Start date for Labor's tax changes reopens issues

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Shadow Treasurer Chris Bowen recently disclosed that the Labor Party’s proposal to change the negative gearing and capital gains tax policy would start by January 1, 2020, should the party win in the Federal election.

The announcement comes after more than a month when the party was asked by Property Investors Council of Australia to be clear on the timeframe for implementation of its proposed negative gearing changes.

The indirect confirmation that the tax modifications will possibly push through did not sit well with industry groups. They reiterated the consequences the plan will have on housing markets.

“The REIA has always been concerned with the impact the policy would have on housing markets, buyers, renters, and economic activity. There is almost truckloads of analysis and reports showing the adverse impacts of the policy on mum and dad investors, homeowners, renters, the construction industry, state governments, and the economy,” REIA President Adrian Kelly said.

The concern is magnified in the current market. SQM Research recently revealed that property sales turnover is forecast to fall by a further 12% to 15%, resulting in a drop in state stamp duty revenue of approximately $2.3 billion.

On top of this, house prices would drop between 5% to 12% on a weighted average for the capital cities for 2020 to 2022 over and above any other decreases being recorded.

Rents are expected to rise by between 8% and 15% on a weighted average for the capital cities for 2020 to 2022; and housing construction activity will slide by 25% to 30% from 2019 levels, which will have employment and GDP impacts.

 “For first home buyers, who according to Labor, should see improved housing affordability by a “levelling of the playing field” will now face a faltering economy, lower employment prospects, the possibility of higher interest rates under a Labor Government and higher rents whilst they save for a deposit,” Kelly said.

While the Property Council of Australia was relieved that the opposition changed the modifications’ start date from July 1, the group still strongly opposes the plan.

The property council is concerned with the impact of these tax alterations on new housing construction, with a survey of investors indicating that this policy will not create the stimulus for new housing construction that the Labor Party has assumed.

Master Builders Australia, meanwhile, said that starting the proposed changes on January 2020 does nothing to ease concerns about the impact on building activity and the housing supply.

“Our modelling that shows Labor’s policy will reduce the number of new homes by up to 42,000 and deprive the economy of up to $11.8 billion worth of building activity. Master Builders Forecasts tell us that we need 62,000 new homes built each year to meet the community’s demand for housing,” she said. We need all incentives for investment on the table rather than taking away incentives from one part of the market to prop up another,” Denita Wawn, CEO of Master Builders Australia said.

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