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Shorten policy hits tax breaks for negative gearing and capital gains

Bill Shorten announced a number of tax reform initiatives at the NSW Labor conference. Gemma Najem/AAP

Opposition Leader Bill Shorten has unveiled tax changes that would tighten negative gearing and the capital gains tax discount, saving A$565 million over the forward estimates and $32.1 billion over a decade.

Under pressure to convincingly fund Labor’s spending promises, Shorten said the proposals would help fund health and education as well as assist in balancing the budget, and would “bring fairness back into the housing market”.

A Labor government would confine negative gearing to new housing from July 2017. But current investments and any made before that date would be fully grandfathered.

Shorten said: “Labor will help level the playing field for first home buyers competing with investors and we will put the great Australian dream back within the reach of the working and middle-class Australians who have been priced out of the housing market for too long.”

But he stressed that under an ALP government, “the family home will always be 100% capital gains tax-free”.

Labor would also halve the capital gains subsidy for assets bought after July 1, 2017 – reducing the capital gains tax discount from the present 50% to 25%. Once again, investments made before that date would be unaffected.

The initiatives, announced at the NSW ALP conference, have been costed by the Parliamentary Budget Office.

The opposition says that significant tax subsidies are available for people holding investments, “establishing a significantly more favourable tax basis for holding capital, rather than earning income”.

It says those benefiting from the tax break for negative gearing property and the capital gains discount are concentrated in the higher income ranges, as low and middle income earners are more likely to spend their income on consumption while higher income people are able to accumulate capital and use tax benefits.

Under negative gearing, which is mostly in property, investors are able to deduct any losses from their salary and wage income.

The opposition says negative gearing and the capital gains discount have not achieved their aim of boosting the housing supply and encouraging the construction of more new houses. “This year they will cost the budget over $10 billion. That’s more than the government spends on higher education and child care.”

Shorten said analysis by McKell Institute suggested the changes to negative gearing might create up to 25,000 new jobs in construction.

Treasurer Scott Morrison accused Shorten of a “long con of Australians” by claiming this was the most important structural budget reform in a decade. Morrison said that once again Shorten’s numbers “just don’t add up”. “With Australia in deficit to the tune of $37 billion, Labor’s tax measure would add just $0.56 billion to the budget over the next four years,” Morrison said.

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