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Thursday, 1 March 2018
Page: 2549

Mr THISTLETHWAITE (Kingsford Smith) (10:30): The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 and the Foreign Acquisitions and Takeovers Fees Imposition Amendment (Near-new Dwelling Interests) Bill 2018 give purpose to the government's announcements that were made in the 2017-18 budget regarding the foreign resident capital gains tax regime and how it applies to housing and other measures that they claim deal with housing affordability. In relation to the capital gains tax changes for foreign residents, this particular set of bills seeks to remove the entitlement to the capital gains tax main residence exemption for foreign residents and modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity's underlying value is principally derived from taxable Australian real property, the principal asset test is applied on an associated inclusive basis. There was concern that this measure would remove entitlement to the capital gains tax main resident exemption for foreign residents who are New Zealanders and that it would affect those constituencies. However, the clarification that has been specified to state that Australian tax residents can access the exemption means that those constituencies are likely not impacted. But Labor believe that this is an issue that should be aired and clarified during a Senate inquiry process, and we've recommended that these bills go off to a Senate inquiry to clarify their operation.

The second element of the bills relates to the reconciliation payments for near-new dwelling exemption certificates. They are made to developers who sell dwellings to foreign persons under a near-new dwelling exemption certificate. This particular type of certificate was introduced in 2017 to allow developers the flexibility to sell near-new dwellings that have previously failed to settle at an auction or during a prior sale period to foreign persons. Consistent with the process of payment under the near-new dwelling certificates, the bills introduce a reconciliation payment for the near-new dwelling certificate exemptions by which developers pay additional fees for each near-new dwelling sold to a foreign person under these certificates.

The final element of the bills is capital gains tax incentives for investments in affordable housing. We all know that we need to do much more as a nation to encourage developers to increase the supply of affordable housing if we're going to take pressure off house prices and make housing more available and affordable, particularly for low-income families. From 1 January 2018, an additional 10 percentage points capital gains tax discount will be provided if a CGT event occurs to an ownership interest in residential premises used to provide affordable housing. The additional capital gains tax discount applies to investments by individuals directly in affordable housing or investments in affordable housing by individuals through trusts, including managed investment trusts.

These bills are part of the government's so-called attempts to improve housing affordability in Australia. But, time after time, economists and experts who work in the housing field have identified that the major driver of pressure on house prices, particularly in the Sydney, Melbourne and Brisbane markets, has been the overly generous tax concessions that exist in Australia around the sale of and purchase of investment properties. I speak of course of negative gearing, the ability for people buying investment properties to deduct for taxation purposes the interest payments that they make when there is a loss, and of the discount that's applied for capital gains tax once the property is sold. The capital gains discount is in the value of 50 per cent.

These are the most generous tax concessions in the world. As a result, Australia's capital cities have, on the whole, probably the highest cost of housing of any nation in the world, and plenty of evidence exists to say that there is a direct relationship between those two phenomena. Yet none of what this government has done over the course of the last couple of years and none of what it is proposing deal with that core problem in our housing market—the overly generous tax concessions that exist. Not only are they overly generous; they benefit those who are well off. The benefit of these tax concessions overwhelmingly goes to people who are in higher income brackets. When it comes to the capital gains tax discount, it was recently reported that that has actually increased: close to 65 to 70 per cent of the benefit goes to the top income tax bracket earners in this country. The same applies to negative gearing. I think 50 per cent of the benefit of negative gearing goes to the top 10 per cent of income earners in this country. That's unfair and it's unsustainable. At the moment, if you're a first home buyer, seeking to buy your first property and you go along to an auction on a Saturday, you're competing against someone who might be going to invest in their seventh or eighth investment property and who knows that they're going to get a leg up from the government and access to that tax concession and so will have an advantage over you in bidding for that property. First home buyers get absolutely nothing. They get very, very little support from the government at all.

The government recently introduced a reform to superannuation to ensure that people can save up to $30,000 through their superannuation fund on a concessional tax basis to save for their first property. But the problem with that is that $30,000 doesn't buy you a window pane in the area that I represent. It's basically useless for most people. There is plenty of evidence to suggest that these schemes that promote putting more money in people's pockets so they can buy housing actually push up the cost rather than taking the heat off. That's all it will do. So what we have seen with this government is an abject failure to listen to the experts; to understand what is going on on the ground; to listen to the Australian people, importantly; and to take action on negative gearing and capital gains tax discounts.

