Back in June, 2022, one month after Anthony Albanese was elected Prime Minister, he was asked whether his new Government might reconsider a policy that some Labor figures had wanted to introduce for decades.
Mr Albanese gave a simple but definitive answer to ABC presenter Rafael Epstein about the prospect of phasing out negative gearing on investment properties and other investments: “No”.
Today, widely published media reports not denied by the Government say negative gearing, which treats interest payments on investment properties as a tax deduction, will be limited to newly built houses and apartments in tomorrow’s Budget.
The tax on increases in the value of investment properties and businesses, known as capital gains, looks likely to go up too.
Mr Albanese and Treasurer Jim Chalmers never told Australians these taxes would increase. By dodging questions, obfuscating and apparently issuing clear denials, they created the impression before last year’s election neither policy would be changed.
While complete honesty is an unrealistic expectation from politicians, these major changes to the taxation system mean voters may ask themselves when they enter the ballot box next: can we believe anything they say?
Incentive or tax lurk?
The prospect that Australians will have to pay higher property taxes has been a topic of speculation for the entire life of the Albanese Government.
In March, 2023, Dr Chalmers seemed to be considering the idea. Mr Albanese quickly shot down any prospect of imposing capital gains taxes on homes lived in by their owners — perhaps Australia’s most sacred tax break.
“We are not going to impact the family home, full stop, exclamation mark,” he told ABC presenter Patricia Karvelas.
It was the wrong question. The Labor Party was interested in the tax deductions on properties rented out by owners, usually at a loss in anticipation the properties’ value would increase over time.
While defenders said the system created an incentive to build houses and apartments, critics said it was a landlords’ tax lurk.
The following year word leaked that Dr Chalmers might have asked the Treasury Department to calculate how much money could be raised from negative gearing changes. The story took off briefly, fuelled by Dr Chalmers’ reluctance to rule out a policy before he knew how it might work.
‘Not a current issue’
Mr Albanese, seeing an election debate about to emerge, wasn’t so cautions. On September 26, 2024, he had the following conversation with Sky News host Peter Stefanovic.
Stefanovic: “So, let’s start off with trying to get some clarity because investors do need it. Will you guarantee that you won’t touch negative gearing and capital gains tax concessions?”
Mr Albanese: “Well, we have no plans to touch or change negative gearing.”
Stefanovic: “But when it comes to negative gearing and capital gains, if we go to the current issue of negative gearing capital gains tax, might you change course?”
Mr Albanese: “Well, it’s not a current issue.”
Stefanovic: “It certainly is, it’s on the front page of every paper at the moment.”
Mr Albanese: “No it’s not a current issue, Pete.”
At that point, property taxation essentially vanished from high-level political discussion, apart from a brief appearance last April, when Mr Albanese ridiculed a request to rule out changes to either tax regime. “Yes,” he said. “How hard is it? For the 50th time.”
Three weeks later the Labor Party secured the largest parliamentary majority in its history, in part because the Prime Minister used his credibility and authority to end a discussion about policy changes that could affect millions and fundamentally change how investing operates in Australia.
Asked today “why are you about to break a promise?”, Mr Albanese told ABC presenter Sally Sara a “difficult decision” was necessary to help young people buy homes. “Last year has been a year of delivery, but we also said that wasn’t the limit of our ambition,” he said.
Why taxes are rising
The assertion that higher property taxes will create more houses and apartments is contested. House prices might fall 1 or 2 per cent and rents rise a little, according to economist Peter Tulip of the Centre for Independent Studies, a leading expert in property policy.
The main reason the tax increases would have little effect is because houses and apartments exist independently of their ownership. An investor who buys a home in Sydney to rent from a couple who live in it does not reduce the city’s housing supply. There are good reasons some people prefer to rent, including financial. There’s nothing morally questionable about being a landlord.
From the Government’s perspective, there is a compelling reason to raise property taxes. It is not called ambition. It is the Budget deficit, which is expected to be around $29 billion this financial year. The deficit is the consequence of a historic government expansion by Mr Albanese and Dr Chalmers that will leave debt of $1 trillion or more for future generations.
Even sympathetic experts justify the changes not because they will build homes but because they will raise money. “We need a way to be seeing something that looks to reduce the (capital gains) discount in a way that raises significant revenue that can be used to shore up the Budget,” Matt Bowes, a policy expert at the Grattan Institute, told RN Breakfast last week.
In claiming to promote fairness between generations, the Government is grabbing at some of the few lower-taxed parts of the economy left. Younger Australians will miss out, which doesn’t seem fair, although may be a useful lesson in politics when considering promises in the future.
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