It is kind of amazing how, after Jim Chalmers announced his reforms to the capital gains tax (CGT) discount and negative gearing, there was a conga line of wannabe influencer economists suddenly keen to demonstrate their Nobel Prize aspirations — telling everyone that the CGT discount introduced by John Howard in 1999, and negative gearing, really had nothing to do with the rise in house prices or the collapse in housing affordability over the past two decades.
Of course, we have never said that these were the only factors driving the housing crisis, but they were clearly patient zero.
In an effort to treat the disease inserted into the housing market by Howard and Costello in 1999, successive governments pumped more steroids into the system. Unfortunately, this was not just the wrong diagnosis, but it made things worse.
Getting rid of the 50% CGT discount is essential to beginning the repair of the damage wrought by John Howard and his efforts to completely undermine the capital gains tax.
But what has been most instructive about how important this policy move was is all the stories essentially proving our point.
Take this from the AFR on the weekend:
Sydney, Melbourne property markets ‘tank’ as auctions remain flat
Melbourne and Sydney property prices are expected to fall by as much as 9 per cent by the end of 2026 as experts warn a years-long property correction is underway, caused by interest rate hikes, global instability and Labor’s proposed changes to property taxes.
Or last week:
‘Strap in’: Mortgage brokers brace for slowing property market
Mortgage brokers have joined a growing chorus of small and big businesses in opposing Labor’s changes to the capital gains tax, saying the federal budget will curtail their ability to grow and tax them even more if they are forced to sell.
Or this:
Tax changes weigh heavily on auction market
Fewer than half the homes listed for auction sold in Sydney over the weekend, as federal budget tax changes injected further uncertainty into a softening housing market.
The economists telling us that their regression analysis showed that the CGT 50% discount really had little impact on house prices are as foolish and ignorant as those who also tried to tell us that their regressions in 2022 and 2023 showed us that companies weren’t increasing prices to increase profit margins and were causing inflation.
