Greens showing increasing willingness to work with Labor – but not without some mutual backscratching
There is very little standing in the way, politically speaking, for the Australian Labor Party to enact sweeping changes to property and wealth taxes in the upcoming May Budget.
As a deflated Coalition opposition continues bleeding support to One Nation, The Greens – who have the power to sway votes in the Senate – have signalled willingness to work with Labor to get policies over the line.
On Tuesday, the minority party said it would vote through Labor’s bill to slap a 30% tax rate on earning from superannuation balances above 30%. This includes property investments held in super portfolios
This has long been an ambition of Labor treasurer Jim Chalmers, although he has struggled to get the Greens to back it.
Under the policy, earnings on superannuation balances exceeding $3 million will be taxed at 30% – double the current rate of 15%. This includes not only realised investment income but unrealised gains, meaning paper profits on assets such as shares, property, and business holdings will also be taxed annually.
The Greens had previously signalled tentative support for the bill if Chalmers agreed to bring the threshold down to $2 million. That does not appear to be a roadblock anymore, although the Greens’ support is not unconditional.
“We are going to support the bill as a down payment on genuine, progressive tax reform in this budget,” Greens treasury spokesman Nick McKim said on Tuesday. “This budget is a once-in-a-generation opportunity for ambitious tax reform, and we are opening the door for Labor to walk through.”
In other words, the Greens will give Chalmers his $3 million super bill, with the tacit expectation of progressive tax reforms in the upcoming May Budget.
Labor prime minister Anthony Albanese (pictured) and Chalmers effectively have an open goal standing in front of them, reckons McKim. “If they bring reform that would rein in spiralling inequality and the housing crisis, they will have the Greens’ support to get it done. The only obstacle to real change is Labor.”
But what will this ‘real change’ look like?
What’s in store for the May Budget?
It is probable or at least very likely that some form of cut to the 50% Capital Gains Tax (CGT) discount for individuals and trusts is on the way.
Under current rules, a 50% tax discount is applied on profits from the sale of certain assets (including real estate) held for more than 12 months. Individuals and trusts can take advantage of the discount, while complying superannuation funds receive a one‑third discount.
Options include trimming (not scrapping) the 50% discount to 25% or 40% for new investments, including housing.
There are also indexation‑style alternatives – replacing part or all of the discount with inflation indexation of cost base, effectively taxing only real gains – this was the system in place before John Howard brought in the current system in 1999.
Some business groups and some economists see virtue in broad CGT reform, while the Greens want the discount scrapped entirely and extended to other asset classes.
Others, including the Property Council, believe reducing the CGT discount is a disaster waiting to happen.
Property Council chief executive Mike Zorbas warned that any tax settings which make investment in new housing less attractive than shares would weaken the pipeline of new supply. Zorbas also suggested that higher holding costs and weaker post-tax returns could prompt some landlords to exit or redirect capital towards equities, tightening rental availability and reducing investor loan demand.
McKim isn’t convinced. “Any reduction in house purchases by investors as a consequence of reduced rental housing tax concessions is more likely today to be replaced by house purchases by owner occupiers,” he said.
Fool Labor twice
Back in 2019, Bill Shorten’s Labor Party went to the federal election with a major policy to wind back negative gearing (and the CGT discount).
His idea was that negative gearing, which allows property investors to deduct against their wage income any annual losses from property investments, would be limited to newly built properties only, rather than all investment properties.
Shorten proposed that existing negatively geared investments would be grandfathered so current investors kept their benefits, but new investors buying established homes wouldn’t be able to offset rental losses against their wage income in the same way.
It is widely acknowledged that this policy helped Labor to lose the election, so would Albanese dare try it again?
Labor hasn’t suggested so, but nor has the party ruled it out, with government sources telling the AFR last week that negative gearing options were being looked at by the Treasury, although no decisions had been made.
If any change were to be made, it would likely relate to a cap on the number of housing that an investor can negatively gear. The Greens would like to see negative gearing scrapped entirely (grandfathering exempted).
It sounds fanciful, but with the political winds blowing in a brave new direction and populist parties gaining influence, the Greens have found themselves with a bargaining chip in driving tax reform. Whether you like it or not, it looks like wealth tax hikes are on the way.
