CGT, negative gearing overhaul will go to Senate inquiry
Labor’s contentious Budget bill was introduced to parliament on Thursday amid growing political and public opposition.
Introducing the bill, which seeks to limit negative gearing benefits to new builds and substantially reduce the capital gains tax (CGT) discount, Labor treasurer Jim Chalmers said he was “proud to make the tax system fairer for the next generation”.
“This is about making a difference, not just marking time,” Chalmers continued. “It’s about taking the hard road of reform, not the path of least resistance. It’s about making the right decisions, even when they are politically contentious.
“It’s about making difficult decisions and dealing with issues neglected for too long, even when it would be easier to do nothing at all. Most of all, it’s all about cutting taxes for workers, making it easier to buy a first home, and better aligning the tax treatment of labour and asset income.”
Opposition Leader Angus Taylor was scathing, accusing Labor of bypassing democratic scrutiny.
"Frankly, Labor should have taken this to the people, and their refusal to do so says they are cowards, they are liars, and they are sending Australian small businesses down the stream," Taylor told reporters.
Taylor also confirmed the Coalition was seeking allies to block the legislation, saying: "We're having discussions with anyone who will work with us to fight these toxic taxes."
Nationals leader Matt Canavan went further, demanding an election be called. “The Australian people have a choice between the Labor Party plan – the biggest tax grab in history – and our plan, the Liberal and National parties’ plan, to lower taxes, to scrap net zero and bring down the cost of living and to secure our border again and run a migration program that is calibrated to the needs of the Australian people,” Canavan said.
Not to be outdone, Taylor used Question Time to call prime minister Anthony Albanese “an arrogant p***k.”
Albanese told ABC in response to the insult: “I just think that people swearing across the chamber isn’t appropriate, it was withdrawn, the matters closed as far as I’m concerned.”
How the bill is expected to pass through parliament
Labor holds a strong majority in the House of Representatives with 94 seats, but requires support from the Greens and/or crossbenchers in the Senate to pass the proposed negative gearing and capital gains tax reforms.
The committee review process is expected to be brief. Discussing the matter on Tuesday, Claire Gunning, partner at Radburn Partners, said: "My guess, and it is a guess, is that there will either be a very short, sharp committee process or there'll be a negotiation to actually skip that.”
The former appears to be the outcome – the bill has been referred to a Senate Economics Legislation Committee inquiry.
“Because the legislation has provisions that are due to commence July 1 this year, it has been automatically referred to the Senate Economics Legislation Committee, with a report due by June 22,” The Greens said in a statement.
“These are very significant changes to our tax system, and will go through the inquiry process to ensure they get the scrutiny they need,” said Greens leader Larissa Waters.
Read more: 'Regressive' Budget must be offset by supply measures, says industry
It’s not just political opposition that Labor is facing.
Despite the party framing the reforms as a matter of intergenerational fairness, polling data suggests the message is not resonating with the public.
According to Freshwater Strategy polling conducted shortly after the Budget announcement, 45% of respondents said the proposed changes had decreased their trust in the government. Among the 18–34 cohort, the very group the budget was designed to benefit, 42% expect to be worse off compared to just 20% who expect to be better off.
Gunning said polls "are mainly showing fairly negative sentiment around aspects of the policies, in particular the kind of broken promise line." Gunning cautioned, however, that current polling skews toward politically engaged Australians and that "it does take a little while for the dust to settle."
Uncertainty for now
Mortgage broker Justine Harris (pictured below) of Nectar Mortgages said she has yet to see a widespread client reaction or panic as most investors are still trying to understand what the proposed changes would actually mean in practical terms.
“However, based on the modelling I have done, I expect the conversations with clients to become very real very quickly once they see the potential impact on borrowing capacity,” said Harris. “For many mum-and-dad investors, the issue will not simply be whether they pay more tax later. It may be whether they can borrow enough to purchase the property in the first place.”
While Harris understands Labor’s attempt to rebalance the housing investor market towards new housing supply, she, like many others in the broking industry, has her reservations.
“Borrowing capacity is already tight for many Australians due to interest rates, living expense assumptions and lender buffers,” Harris said. “Removing or limiting negative gearing benefits from the assessment can make an already difficult equation even harder.”
According to Harris, the clients most likely to be affected are the ones close to their maximum borrowing capacity, particularly investors relying on equity, rental income and tax benefits to make the numbers work.
She said: “A reduction in assessed borrowing capacity could force some buyers to lower their budget, contribute a larger deposit, reconsider the type of property they buy, or delay their investment plans altogether.”
As for borrowers, uncertainty is expected to remain a prominent feature of the lending landscape.
Not all lenders have updated their negative gearing policies, with some waiting for the bill to be passed through the Senate.
Read more: Major lenders move on negative gearing as Budget bill heads to parliament