It's only the Labor Party that has had the courage and the guts to be honest with the Australian people and say: yes, we're going to tackle this difficult issue. Two years ago we announced a sensible policy. The housing market at the moment is akin to a pot of boiling water: our policy will turn the temperature on the stove down a bit so that some of the heat comes out of the housing market. It's not going to see house prices reduce. It's not going to see house prices fall, as the Prime Minister said, but also it's not going to see house prices go through the roof, as the minister for revenue has said, which is another example of the fact that this government doesn't know what it is doing. The Prime Minister says that house prices are going to go through the floor and the minister for revenue says they're going to go through the roof. They don't even know what is going on in the housing market when it comes to this issue. Our policy will take pressure off. It will do this by restricting negative gearing to new investment properties only. We're talking about new housing stock, off-the-plan developments. If a developer builds a new project, particularly unit developments, then you will be able to invest in that and negatively gear it, but if it's an existing house or an existing unit—and, let's face it, most new home buyers come in at the bottom of the market because they don't have as much funding available, and they buy existing housing stock. Very few first home buyers buy something that's brand new, that's off the plan. They'll buy something that's existing housing. So you're taking that competition away from the first-home-buyers market by removing that incentive, that tax concession, that exists for people who may wish to negatively gear, by restricting it to new housing development only.

We've had this policy independently costed and studied, and it's been looked at by a number of organisations. They've said that this policy will create 25,000 jobs in the housing market because you're going to see an encouragement to bring on new supply. There'll be an encouragement for people to build new housing because there's a taxation incentive around it. That will increase supply, which hopefully will take pressure off over the course of the years to come as well. It's a sensible policy.

Anyone who is currently in the system who is negatively gearing a property at the moment will not be affected at all. They will be grandfathered, so there will be no effect on people who are negatively gearing properties at the moment. They will continue to be able to do that until they sell the property. But, at a point in time in the future, if Labor is elected, new developments will be the only ones for which negative gearing will be available, and that will take some of the heat out of the housing market.

The second element is the outrageous capital gains tax discount that exists for the sale of investment properties. At the moment, if you have an investment property, you negatively gear it during the life of that. When it starts to become positively geared—in other words, you don't make a loss on it anymore and you can't deduct the interest—a lot of people sell it. And what do you know? They sell it and they pay capital gains tax on that, but John Howard and Peter Costello introduced a 50 per cent discount, so they reduced the amount of tax that's paid on that by 50 per cent.

When they did that, it was unfunded in the budget. They didn't find a revenue source to fund this very generous tax outlay or tax concession that they were giving to investors in the property market. These were during the boom times, during the mining boom, and we were running healthy surpluses because the economy was ticking along quite nicely on the back of the resources boom. Yet the fiscal irresponsibility of that government is evident in the fact that they never found a funding source for that reduction in revenue from the budget from producing that 50 per cent capital gains tax discount, and we're all paying for it now. We're all paying for it in the budget deficit that we have, and we're all paying for it in the heat that's been brought into the housing market because of that very generous tax concession.

Labor have said that we'll remove some of that heat around this particular policy item by reducing that capital gains tax discount to 25 per cent rather than 50 per cent. That will, again, operate to ensure that investors don't get an advantage over first home buyers who are going along to auctions on a Saturday to try and buy their first home.

These are sensible reforms. They have been consulted on with the Australian public over a long period of time and with experts that work in this field. They've been developed in consultation with these people. They've been studied by independent bodies, fully costed and ticked off by the Parliamentary Budget Office as ones that create jobs, boost the housing supply and take the heat off house prices in this country. That is a sensible measure, and that is the Labor Party listening to the Australian people, in stark contrast to this government, which sticks its head in the sand and still remains the mate of developers in this country by refusing to act on capital gains tax discounts and outrageous negative-gearing tax concessions that exist in Australia, which are causing big pressure and heat in the housing market.

So, whilst these measures are welcomed, they don't go far enough. They don't deal with the core of the problem. Only Labor have the policy in place to ensure that we're fair dinkum about tackling housing affordability in this country.