Editor’s view: Taking on negative gearing a political death wish

Any move to take on the sacred cow of tax arrangements so loved by property investors would surely be political suicide, writes the editor.

Prime Minister Anthony Albanese is one of more than a million Australian property investors who would be affected by changes to negative gearing. Cartoon: Mark Knight

Have Anthony Albanese and his Treasurer Jim Chalmers agreed to a political death pact? It is hard to come up with any other explanation after they yesterday let the housing tax concessions debate out of the cage where it has been firmly locked away since it helped kill off former Labor leader Bill Shorten’s prime ministerial aspirations in 2019.

Any move to take on the most sacred cow of tax arrangements so loved by property investors across Australia – negative gearing and capital gains tax concessions – would not be a bold move. It would surely be politically suicidal.

And so what is going on? At face value, it is hard to understand what is being cooked up. Nothing much, according to the Treasurer, who confirmed departmental officials were reviewing negative gearing and capital gains tax concessions, but insisted that is just what they do.

But he then refused several chances to say if that Treasury review had been commissioned by the government – leaving many to wonder if this was a kite-flying exercise like we saw him do a year or so back on stage 3 tax cuts.

Federal Treasurer Jim Chalmers. Picture: NewsWire/Tertius Pickard

Certainly it changed the conversation yesterday from the raking over the coals of the Reserve Bank’s decision a day before to leave interest rates on hold, and inflation figures that showed the underlying rate remained above the level that would lead to a cut.

What is certain, though, is that any change will affect lots of people, well, negatively in two main ways.

First, 1.2 million Australians have a property that is negatively geared (which means the rent they collect is less than their mortgage and costs, and so that loss can be used to reduce their taxable income).

Second, once those landlords sell their property, they get to claim a
50 per cent discount on their capital gains tax liabilities.

Combined, these two concessions translated to estimated foregone tax revenue of nearly $11bn in the latest financial year alone.

The Greens and affordable housing advocates see this is as outrageous. They argue that the current schemes favour wealthier investors who can afford to pay more for property that they can treat as tax deductions, thereby driving up house prices and shutting out first homebuyers.

Prime Minister Anthony Albanese. Picture: Patrick Gee

Defenders of the arrangements claim that in a rental housing market dominated by small private investors – most landlords own only one or two properties – these tax concessions are essential, and that removing them would reduce supply and increase rents.

(And, of course, from the government’s perspective, outrage lots of property-owning voters.)

At its crudest, it boils down to a clash of ideologies. On one side is the politics of envy, where the view is of the rich getting richer because of generous tax breaks. The other side sees that as entirely reasonable because it encourages the private sector to invest in rental housing supply – ensuring enough exists.

Now, it is surely relevant to note this latest chatter on negative gearing that the Prime Minister chose yesterday to not shut down comes as the Greens block in the Senate the government’s Build to Rent and Help to Buy schemes.

The government claims both programs are critical to its housing crisis response. The Greens say they will negotiate only if Labor commits to winding back negative gearing and the capital gains tax concession.

Should we be surprised if it turns out it is indeed the government that is testing the breeze on any possible changes to the current system?

But as we say, politically this is seriously dangerous territory – a debate that has cost political lives in the past as sides are chosen as much on ideology as economics, and as voters split into that group who benefits and those who believe they will never be able to afford to.

The challenge is that plenty of Labor voters are in that first group – as Mr Shorten discovered in 2019.

Originally published as Editor’s view: Taking on negative gearing a political death wish