Capital gains tax changes are on the table, and yet Armageddon has not arrived. Has the tide on housing turned at last? | Greg Jericho
A funny thing happened on the way to the budget: changes to capital gains tax and negative gearing, which had for years been a no-go zone, are now looking likely.One of the first times I wrote about negative gearing was in 2015 when I covered the then treasurer Joe Hockey appearing on Q+A.He said negative gearing was needed because when the Hawke government scrapped it in the 1980s rental prices rose.He was wrong (and to be honest, this was not unusual – a lot of my columns back then involved arguing Joe Hockey was wrong).While rental price growth went up in Sydney and Perth, it didn’t in Melbourne, Brisbane or Adelaide.
Rental prices also grew faster after negative gearing was re-established in Sydney and Brisbane.If the graph does not display click hereIn Sydney and Perth, rental vacancy rates were low and thus rental prices rose – and would have risen regardless of what was done to negative gearing.But the weirdest thing, aside from property developers and their lobby groups continuing to say negative gearing keeps rents down, is that we are now less than a month away from the budget and the mooted changes to negative gearing have barely registered.The changes have been rumoured for a while, and yet the Liberal party has avoided the issue.They did not ask one question on housing in the last sitting fortnight.
Independent MP Dr Sophie Scamps did ask one – to call on the government to “commit to reforming our housing tax concessions to address worsening intergenerational inequity”.The political tide seems to have turned – the parties now know voters want something real done about housing affordability and the massive tax breaks to investors.The rumour is that the government is looking to limit negative gearing to two properties.This would cover 90% of people who own an investment property and would pretty much kill any criticism of attacking “mum and dad investors”.If the graph does not display click hereThe number of people owning more than two investment properties grew after the capital gains tax discount was introduced in 1999, but has sat about 9% for 15 years now:If the graph does not display click hereNot that many people will cry tears for those owning multiple investment properties, and to be honest this is a pretty minor tweak.
More interesting is news reported this week that the government is also set to change the capital gains tax (CGT) 50% discount.Prior to Howard and Costello introducing the CGT discount in 1999, negative gearing was not a big deal – you were as likely to make a rental profit as to negatively gear.But the discount made negative gearing a smart accountancy move and until the record low rates of the pandemic years, negatively gearing was more popular:If the graph does not display click hereWe know changing the CGT discount will bring out all the usual claims from the Master Builders Association and the Property Council that the discount encourages investors to build houses and create supply.Alas, we have 25 years of evidence to show that since the CGT discount has been in operation, housing construction has not improved:If the graph does not display click hereSo, no, removing the CGT discount won’t cause supply to collapse, nor will rents go up.The government is reportedly mulling cutting the discount or (most likely) going back to the pre-1999 method of taxing the “real” capital gains (ie taking into account inflation).
The good thing about going back to the pre-1999 way is that it is hard to mount a scare campaign given the 1990s did exist and life and the housing market carried on – actually quite well, because housing was about buying a place to live in rather than a place to make money:If the graph does not display click hereWhat this means gets a bit technical.And I apologise now for getting a bit mathematical.Imagine you buy an investment property for $575,000 and 10 years later sell it for $1,000,000.This is roughly what happened to average dwelling prices over the past decade.You have made a $425,000 profit or a 74% return.
Under the current system you would pay tax on only half ($212,500), the other $212,500 you get tax free.If it was taxed by taking into account inflation (the pre-1999 method), and inflation had gone up 20% in the 10 years you owned the property, your “real return” would be 55% so you would be paying a lot more tax than currently – because the bigger your return the more tax you pay.But if inflation had gone up faster – say by 40% then your real return would have been 35% and you actually pay less tax than now:If the graph does not display click herePersonally, I would prefer cutting the discount to 25%, because even taxing real gains remains pretty generous compared to how wages are taxed.But undoing the Howard-era discount and returning to pre-1999 tax settings would still be good.(Anything that undoes any damage that Howard has wrought is a good thing).
