We support reform of tax concessions that encourage speculation in housing
ACOSS has long advocated reform of capital gains tax (CGT) and negative gearing to remove incentives for speculation in housing investment which increase home prices and ultimately rents, deepens inequality by disproportionately favouring high income earners, and diverts investment from productive purposes.
This is all the more important now in a housing affordability crisis. Our housing is among the most expensive in the world. Rents are unaffordable for most people with low incomes and a growing number of people cannot even secure a home at an unaffordable rent. Across the country, more and more people are living in cars or tents.
Without tax reform, home prices may take off again as soon as official interest rates are lowered, as more investors bid against home buyers for existing properties.
Reform of CGT and negative gearing would also raise much-needed public revenue, which could be devoted to investment in social and affordable housing.
There is no single solution to the housing affordability crisis
The Commonwealth government has taken welcome steps to improve affordability, including social housing investment, increases in Rent Assistance and agreements with States and Territories to expand supply of private dwellings and strengthen tenancy laws. However, these efforts do not match the scale and scope of the crisis we now face.
Governments must urgently commit to a bolder package of reforms including the removal of tax incentives for speculation in housing, much greater direct investments in social housing, restrictions on rent increases and no-grounds evictions, and accelerating home energy upgrades.
Given the current weakness of private investment in new dwellings, the most important step the Commonwealth and State and Territory Governments can take to make housing affordable for people on low incomes and reduce homelessness is to boost public investment in social housing.
Our housing tax reform proposals
In advance of the May 2024 Budget, we advocated two reforms to the taxation of housing.
- Reduce the Capital Gains Tax discount for individuals and trusts.
From 1 July 2025, the exemption of 50% of personal capital gains from CGT should be reduced from 50% to 25%, phased in over five years (reduced by 5% per year).
- Restrict deductions for personal investment expenses (negative gearing)
Income tax deductions for expenses (such as interest payments on debt) relating to passive investments in assets yielding capital gains (such as housing, shares and collectables) should be limited to income received from those asset classes, including capital gains realised on subsequent sale.
This should apply to all new investments of this type entered into after 1 January 2025. Subject to appropriate anti-avoidance rules, existing investments would not be affected.
