Business Spectator’s Callam Pickering has launch another salvo at Australia’s housing market, warning that the Coalition’s deficit tax, combined with falling consumer confidence, could dampen investor appetite and stop the market in its tracks:
…the biggest concern for the housing market comes in the form of the proposed deficit tax, which will hit Australia’s upper and upper-middle classes with either a one percentage point or two percentage point increase in marginal tax rates…
Since the recent boom has largely been driven by investors — as opposed to strong income growth — higher taxes on the wealthy could have a disproportionally large effect on the housing market.
Higher taxes will hit the market at the very top (since high income earners obviously purchase expensive housing), but also towards the bottom (since investors often favour cheap rental properties).
Since the budget leaks began, consumer confidence has tanked… In my opinion, property investors are likely to be driven more by confidence or ‘animal spirits’ than the average consumer.
While falling disposable income from the deficit tax should logically dampen investor demand, it could also have the opposite effect.
The effective rise in tax rates could spur more taxpayers to seek ways to minimise their tax, potentially driving more Australians towards negatively geared property investment.
Indeed, Fairfax has already suggested readers seek-out such schemes, including negatively geared property investment, although it does also note that negative gearing is a risky strategy:
