Extract from The Guardian
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When Richard Marles fronted reporters at Parliament House on Wednesday to announce the sell-off of more than 60 major properties owned by the Defence department, an obvious question was whether the sites would be used for new housing construction.
Barracks, airfields, warehouses, and a huge suburb-in-waiting at Maribyrnong, in Melbourne’s west, are all set to be sold. The former munitions site is expected to fit as many as 6,000 new homes once costly remediation works are finally completed.
Insisting the planned sales were about maintaining defence capability and avoiding costly upkeep, Marles said maximum financial value, and not housing, was the main aim of the project.
For a day or two it felt like Labor – ascendant and dominant against the rabble of the Liberals and Nationals in parliament this week – was missing a trick on the political issue of our time.
But, not far from the press conference, discussions were happening out of sight. For the first time, Labor was quietly admitting that it was contemplating changing the rules for the capital gains tax discount, one of the major contributors to Australia’s red-hot property price growth.
Labor should have the courage to scale back the generous tax concession in the May budget, setting itself up for a political win and delivering meaningful tax reform. Such a change would also help would-be homebuyers, assist with badly needed revenue and wedge the Liberals and Nationals on the way through.
Like more than a few settings in the Australian economy in 2025, the 50% CGT discount dates back to the Howard government.
Introduced in 1999, it applies to any investment held longer than 12 months and has been blamed, along with generous negative gearing rules, for promoting housing as an investment mechanism for wealthier Australians.
It has also been criticised for putting would-be owner-occupiers and first-time buyers trying to get into the market at a disadvantage.
As teal independent Allegra Spender pointed out on Friday, the discount was originally intended to encourage business investment.
Smart Liberal MPs talk about home ownership as a key stepping stone to long-term financial prosperity in Australia
Labor has considered changes before. Under then leader Bill Shorten, the party went to the 2016 and 2019 elections promising to pare back the CGT discount and negative gearing rules. It lost both times.
But to say the political conditions are materially different today would be an understatement. Anthony Albanese has a thumping majority, the opposition appears on an endless quest to dismember itself, and the Greens are eager to pass changes through the Senate at the earliest possible convenience.
Housing is a cut-through political issue, as Australians wait longer and longer to save a deposit and too many people can’t find adequate space or good quality accommodation for their family.
In an interview with Guardian Australia last week, the treasurer, Jim Chalmers, said the government was open to big ideas on tax reform before the 12 May budget, and recommitted to addressing intergenerational inequity.
After the economic reform roundtable he convened last year, Chalmers described the tax system as imperfect and said improvements were badly needed to give younger Australians their fair share of the fair go.
Packaged up with smart political messaging, changes to CGT might be just that.
Parliamentary Budget Office figures show the tax discount will cost nearly $250bn over the next decade. Retirees without taxable income and earners at the top end are benefiting most.
The Greens plan to use a parliamentary inquiry to keep pressure on Labor in the next few weeks, calling a range of experts to give evidence about just why the CGT discount should be reined in, possibly through some kind of new structure or grandfathering arrangements.
Inquiry chair and Greens treasury spokesperson, Nick McKim, hinted some famous names from bygone political eras would be on hand later this month.
The Grattan Institute has recommended the CGT discount for individuals and trusts be halved, to 25%, with a gradual phase-in over five years. The thinktank estimates the change would raise about $6.5bn a year – money that could lower the tax burden on younger Australians and assist low-income families.
Grattan says property prices would probably fall by less than 1% from such a move, while would-be homeowners would win at the expense of investors. Matched with changes to negative gearing, halving the CGT discount would raise the rate of home ownership by 3 percentage points as first-time buyers bid against fewer investors at auctions.
Robert Breunig, from Australian National University’s Tax and Transfer Policy Institute, says Labor should not consider grandfathering existing provisions.
He says any change should be applied to everyone, immediately, without grandfathering, in order to avoid large lock-in effects, in which investors don’t turn over assets in order to avoid paying tax.
In a political sense, CGT and other moves to help younger voters make sense. The Liberals have ruled out supporting any reform, even before Labor explains its proposed model. The shadow treasurer, Ted O’Brien, insists the opposition would not help a government that was “trying to ping Australians for more money”.
But the Liberals badly need to win back younger voters if they are to have any chance of rebuilding their political base.
Catering only to an older and older demographic is a self-defeating proposition for a party whose supporters are already wealthier and more likely to own a home. Smart Liberal MPs talk about home ownership as a key stepping stone to long-term financial prosperity in Australia.
That opportunity can’t only be available to a small section of the country.
For both major parties, realigning the tax system slightly in favour of younger generations is the first meaningful step to promoting home ownership and good politics.
It could also be the start of a reform legacy the government insists it is impatient to achieve.
Tom McIlroy is Guardian Australia’s political editor
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