The government has flat-out rejected a proposal to gradually halve the capital gains tax (CGT) discount, amid concerns that the status quo would eventually have a negative effect on the housing market.
“The government has absolutely no intention of reducing the capital gains tax discount or making changes to negative gearing,” said Finance Minister Mathias Cormann, as reported by The Sydney Morning Herald.
A report by the Grattan Institute released last year said that the “interaction” of the current 50% CGT discount with negative gearing “distorts investment decisions, makes housing markets more volatile and reduces home ownership.” It claimed that such tax breaks largely benefit the wealthy.
Slashing the discount to 25% would raise the government about $3.7bn a year, the report said. The reduction would happen gradually, with 5 percentage points reduced annually over five years.
“Tax concessions for capital gains undermine the integrity of the income tax system by creating opportunities for artificial transactions to reduce income tax.”
The report also called on the government to “follow international practice” and not deduct losses from passive investments from labour income. “Change would raise $2 billion a year in the short term, falling to $1.6 billion as losses start to be written off against positive investment income,” it added.
Cormann said that the ruling coalition “needs to get the budget back into surplus,” but that it still wants to deliver lower taxes to strengthen growth and create more jobs.
Prime Minister Malcolm Turnbull said the coalition does “not support the Labor Party’s plans to increase capital gains tax or indeed their plans to outlaw negative gearing,” as reported by The Sydney Morning Herald.
The opposition would look at the proposal “if it’s a step in the right direction,” Labor frontbencher Tony Burke told Sky News.
“Be in no doubt you cannot allow the situation to continue where the government is giving more help to somebody buying their tenth home than to a first home buyer,” he added. http://ow.ly/74kD3093l0V