Bill Shorten is committed to putting an end to Negative Gearing as we know it. Here’s what current and future property investors need to know now.
This is happening soon and it’s going to be big!
The 2019 Australian federal election will be held on Saturday 18th May. All 150 seats in the Lower House, or House of Representatives, and 40 of the 76 seats in the Upper House, also known as the Senate, will be up for election. It’s a big one…
Prime Minister Scott Morrison and the Coalition Government are attempting to win a third three-year term against the Labor opposition lead by Bill Shorten. If your retirement plans involve negatively-geared investment properties, SMSF properties or capital gains concessions, then you’d better be hoping, praying and voting for another Coalition win!
What are Labor’s proposed changes to property tax?
Under Labor’s proposed changes, negative gearing would only be possible with newly built properties which in essence places a ‘tariff’ of sorts in our housing market. The party also plans to cut the Capital Gains Tax discount from 50% down to 25%. Opposition leader Bill Shorten has also announced that Labor will not allow Self Managed Super Funds to invest in residential properties, even if you don’t intent to live in it.
Although Labor’s proposed changes are an effort to make home ownership more accessible to lower income Australians, we can’t deny that it is a case of short-term gain for long-term pain. We need a Government that will take a long-term view and prepare for Australia’s future.
So… what’s the big deal?
Many Australians invest in negatively geared property because the current tax benefits generate the cash flow required to obtain, maintain and eventually make money from property. This is a strategy that makes property investment more accessible to the average wage earner, and the aim of the game is to generate capital gains and build an asset base for retirement. This ensures investors can maintain their standard of living after they retire without having to rely on the old-age pension. Not only is this better for the individual, but the more self-funded retirees there are, the less pressure the ageing population puts on future federal budgets.
If the current rules around negative gearing are changed and the Capital Gains Tax concession is significantly reduced, the sad and simple truth is that fewer Australians will be able to become property investors. This will result in fewer privately-owned houses, which will put greater pressure on the government to provide housing to renters and retirees.
With Australia’s population set to grow significantly over the coming decades, Labor’s proposed changes should be ringing alarm bells.
Changes to Property Tax Laws will have a ripple effect
Yes, a Labor win will come as a blow to the already wealthy, but it will also hurt anyone with an average income who has the desire and discipline to get into property investment. Not to mention the fact that we’re already in the midst of an economic slump, and these proposed changes could exacerbate the current situation into something far more serious.
It’s not just potential property investors who will suffer at the hand of a Labor win at this upcoming election. Abolishing negative gearing will also limit the affordable housing available to renters, with the proposed changes predicted to raise rent costs by nearly $5000 in Brisbane alone per year according to new reports.
Despite the increase in housing demand expected over the coming years, many new builds and renovations are likely to be put on hold. The building sector can expect to see a rise in unemployment, as will the white goods, electrical and other housing-related industries. It’s no surprise that the Real Estate Institute of Australian (REIA) has been one of the most vocal opponents of Labor’s policy.
Our state governments would be set to lose revenue from stamp duties that would normally be spent on state infrastructure, education and health care. With less money to spend, there will also be fewer employment opportunities across these sectors.
May 18 is coming up soon! What should I do now?
If Labor win, the changes will come into effect on a yet-to-be-disclosed date after the May 18 election. Fortunately, it has been said that anyone with investments made before the date of change will not be affected. Nonetheless, current property investors will definitely experience limitations when it comes to growing their investment portfolio and planning for the future.
It’s hard to not be concerned!