First-home buyer woes still not solved by Budget changes to capital gains tax and negative gearing

Experts remain cautious over how much controversial Budget tax hikes on investors will do to help younger people buy their first home, while the Opposition has accused the Government of “stealing” from Australians through broken election promises.

Labor insists it’s acting to make sure the Australian dream of home ownership is not out of reach for younger people, but Tuesday’s budget also forecasts future generations will be saddled with gross government debt that hits $1.2 trillion by the end of the decade.

Under the changes unveiled by Treasurer Jim Chalmers, taxes will be increased on capital gains, trusts and negative gearing which collectively are expected to generate more than $8 billion over the initial two years.

Investors who own properties will be exempt under “grandfathering” provisions, along with purchases of new builds, which include dwellings constructed on vacant land or where an existing property was demolished and replaced with a greater number of homes.

Leading public policy think tank the Grattan Institute believes the impact on property prices from the Government’s taxation changes is likely to be muted, in line with the forecasts by Treasury in the latest budget papers.

“The reduction in investor demand is expected to lead to a small and temporary slowing in house price growth, estimated to see prices grow by around 2 per cent less over a couple of years relative to no tax policy change,” the budget predicts.

Grattan Institute senior associate Matthew Bowes said the tax overhaul will reduce property demand for investors, but they’ll be overtaken in coming years by buyers seeking to live in residential properties.

“These reforms will boost the rate of home ownership by a small amount, but still the main game is boosting supply. It’s encouraging to see the government making investments in things like the local infrastructure fund – which forces states to reduce planning red tape”.

“Major planning restrictions remain the main barrier to getting more affordable homes, particularly in cities,” he tells The Nightly.

In opposing Labor’s tax changes, shadow treasurer Tim Wilson argued the measures would increase pressure on rents and “kneecap” young Australians who wanted to get ahead.

“This bad faith Budget targets young Australians that invest to get ahead through shares, ETFs (Exchange-traded funds) and crypto to buy their first home deposit”, Mr Wilson told the Nightly.

“They’ll all now get slugged with higher taxes when they sell under capital gains changes. And if they’re got employee share ownership schemes as part of their salary, they’ll take all the risk, and the government will take half the reward”.

Asked on Wednesday whether his budget had made it “significantly harder” for younger people to build their wealth, or save for a housing deposit, while older Australians were largely unaffected, the Treasurer said Labor was trying to fix a “big distortion”.

“If you look at a couple of decades of averages, what we’ve seen is that shares have been under compensated for in the old system,” the Treasurer told the National Press Club.

“You can’t create a blanket arrangement for every different circumstance, but it’s entirely possible that by removing the distortion that we make shares more attractive rather than less.”

The Property Council of Australia has described the budget changes to tax settings as “a tightrope walk” for an industry that wants to create new supply of houses while also battling high costs of labour, materials and borrowing.

While some in the property industry claim the negative gearing changes will reduce housing supply, the Australian Hotels Association said it would remove the unfair advantage the current negative gearing rules give the Airbnb sector.

“The changes to negative gearing and CGT will no doubt have an impact on those listing their properties on the short-term rental market,” James Goodwin, CEO of the AHA’s Accommodation Association, told The Nightly.

“This could help break the back of the business model of investors who put their properties on the short-term rental market to game the tax system.”

“It will hopefully encourage a shift of properties from short-term to long-term rental providing a boost to housing supply, especially in regional and coastal communities.”

Tuesday’s budget has also projected Australia’s gross debt to reach $1.2 trillion by the year 2030, representing 35.6 percent of the country’s GDP at the end of the decade, an economic burden which experts warn will hurt future generations the most.