Tax capital gains on family homes would be politically tough and affect the wider economy, economists say
But economists were also quick to point out the political difficulties of implementing a policy to tax capital gains on the sale of the family home, which is currently exempt.
Any government that proposes it would be kicked out of office.
— AMP Capital chief economist Shane Oliver
“The probability of this getting up in Australia? Zero. It won’t happen,” said Louis Christopher, the managing director of housing economics consultancy SQM Research.
“This is another IMF thought bubble. We’ve seen them in the past. We all know [Treasurer] Jim [Chalmers] is keen to make revolutionary change to a values-based economy, but this won’t be it.”
AMP Capital chief economist Shane Oliver agreed.
“Any government that proposes it would be kicked out of office,” Dr. Oliver said. “Two-thirds of households own their own home and paying capital gains tax on its sale would not go down very well at all.”
Figures on capital gains made from sale of primary residences weren’t immediately available on Thursday, but Ms Owen said the median national nominal gain on profit-making resales – of both owner-occupier and investor homes – for the three months to September 2022 was $290,000.
I’m not suggesting we tax it to the hilt, but it’s probably an area we should give more thought to.
— ANU economist Ben Phillips
Treasury estimates the CGT exemption for owner-occupied homes is worth about $60 billion a year.
The proposal did spark debate about the generosity of Australia’s tax regime towards homeownership, which benefits wealthier people with larger dwellings.
Australian National University economist Ben Phillips said the tax-exempt principal place of residence offered much more generous tax concessions than superannuation and negative gearing, incentivizing people to invest in their own home and in consequence, leading to higher personal and corporate taxes.
“For a typical homeowner with an $800,000 home, they may be getting a $50,000 to $60,000 annual capital gain tax-free,” he said.
“I’m not suggesting we tax it to the hilt, but it’s probably an area we should give more thought to.”
But while Australia’s tax concessions on the family home seemed generous, they were not out of step with other countries, Dr Oliver said.
“In America you can deduct the interest costs on the family home,” he said. “They’ve got a concession we don’t have. When you add them all up, I don’t think Australia’s taxation of the family home is that different to other countries.”
Levying capital gains tax on family home sales would hinder the process of upgrading and building up wealth that many Australians practiced over their adult lives, Dr Oliver said.
“If you have to pay capital gains tax on the initial property you’ve got, that would make the process of upgrading more problematic,” he said.
Mr Christopher said imposing such a tax would trigger a short-term shortage of supply as people held off selling.
“What would initially come through is a wave of undersupply,” he said. “The impact would be similar to winding back or completely shutting off negative gearing. You would see a situation where supply would scale right back and there would be a surge in rental demand.”
Taxation changes to housing, when done correctly could improve supply, which NSW had the chance to do with its efforts to replace stamp duty with a broad-based land tax, but charging CGT on the family home was unlikely to achieve this, Mr Christopher said .
However, political appetite could change if home ownership fell from its current level to below 50 percent, he said.
“Things may well change into the long-term future if we see a move towards under 60 percent housing ownership,” Mr Christopher said.
“If they were to fall to the 50s then there would be a lot more political backing for changes such as this and changes toward negative gearing.”
Ms Owen said a federal government could be driven to roll back capital gains tax concessions if it needed to boost a weakened fiscal position, but that in such a case, the CGT deduction on investment property would be an easier, and less politically contested, place to start.
“If the government needs to raise revenue, capital gains is a pretty obvious place to start, potentially more in the investment housing space,” she said.
With John Kehoe