6 years ago
IMF ENDORSES REFORMS TO NEGATIVE GEARING AND CAPITAL GAINS TAX
CHRIS BOWEN MP
Scott Morrison’s resistance to Labor’s housing affordability reforms has become an international embarrassment with the International Monetary Fund (IMF) today strongly endorsing reforms to negative gearing and the capital gains tax discount in its latest Article IV Consultation with Australia.
The IMF surmises that the Commonwealth’s housing tax settings favours leveraged housing investments in upswings that might encourage excess demand for housing – a point that Federal Labor has been making for years.
Mr Morrison has not only failed millions of young Australians when it comes to adequately dealing with housing affordability but he has also overseen an Australian economy and housing market that is more vulnerable to future economic shocks.
The IMF report expressly states that:
“On the investment side,the combination of high capital gains tax discount rates and unlimited negative gearing can encourage leveraged real estate investment in market upswings. While similar tax incentives are also present in other countries, they tend to be more limited.”
[IMF Selected Issues document, para 29, page 55]
“The capital gains discounts on housing should be reduced and other tax incentives limited."
[IMF 2017 Article IV Consultation, para 57, page 24]
The IMF also notes that the Government’s budget position is “predicated on a rapid rebound of nominal growth”, this at a time when the Government’s unfunded company tax cut will deliver a structural hit revenue over the medium term.
Scott Morrison has recently declared mission accomplished on housing affordability by arguing after the introduction of APRA’s macro prudential measures that there is now no need to be scaling back Australia’s property tax concessions that are highly skewed towards property investors.
However, the IMF specifically tackles the interaction of APRA’s macro prudential measures with housing tax reform head on, concluding that:
“Housing-related policies have begun to address housing-related imbalances and should be complemented by tax reform.”
[IMF Selected Issues document, para 32, page 56]
The strong endorsement from the IMF adds to a long list of international economic organisations and independent economists arguing for reforming negative gearing and capital gains concessions:
The OECD
The Government’s own Financial System Inquiry
Grattan Institute
ACOSS
The Committee for Economic Development in Australia (CEDA)
Australian Institute of Company Directors
Glenn Stevens
Saul Eslake
Labor remains the only major political party with housing affordability policies that: put first home buyers on a level playing field with investors, return revenue to the Budget bottom-line, and promote financial stability.