Jury out on budget tax hikes - boosting new home supply must be the big picture
The Property Council of Australia has warned that changes to tax settings are a tightrope walk for a property industry that wants to create new supply of property projects while battling high costs of labour, materials and borrowing.
Property Council Chief Executive Mike Zorbas emphasised the Government had listened to strong industry advocacy and turned back from hiking taxes on investment in new housing supply relative to the share market.
Equally, he noted the secondary impacts on supply from two lots of tax hikes on existing homes and assets required further independent modelling and close monitoring of new home sales and project starts over the months ahead. He again welcomed the speed and directness of key pro-supply, pro-reform last‑mile infrastructure measures.
The proposed tax increases include abolishing negative gearing on established homes and reducing the CGT discount on existing homes and other investment types from 50 per cent to the pre‑1999 indexation model that excludes inflation from the taxable component.
Investors in new homes can choose between the two CGT models.
"The big picture for the next decade must be redoubling our national efforts to unlock new housing supply across Australia. All parties need to commit to that before we talk tax or migration changes," Mr Zorbas said.
"We need lower taxes on new homes and commercial property, a culture of 'yes' around new projects and bigger, faster unlocking of last‑mile infrastructure.
"The budget proposes to make investment in the supply of new homes more attractive from a tax standpoint than existing homes and shares. In the short term, the carve‑out of new housing supply investment from the tax hikes is vital to attracting capital to new projects at a time when commencements are challenged.
"However, the terminal value of an investment home relies in large part on the price achieved when the home is sold.
"Negative gearing and capital gains tax changes will alter investor behaviour. Modelling to date does not show this supporting demand for new homes and very soon we will be able to take the temperature directly in housing and apartment sales suites across the country.
"The jury is well and truly out on whether the person funding a new home today will proceed with the investment when it becomes a more highly taxed 'existing' home at the point of future sale.
"We also note the budget contains strong pro‑supply and planning reform measures to bring new homes and communities to life with last‑mile power, water and energy connections. The $6 billion announced to date is welcome and we expect the investment will increase in next year's budget.
"More of these direct supply boosters should be at the heart of all future Federal budgets.
"In the meantime, we will need to undertake close monitoring of market activity and buyer sentiment during a period of high uncertainty and volatility ahead," Mr Zorbas said.
Mr Zorbas also said that the drafting of enabling legislation must be careful.
"We've seen previous legislation differ from the headline announcement. Grandfathering provisions must be clear and simple. Likewise, the definition of a new home must be black and white to avoid additional confusion.
"Global uncertainty is having an outsized impact on the building and construction sector, facing high taxes and charges, a lack of enabling infrastructure, slow planning and post‑permit approvals constraints.
"If tonight's proposed changes pass the Senate, the government needs the policy courage to monitor these settings and amend them to support the delivery of new homes if the secondary effects are worse than they expect," said Mr Zorbas.
