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Negative gearing and capital gains tax discounts to cost Australian budget $165bn over 10 years, analysis reveals | Australian politics

PoliticsNegative gearing and capital gains tax discounts to cost Australian budget $165bn over 10 years, analysis reveals | Australian politics

Generous tax breaks given to investors with more than one property will cost the federal budget more than $165bn over the next decade, new costings show.

The Parliamentary Budget Office analysis, requested by the Greens and released on Monday, shows tax revenue forgone due to the federal government’s policies of negative gearing and capital gains tax discounts will total about $165.58bn between 2024-25 and 2033-24.

The Greens used the PBO analysis to demand the Albanese government wind back negative gearing incentives and reduce capital gains tax discounts in exchange for their support in the Senate to pass Labor’s Help to Buy scheme.

The proposal, known as a shared equity scheme, aims to help eligible applicants get into the housing market by loaning them 30% (for an existing build) or 40% (new build) of the purchase price. This reduces the bank loan to 60% or 70%, so those eligible will require smaller deposits and loans.

In its current form, the scheme will be limited to 10,000 applicants a year, for four years.

The housing minister, Julie Collins, has consistently ruled out negotiating with the Greens on the bill, despite also lacking the opposition’s support in the upper house. Collins has accused the minor party of being “more interested in votes than they are about people”.

The PBO’s costings, which draw from Australian Taxation Office and Treasury data, show negative gearing’s cost to bottom line revenue over 10 years is estimated at $100.1bn while the capital gains tax discounts forgo $65.46bn in tax.

Negative gearing allows investors to claim tax deductions on rental property losses, while the capital gains tax discount halves the amount of excise paid by people who sell assets that have been owned for 12 months or more.

In February the treasurer, Jim Chalmers, said Labor was “not considering” or “proposing” to make any changes in those areas.

How did Australia’s housing market get so bad, and is it all negative gearing’s fault? – video

The Greens are believed to be proposing limiting negative gearing to a single investment property. The party is also proposing to replace the capital gains tax discount with a more modest concession linked to the consumer price index.

The Greens’ housing spokesperson, Max Chandler-Mather, said without changes to the tax incentives, Labor was pouring $165bn worth of fuel “on the raging fire that is Australia’s housing crisis”.

“Every day Labor refuses to phase out these unfair tax handouts is another day that a potential first home buyer gets screwed over at an auction by a property investor,” he said.

“What these massive numbers represent is a generational and class war that Labor and the Liberals are waging on young people and renters, making the rich richer, while everyone else’s life gets harder.”

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The Greens and the Coalition teamed up last week to block another of Labor’s housing bills, one intended to encourage build-to-rent investments.

Collins accused the Greens and the Coalition of making an “unholy alliance” against affordable housing.

The changes provide incentives by increasing the capital works deduction rate to 4% a year and reducing the final withholding tax rate for properties in which institutional investors become landlords for long-term leases.

The proposed legislation now requires 10% of the properties to be “affordable”, defined as being rented out at 75% of market rate.

The Greens last week demanded changes to make 100% of the build-to-rent properties affordable, defined as the lower of 70% of the market rate or 25% of the renters’ income. The Greens also want rent rises in these dwellings to be capped at 2% every two years.

But Collins said Labor was “not open to negotiation”. “We want to get this done,” she said. “We want to make sure that we get homes of every type on the ground as quickly as we can …

“Drawn‑out delays where people keep putting ambit claims – ridiculous claims of things that actually cannot be achieved on the table – is not particularly useful.”

The shadow assistant home ownership minister, Andrew Bragg, welcomed the Senate’s decision to delay the build-to-rent bill. He argued the “tax concession is solely designed to bolster foreign investment in Australian houses”.

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