The Albanese government could save the federal budget $60 billion over a decade by reforming negative gearing and capital gains tax, new modelling from the Parliamentary Budget Office shows.
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Independent senators David Pocock and Jacqui Lambie, who commissioned the modelling, called on the government to "be brave" and tackle the vexed and politically fraught issue.
"The housing crisis is so widespread and so severe, we need governments pulling every available lever to increase housing supply and affordability," Senator Pocock said. "Tax reform ... can be a powerful tool to drive new supply and should be on the table for sensible debate."
Senator Lambie said most Australians would agree that the government must fix the housing crisis and that "negative gearing is part of the problem".
The government needs the support of the Greens and two independent senators to deliver on a key election promise to tackle housing affordability.
The PBO forecast that abolishing negative gearing and reforming capital gains tax rules, which give owners a 50% CBT discount if they sell their property after 12 or more months, could save $60 billion by 2033-34.
Senators Pocock and Lambie are pushing a more "modest" reform that would save almost $16 billion over the same period, while "protecting mum and dad investors and retirees", by:
- Removing both negative gearing and capital gains tax discounts for all residential properties bought after 1 July 2024, with those purchased before this grandfathered;
- Removing negative gearing for all second or subsequent properties, and disallowing rental deductions for vacant properties;
- Offering 25% CGT discount for new homes built after 1 July 2024, if held for more than three years.
The crossbench senators said the PBO modelling showed it was possible "to protect people's existing investments while moving to a model that uses tax concessions to incentivise new [housing] supply".
The billions of budgetary savings "could be re-invested in the supply of desperately needed social and affordable housing," Senator Pocock said.
The PBO found that the main behavioural impacts of the proposed tax reforms would be "the likely disposal of some rental properties by existing property investors" and a reduced number of potential investors buying homes for this purpose.
This was expected to lead to an increase in properties being purchased by first home buyers.
Treasurer Jim Chalmers, who is three weeks out from delivering the federal budget, in February shot down talk the government was considering negative gearing reform.
Asked on Monday if he had given any further thought to the issue, the Treasurer replied: "No."
Senator Lambie said the Albanese government was refusing to talk about negative gearing because "[they] got their arses kicked in the 2019 election".
"Senator Pocock and I have done the work and I hope the Treasurer and the Prime Minister will be brave and take this opportunity to consider these sensible reforms."
The Greens are threatening to block the government's Help to Buy bill in the Senate unless the government "fixes" negative gearing and caps rents, while Senator Pocock supports it in principle.
The Coalition opposes the reform, which would set up a shared equity scheme to give 40,000 first home buyers the chance to co-purchase their home with minimal savings.
Housing Minister Julie Collins is pushing on with consulting on eligibility criteria for the scheme, after announcing late on Monday that the government was "taking another step to deliver" the reform.
She called on the Greens and Coalition to "stop standing in the way of the scheme".
Greens senator Sarah Hanson-Young told reporters in Canberra on Monday that the government needed to "do better" on behalf of Australians struggling to afford housing by tackling negative gearing.
"The Albanese government knows that the Help to Buy scheme is nothing more than a fig leaf," she said.
"And if they want [to] go to the election standing there virtually naked with only a fig leaf to cover, their pathetic housing plan, go for it - the Greens are not going to bring them a jacket."
An earlier analysis by the Grattan Institute projected that abolishing negative gearing and halving the CGT discount would reduce house prices by 2 per cent.
The NSW Treasury, meanwhile, projected a 4.7 per cent increase to the owner-occupier share of private dwellings.