The AFR has reported today that the the Turnbull Government has asked the independent Parliamentary Budget office (PBO) to model Labor’s proposed changes to negative gearing and the capital gains tax (CGT) discount and has been told that the policy could save the Budget some $6 billion per year by 2027:
…the Coalition asked the PBO to model a negative gearing and capital gains policy similar in all apparent aspects to Labor’s policy, except that it started a year later, and included the removal of the temporary budget repair levy in 2017.
The PBO estimated the policy submitted by the Coalition would raise around $6 billion a year by 2026-27, about $800 million less than Labor’s published figures, but with a similar trajectory of increasing revenue from 2019-20 onwards.
Just under $2.5 billion of this annual revenue would come from changes to capital gains tax and just over $3.5 billion from the negative gearing measures.
This is believed to be the first time there has been a reliable breakdown given publicly of the split in revenue collections between the two tax measures…
“The costing is considered to be of low reliability due to uncertainty surrounding behavioural responses, broader economic impacts and assumptions surrounding the growth in the components of net investment income and capital gains”, the costings document says…
Strangely, the findings are being reported as a ‘slap in the face’ of Labor because the savings are a bit less than Labor’s previously published figures and are considered of “low reliability”.
This is curious to me given any Budget saving – particularly one in the billions of dollars range – is far better than the Coalition’s ‘do nothing’ policy, which generates no Budget savings at all.
The “low reliability” claim is also hardly a big issue given the same argument would apply to virtually any revenue forecast looking a decade ahead.
The important thing is that Labor’s policy would very likely provide billions of dollars of Budget savings that grow over time, whereas the Coalition’s ‘do nothing’ approach offers no savings at all.
Moreover, Labor’s policy on negative gearing and the CGT discount is far superior to gifting tens of billions of taxpayer dollars to foreign investors/shareholders via the Coalition’s planned company tax cut – a view shared by the overwhelming majority of economists.
