Despite a new Federal Government housing affordability package expected for the next budget, the impact of tax breaks in the housing market was formally examined and rejected by the Federal Cabinet as early as February 2016.
The Coalition Government responded to investigations into the possibility last year by launching direct and staunch opposition to Labor’s proposals for property tax concessions.
However, new information that has come to light through the Freedom of Information Act that the government had explored the possibility of expanding tax breaks. According to the documents, the Cabinet were briefed on the possibility, but the idea was shut down by the powerful Expenditure Review Committee (ERC).
There have been widespread calls recently for the government to at least consider changes to the current tax arrangements for property investors, with former Queensland premier Anna Bligh urging the government to consider possibilities to make the current arrangement more market-sympathetic.
“On the affordability side, the tax arrangements – incentives and disincentives – are clearly part of investor decisions and need to be appropriate for market conditions,” she told Fairfax Media.
“Beyond the driver of supply and demand, there are many other factors that work together in a complex way to inform an investor or buyer’s decision. And tax incentives are certainly one of them.”
Mrs Bligh is not alone in standing in favour of action to address “excesses” in negative gearing – a property investment strategy in which the property rent paid to the owner creates a shortfall from the interest on the loan used to purchase the property, but the rising value of the property results in an overall profit.
Shadow Treasurer Chris Bowen has claimed that Federal Treasurer Scott Morrison was aware of the flaws in the system last year and publicly lobbied for change. However, he accused Morrison of letting the issue slide in Cabinet and not pushing for necessary change.
“The Prime Minister and the Treasurer had told Cabinet that negative gearing should be reformed and they’d been rolled by Cabinet in an unprecedented way. A cabinet considers things when there’s a firm recommendation before it,” said Mr Bowen.
“You don’t get a recommendation from a minister to say, ‘Everything’s hunky-dory, we don’t need to do this’. This just confirms what we already basically knew — that Scott Morrison says one thing about negative gearing when he’s running his cheap little scare campaign; behind closed doors he’s saying another thing.”