake here: this government has the policy lever in its hands to reform negative gearing and the capital gains tax discount, but it is unable to do so—unwilling to do so. They can act and deliver relief to so many millions of Australians who are trying to get into the housing market, but they have actually refused to do so. Among all of the advanced economies, Australia has some of the most generous taxation concessions for housing investments. In recent years this has helped fuel an investor-driven property boom, leaving more and more young people—first home buyers and even young families—unable to purchase a home. The interaction of negative gearing and the capital gains tax discount has also encouraged speculative behaviour, exposing the economy to unnecessary levels of financial risk. I would like to quote from a Grattan Institute report on housing policy:
The combination of capital gains tax rule changes in 1999 and negative gearing has strongly increased the demand for investment properties. Investors compete directly with potential homebuyers, particularly for established houses. This makes it harder for first home buyers to secure a property.
From all the anecdotal stories you hear, that is certainly true. When young couples or young couples with a family—their first kid or even two kids—go to an auction, they’re competing with someone who is going for their third, fourth, fifth, sixth, or even seventh investment property, and they are just unable to compete.
On that basis, I unequivocally support the amendments moved by the member for McMahon as they acknowledge that the First Home Super Saver Scheme will do nothing to address housing affordability but will instead work to undermine Australia’s world-class superannuation system. Any housing affordability package that does not include reforms to negative gearing and capital gains tax is a sham.
Fairness is at the heart of this debate—at least on our side. I believe Australia tries to be a fair society. We expect our tax system to align with this value. Most Australians have taxes withheld by their employer in a pay-as-you-go scheme. Of course, the more you earn, the more you pay. The progressive nature of the way most Australians pay tax doesn’t apply to some other aspects of the tax system. Tax subsidies, like negative gearing, disproportionately favour wealthy people who have large amounts of capital at their disposal. And it has to be understood that a dollar of tax avoided in one case is probably an extra dollar of tax paid by everyone else. It’s simply unfair.
I now want to turn to schedule 2 of this bill, which provides for a scheme for profits achieved through downsizing a property to be placed into superannuation to achieve a tax efficiency. As some speakers noted, there is a legitimate debate around this issue. While I do not believe that older Australians should ever be coerced into selling a beloved family home because they fear being financially penalised if they do not, there are many cases in which a large family home is not required later in life, once people’s kids have moved out and retirement is upon them. Labor has looked at the interaction between downsizing and the pension and looked at people on low and middle-class incomes who might consider the need to downsize. The government is concentrating on the superannuation side of things, proposing to allow people aged 65 or over to make a non-concessional contribution of up to $300,000 from the process of selling their home. These contributions would be exempt from the age test, the work test and the $1.6 million balance test for non-concessional contributions. This measure would overwhelmingly impact on people at the highest end of the spectrum when it comes to savings, not those who are concerned about the interaction with the age pension. While there is a debate to be had on that score, it is a flawed premise that this will promote the release of housing stock and thus ease pressures on property values.
I note that the member for McMahon put questions on notice to the Treasurer to provide an estimate of how many people may opt to downsize as a result of this proposal. As we’ve heard, the Treasurer appears to have no idea of how many people would in fact choose to downsize. How on earth can the Treasurer conclusively say that more housing stock will be available in the market without any indicator on this front? It’s blind faith at best. It’s nothing more than guesswork. This debate is an opportunity to highlight the government’s capricious disregard for the budget bottom line, which has grown worse under the weight of this government’s mismanagement. Reckless tax subsidies are unsustainable and unaffordable. Indeed, several tax subsidies, including negative gearing, are growing at a rate that is unsustainable. Quite simply, the budget position today and over the medium term cannot afford both these generous subsidies and the necessary investments required to boost growth and jobs.
It is appropriate that every budget line item that is growing rapidly undergoes close scrutiny to ensure that the subsidy is achieving its stated objectives and that the quantum is appropriate when evaluated against competing policies. Two specific deductions—negative gearing and capital gains subsidies—are both significant calls on the budget and are growing at such a rapid rate that they need to be addressed. It is undeniable that negative gearing and the capital gains discount have not achieved their aim to boost housing supply and encourage the building of more new houses. In fiscal year 2016-17 they cost the budget over $10 billion. As an illustrative comparison, that’s more than the government spends on higher education or child care. The capital gains discount subsidy is growing so rapidly, with revenue forgone doubling from $4.2 billion in 2013 to $8.6 billion by 2018-19. The repeated claims by the government—the justification for the immense cost to the public purse—that the benefits of such tax subsidies go overwhelmingly to low- and middle-income earners are simply incorrect. The government uses income data after deductions have been applied. More reliable data that uses gross income shows that the benefits go overwhelmingly to higher income earners. We see on this side, and it is there for all to see, that this is where the skewed priorities of this government come into sharp focus.