‘Death tax’, startups and a rent spike: it’s time to correct misleading claims about Labor’s budget |
The changes to various aspects of Australia’s taxation system announced in last week’s budget were controversial. For that and other reasons, they have prompted a variety of claims as to who will be affected and how, and with what consequences. Some of those claims are misleading. What follows is an attempt to correct those misleading assertions.
Will the changes negatively impact renters?
First, it’s been widely asserted that the changes to negative gearing and capital gains tax announced in the budget will lead to an increase in rents – as it has often been asserted that the temporary (as it turned out) abolition of negative gearing between 1985 and 1987 did. I’ve previously described those assertions as a modern-day equivalent of the saying that if a lie is big enough, and repeated often enough, it will become accepted as the truth.
In one sense, Angus Taylor and Tim Wilson are right when they argue that “if you tax something more, you will get less of it”. That’s the main motivation, apart from revenue-raising, for imposing high taxes on alcohol and tobacco products.
But when it comes to investment in established residential properties – which accounts for over 80% of all the money lent to property investors – having “less of it” would actually be a Good Thing. That’s because investment in established dwellings does nothing to increase the supply of housing. Rather, it serves to push up the price of established dwellings and – by outbidding prospective owner-occupiers – adds to the demand for rental housing by as much as it adds to the supply of it.
So to the extent that the curtailment of negative gearing and the 50% CGT discount for prospective investors in established properties results in less investment in established properties, the impact on the supply of and demand for rental housing will be equal and opposite. And as such, there should be no impact on rents.
Moreover, renting is not a “cost plus” business. Landlords charge in rents “what the market will bear”, which is largely........