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The NSW government’s proposal to remove discounts on capital gains tax (CGT) might only hamper affordability as it discourages activity from property investors, experts say.<\/p>\n
InvestorKit founder and head of research Arjun Paliwal said tax breaks on capital gains, as opposed to what the NSW government believes, do not create an environment for “investor speculation”.<\/p>\n
“Removing CGT discounts will only create greater supply constraints, as investors will hold on to assets for longer to create gains worth of selling if this tax is removed,” he told Your Investment Property.<\/p>\n
“It can create greater price rises, the opposite of what the thought on this policy is.”<\/p>\n
In its submission to the Parliament’s Standing Committee on Tax and Revenue, the NSW Department of Planning said the 50% CGT discount for properties held for more than a year skews the incentives towards the purchases of properties for investment purposes.<\/p>\n
“These tax benefits of property investment have contributed to the growing housing affordability issue,” the submission said.<\/p>\n
“While the combined effect is likely to be a moderate increase in house prices, the most significant impact is the displacement of owner occupiers from home ownership by tax-advantaged investors, predominantly those already on higher incomes.”<\/p>\n
Is the CGT discount really favouring investors?<\/h2>\n
Figures from the Australian Bureau of Statistics (ABS) show that new loan commitments had been on a decline pre-pandemic.<\/p>\n
From the peak of $10.1bn in April 2015, new housing loan commitments reached a recent through of $4.2bn in May 2020.<\/p>\n
“These numbers suggest tax breaks such as the capital gains 50% exemptions do very little to create investor speculation,” Mr Paliwal said.<\/p>\n
Property Council of Australia chief executive Ken Morrison shared Paliwal’s insights about the proposal having an impact on supply, adding that an increase in tax on housing would not solve housing affordability.<\/p>\n
“Increases to capital gains tax would reduce the incentive to invest at a time when NSW and the nation need to build additional and more diverse housing,” he said.<\/p>\n
“We strongly encourage all governments to prioritise ways to increase much needed housing supply through the provision of properly zoned land, efficient approvals and strategic investment in infrastructure.\u201d<\/p>\n
How investors fit the housing affordability discussion<\/h2>\n
Investors play an important part in ensuring enough supply in the housing market.<\/p>\n
Mr Paliwal said governments should be able to create policies that would improve “stock mobility” to make investing more appealing.<\/p>\n
“This includes stamp duty removal; further improving capital gains benefits to incentivise greater resale stock as profits are made, rather than holding on to property for longer to achieve the same number due to taxes; and further incentivising downsizing for our older demographic,” he said.<\/p>\n
Mr Paliwal said supporting construction of new dwellings will not be enough to support affordability.<\/p>\n
“It also has to come from Aussies who own assets to bring more to the market \u2013 that\u2019s where the mass market of properties sits, which will keep the rise of prices to be softer,” he said.<\/p>\n