FHBA Petition Explained: Point 2. Introduction of a tiered CGT Discount System
Yesterday we discussed point No.1 of our 5 Point Plan Petition, which explained our recommendations to the Australia Government in relation to interest tax deductions and negative gearing.
As per our 5 Point Plan petition that we launched late last year, our second recommendation to the Australian Government relates to the reduction of the Capital Gains Tax (CGT) discounts:
Change Capital Gains Tax (CGT) discount from 50% from 12 months +, to a tier scale discount system: 0 – 12 months, 0% discount; 12 – 24 months, 25% discount; 24 – 36 months, 37.5% discount; 36 months + 50% discount. This policy should discourage speculative short term investment and encourage long term investment which is good for the economy. This policy should also help the federal Government bottom line.
The capital gains tax discount and negative gearing have given investors an unfair advantage over first home buyers. In 2015 investors outnumbered owner-occupiers in new housing loans for the first time. Australia also has some of the most generous taxation concessions for housing investments amongst all advanced economies.
Since our proposal last year, the Labor party recently announced their own proposals to the Capital Gains Tax (CGT) discount, which would see the CGT discount halved from 50% to 25% – they estimate it would raise an additional $32 billion in tax revenue over a 10 year period. We are happy to see a major party paying attention to the issue of housing affordability. FHBA sees the following benefits arising if our CGT discount recommendations (somewhat similar to that of the ALP) were implemented:
- Unhealthy speculative property investment activity, which has increased in recent times, will be discouraged by our policy, as investors will be required to own their property for 3 years to access the full 50% discount. Long term investment provides stability to the economy and also provides stability in the rental market for first time renters.
- This policy is aimed at not penalising medium term investors for selling their home after holding the investment property for over a year.
- The Government Budget should also be in a better shape if these recommendations are implemented. Whilst it may not raise the estimated $32 billion over 10 years as estimated by the ALP, it should still raise a significant amount of revenue whilst not penalising the medium term investors. This additional revenue could be used to by the Government to invest in schools and hospitals in new areas to encourage new housing supply.
Stay tuned for our discussion of point No.3 (Reducing stamp duty) of our 5 Point Plan.