Daily London
The NSW government has urged the federal government to review the capital gains tax, saying it is having a damaging effect on housing affordability and home ownership and is disproportionately skewed to benefit wealthy investors over first-home buyers.
The capital gains tax (CGT) discount, a 50 per cent reduction on investments held for over 12 months, was welcomed when it was first introduced by the Howard government in 1999, but has more recently been blamed for contributing to the country’s housing crisis.
In a submission to a select committee investigating the discount, NSW Treasury called for it to be reduced or reworked due to the “major implications” it has had across Australia, but particularly in the state.
“While intended to encourage long-term investment, the discount has contributed to increased investor demand for property, placing upward pressure on housing prices and exacerbating affordability challenges,” the submission read.
“These effects have, in turn, made it more difficult for first-home buyers to enter the market, contributing to declining home ownership rates.”
Australian home ownership rates have dropped from 71 per cent in 1999-00 to 66 per cent in 2019-20, according to the Australian Bureau of Statistics data.
The decline was also seen in lending patterns.
Data calculated by the Treasury showed $13 billion was lent to investors and $10 billion was lent to first-home buyers in Australia in 1994.
Last year, $139 billion was lent to investors, more than double the $64 billion lent to first-home buyers.
Treasury wrote that the CGT discount benefited higher-income earners the most, and reducing the discount would reduce demand from investors and lead to either lower property prices or slower increases in property prices.
“The scale of the concession, its concentration among wealthier investors, and its role in distorting investment behaviour, particularly in the housing market, all highlight the importance of reconsidering the current settings,” the submission read.
Federal Treasurer Jim Chalmers has repeatedly ruled out any changes to the discount.
Labor has campaigned for CGT discount reductions in the 2016 and 2019 elections, but lost both times to the Coalition.
Australia has lost $23 billion in potential revenue due to the discount, with $8.7 billion of that from NSW.
