Property parasites swarm CGT cut

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From Parasitefax:

Any change to the existing environment permitting tax breaks on negative gearing or capital gains tax deductions on property investments would quickly push prices lower, said Andrew Schwartz, the group managing director of debt and equity investor Qualitas.

“We would expect that any changes to the tax base, such as cuts to CGT exemptions or changes to negative gearing, would have a short term downward impact to prices as investors potentially look to switch asset classes,” Mr Schwartz told The Australian Financial Review.

“However, in the medium term, it will put substantial upward pressure on all housing as new supply will be significantly reduced, leading to greater housing shortage and in turn tremendous price growth.”

The issue was nuanced and could have unintended consequences, warned Mirvac chief executive Susan Lloyd-Hurwitz.

And earlier:

The Property Council of Australia, which fought Labor’s policy before the last election, moved quickly to kill off any change.

When only in July last year it agreed:

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“We have accepted that the 50 per cent discount in a low inflationary environment is significant,” the Property Council’s head of policy and housing Glenn Byres said. “We have also argued that there is also scope to increase the qualifying period to two years.”

The lobby group opposes Labor’s negative gearing proposal, but before the election backed a cut in the CGT discount to 40 per cent from the current 50 per cent and still holds that view…

On the Labor figures, the Property Council’s proposed reduction would equate to government saving of $1.72 billion in 2019.

The fact is, property investors have put less and less dough into new stock ever since Peter Costello cut the rate in 1998:

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No question about it, cutting the CGT discount will take demand out of existing housing and take the same amount of pressure off prices permanently.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.