CANBERRA, ACT, June 30 -- The Treasurer of Australia issued the following transcript:
Note
Subjects: capital gains tax reforms, housing market, 1 July cost of living relief
Natalie Barr:
Politicians driving to and from Canberra Airport are going to be met with a billboard blitz which is slamming the federal government's Budget tax reforms as a tax on ambition. The billboards say, 'Getting ahead just got taxed. Side hustle? Investing in crypto? Starting a small business? Your ambition is punished with the proposed capital gains tax changes'.
Joining us now to respond is Treasurer Jim Chalmers. Good morning to you.
Jim Chalmers:
Good morning, Nat.
Barr:
Your Budget will see Australians pay one of the highest capital gains tax rates in the world. What do you make of the claim that this is a tax on ambition?
Chalmers:
I reject both of those assertions actually, Nat, but I understand that when you're making difficult tax reforms, ambitious tax reforms, which are all about cutting taxes for workers and making things fairer for first home buyers, there won't be unanimous support for that.
It's always the case in this country when you're engaged in difficult economic reform, and particularly tax reform, it will be contested. There will be people who campaign against that and that's what we're seeing now, and that's fine.
Barr:
Singapore and New Zealand, I think, have got zero capital gains when you sell property or shares. Do you think people will, you know, nip over the ditch?
Chalmers:
The reason why they won't do that, Nat, is because there's already been a difference. The New Zealanders have had zero for some time and Australia's had the 50percent discount for some time, and before that indexation, and we didn't see those kinds of outcomes. We've got no reason to expect those kinds of outcomes now.
Barr:
But it's worse now, so they're not attractive.
Chalmers:
Not necessarily. It depends on the inflation rate, it depends on the marginal rate of the person who is making the sale, and in some cases we think that investments have been undercompensated. But the big overcompensation has been for established housing and this is the main reason we're making this change, because for too long now house prices have far out‑stripped income growth since the original change was made in 1999. This is all about a fair go for first home buyers, but it also means we can cut taxes for workers.
That's why today is a really important day Nat, because tomorrow we will deliver another tax cut, we'll deliver higher wages, an extension of paid parental leave, paid super on pay day, and we'll extend the petrol tax relief as well. That's because we understand that people are still under pressure. That's why we're providing this new cost‑of‑living relief from tomorrow, and it's why we're cutting taxes and making the housing market fairer for more people.
Barr:
Sorry, you just said in some cases investors have been undercompensated. So, who is going to be better off under your new capital gains tax plan?
Chalmers:
Well, it depends on the inflation rate, it depends on the marginal rate of the investor -
Barr:
Yeah, but just roughly, who?
Chalmers:
If you look at a period that we analysed, a 20‑year period that we analysed between when Howard and Costello made the big policy mistake in 1999 which ruined the housing market in Australia, we analysed a 20‑year period. What that showed was housing had been overcompensated and other kinds of investments, including some share investments, had been undercompensated.
What we're doing here is we're making the tax system fairer, we're applying a fairer, more neutral calculation to the capital gains tax discount. There is still a discount after these changes come in, it's just calculated differently, and what that's designed to do is to better align the tax treatment of people who earn wages and salaries versus people who earn their income legitimately from assets.
Barr:
Yeah, we know all that, but which investors have been undercompensated? Who will come out better under your new capital gains tax changes, because you just said that?
Chalmers:
If you look at that 20‑year period that we analysed, some kinds of share investments, for example, were undercompensated. There was also a big difference between investing in medium‑density property in the regions versus detached housing in the major capital cities. There's been a big distortion in the tax system and we're addressing that. We know that some people would like us to leave things exactly as they are, but if we did that more people, particularly young people, would be locked out of the housing market for longer.
Barr:
Which is a different topic, and we all agree with that, but let's go to the property market.
Chalmers:
No, it's the same tax reform. It's the same tax reform package, Nat.
Barr:
Yep. Property values going backwards in the big capital cities. Over the next year, we're expecting falls of $120,000 in Sydney, more than $80,000 in Melbourne.
Put first home buyers aside just for a second, for the 6.2million homeowners out there, is the message just to suck it up?
Chalmers:
First of all, Nat, I'm not going to put first home buyers to the side, that's happened for too long in this country and we've put them front and centre.
On your question of house prices, we have seen some softness in house prices actually since the beginning of the year, and that's because the softening in house prices is about more than budget changes, it's about interest rates and broader economic conditions as well. But if you look at the national market, the national market overall in aggregate, prices are continuing to grow but a bit more slowly. You're right to point out that it's been softer -
Barr:
No, they're falling in the 2 bigger cities.
Chalmers:
That's what I was about to say, Nat. They're softening in the 2 big markets, Sydney and Melbourne. Nationally, in aggregate, they're growing a bit more slowly and that's what Treasury assumes will happen after our changes are bedded down. There will still be house price growth, but house prices will grow a bit more slowly.
Why this is important to first home buyers, and the reason that we won't lightly dismiss them, is because what we desperately need to see in this country is a fair go for people who are trying to buy their first property and that means more affordable options for people. It means people getting a fair crack at auctions, for example, and that's what we're starting to see and that's a good thing.
Barr:
So, those homeowners, do they have to take a hit? That 66percent of Aussie households who own a home, with or without a mortgage, are you saying, 'look, I'm sorry, but we all want our kids to have a house or try to have a house, you're going to have to take a hit?'
Chalmers:
No, I say to homeowners right around the country that the Treasury assumption is that prices will continue to grow but a bit more slowly, and there will be more affordable options for young people in particular looking to buy their first home in a market that has been too difficult for them for too long.
Barr:
Yeah, but in reality, they're not growing just slower. They're falling.
Chalmers:
You're talking about a couple of months of data, housing is a long‑term investment. We've seen very, very strong house price growth over recent decades, and we expect house prices to continue to grow but a bit more slowly. We've seen some volatility in house prices that actually began before the Budget.
Barr:
Yep, but we've got PropTrack, which tracks listings, sales, state Valuer‑General data, and they are even saying that this is happening. So, in the 2 biggest cities they're falling, and they've fallen the last couple of months. What would you be happy with for the fall to be?
Chalmers:
We're not targeting a particular price or a particular percentage. As I keep saying in different ways, we expect house prices to continue to grow more slowly in aggregate over time over the course of the next couple of years.
I don't think investors in housing typically overreact to volatility from week to week or from month to month. Housing is a long‑term investment. We expect house prices to continue to grow. But we also expect that when first home buyers rock up to auctions - for too long they've been locked out of housing in this country, and our objective here is to make sure that there are more affordable options for those first home buyers to get a toe‑hold in a market which has been too difficult for too long.
Barr:
Yep. So, the prediction is down $120,000 in the next year in Sydney, down $80,000 in the next year in Melbourne. Does that gel with what you're predicting?
Chalmers:
Those aren't our forecasts. Our forecasts are for house prices to continue to grow a bit more slowly. That's the Treasury assumptions that we provided in Budget and have been talking about ever since.
Barr:
Even though you've got 2months of falls?
Chalmers:
You're talking about a couple of markets, important markets, but in aggregate even in the last few months we've seen national house prices continue to grow. There has been softness in those 2 big markets that preceded the Budget and that's because it's about more than the changes that we announced on Budget Night.
Barr:
Okay. Thank you very much, Jim Chalmers, Treasurer of Australia.
Chalmers:
Thanks, Nat.
Disclaimer: Curated by HT Syndication.
