Labor has announced that it will implement its plan to restrict negative gearing to new investment properties and halve the capital gains tax discount from 1 January 2020.
The date, announced by shadow treasurer Chris Bowen, will limit negative gearing to new housing, with all investments made prior to the date to be fully grandfathered.
Likewise, the CGT discount will be halved to 25 per cent for investments entered into after 1 January 2020.
The announcement will bring greater certainty to investors who were waiting on Labor to provide more details around its proposal.
The Parliamentary Budget Office has costed the two measures to raise $2.9 billion over the forward estimates period to 2022-23, and $35.1 billion over the next decade.
Mr Bowen has also announced that Labor will revamp the Build to Rent scheme, giving institutional investors a tax concession to encourage the building of new rental properties.
If elected, the opposition will cut the managed investment trust withholding rate in half, from 30 per cent to 15 per cent, on tax distributions attributable to investments in build-to-rent housing.
Federal Labor’s believes their reforms to negative gearing enjoy the support of many independent economists and think tanks like the Grattan Institute and Saul Eslake as well as international economic agencies like the International Monetary Fund. It should be noted the Gratton Institute has always been left of centre as is the IMF.
Labor states “the benefits of both negative gearing and the capital gains tax discount are skewed towards the wealthy, with the Grattan Institute estimating almost 70 per cent of the benefit of the CGT discount accrues to the top 10 per cent of income earners.” What they fail to mention is that negative gearing and capital gains discounts apply equally to all taxpayers and the “skewing” toward the wealthy is purely a result of the extra capital “the wealthy” have invested and at risk.
It will be interesting to see if there is a rush to market of buyers wanting to lock in capital assets (e.g. property and shares) this calendar year to beat the potential 1st January changes and the effect this has on the market values with a potential to artificially push up market prices in the short term.