And that such a move looks close to certain – and yet we are not being threatened with hell fire and Armageddon – suggests that maybe the government should realise that when a policy is popular, vested interest groups have little power.Greg Jericho is a Guardian columnist and chief economist at the Australia Institute
Morgan McSweeney, Keir Starmer’s former chief of staff, to be questioned by MPs
Morgan McSweeney is facing a showdown with MPs who will grill him on whether he placed extreme pressure on the Foreign Office to approve Peter Mandelson as ambassador.The prime minister’s former chief of staff will be questioned next Tuesday by the foreign affairs select committee over allegations made by the former Foreign Office permanent secretary Olly Robbins, who said No 10 had questioned why Mandelson should be subject to any vetting.Robbins, who was sacked by Keir Starmer after the Guardian revealed formal vetting concerns were overruled, said there had been a “dismissive” attitude from Downing Street towards security vetting.McSweeney will be asked by MPs to also respond to allegations by Robbins that another ambassadorial post was sought for Starmer’s outgoing communications chief Matthew Doyle, who was later made a peer.McSweeney, who left No 10 in February, has been adamant he did not know that Mandelson had failed his security vetting, which was then overridden by the Foreign Office
Do Olly Robbins’ actions stand up to scrutiny? | Letters
While watching Olly Robbins give evidence at the Commons foreign affairs committee (Olly Robbins’ account of Mandelson vetting piles pressure on Keir Starmer, 21 April), what I heard was that Robbins – who boasted of his quarter century as a civil servant and who had been appointed to one of the highest positions in government – felt unable to resist the pressure of an unspecified source he called “Downing Street” regarding perhaps the most important and far-reaching foreign post of all.Robbins showed little will to discover the detail of Peter Mandelson’s failure to gain clearance and, incredibly and most unlike a civil servant, he decided not to keep a record of what he described as a “crucial” meeting. He also appeared to not distinguish between reporting the fact that there had been an issue with Mandelson’s clearance and explaining the details of the issue, which he correctly said should have remained confidential. But he then broke that principle by disclosing a specific element in the vetting, that the reservations about Mandelson did not involve links with Jeffrey Epstein.“I was new to the job” and it would have been “very difficult” to deny Mandelson clearance do not wash – he’s paid to do this kind of thing
UK politics: Labour MP calls for Starmer’s resignation to end ‘psychodrama’ – as it happened
The Labour MP Jonathan Brash, who was elected in 2024 for Hartlepool (Peter Mandelson’s old seat), has told GB News that he thinks Keir Starmer should resign.He claimed that Starmer’s resignation was now inevitable, and that the distraction provided by the Mandelson scandal was making it hard for the government to do its job.He said:double quotation markI’ve got to be clear, I am completely fed up to the back teeth of this psychodrama in Westminster, the own goals that are coming from the heart of this government.Meanwhile, we’ve got fantastic Labour councillors, canvassers, activists up and down the country, working hard and delivering for their constituencies, like mine in Hartlepool, facing local elections in the shadow of this absolute mess. They just need to get a grip
No one can look Starmer in the eye … and the Mandy saga is not going away | John Crace
This is the end, beautiful friend. It is the tragedy of almost all prime ministers that they are the last person to realise the game is up. Their race is run. The backbenchers are the first to know. They spend time in their constituencies
Britain’s military dependence on US ‘no longer tenable’, says former Nato chief
Britain’s high military dependence on the US is “no longer tenable” and the UK has to become increasingly independent of the special relationship with Washington, a former Nato chief has said.George Robertson, who last week accused British leaders of a “corrosive complacency” towards defence, said on Wednesday that the traditional allies were diverging over values – and that even after Donald Trump leaves the White House, the separation was likely to continue.Lord Robertson, a former Labour defence minister and Nato secretary general, highlighted Trump’s unprovoked attack on Iran, his decision to levy tariffs on traditional allies and, “most jarringly”, he said, the threat to wrest Greenland from Denmark.“All of these illustrate a growing divergence between Westminster and Washington,” Robertson said at a seminar at the Chatham House thinktank.He said the diplomatic tone from the White House had “reached a historic low point” with Trump’s repeated public criticisms of the UK
How Olly Robbins’ knightly charm glossed over burning questions on Mandelson vetting
The verdict on Sir Olly Robbins’ parliamentary testimony, among fellow knights of the civil service realm at least, was unanimous. Mark Sedwill, a former cabinet secretary, called on the prime minister to “retract his accusations against Olly Robbins and reinstate him”.Sir Simon McDonald, who once held Robbins’ job as top civil servant in the Foreign Office, said if Keir Starmer had only waited to hear his evidence to the foreign affairs select committee he would never have sacked him.Even heavyweights in the media class seemed satisfied with Robbins’ decision to grant Peter Mandelson developed vetting clearance, and not tell Starmer he had done so against the advice of the official vetting agency. The former BBC journalist Jon Sopel declared while watching the evidence: “I am seeing the very best of the civil service
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