For most young families in Australia, the dream of purchasing and owning their own home is almost completely out of reach.
Working and middle class families are increasingly being priced out of the housing market. Ownership rates for young people aged 25-34 have spiralled downwards in recent years from 60% to 48%. Young people are being forced to take on levels of debt unimaginable just a few decades ago.
With first home buyers making up just 1 out of 7 of all home purchases, we have to do better. It’s well and truly time someone did something about making housing more affordable in Australia. That’s why Labor has announced a policy that will help level the playing field for first home buyers competing with investors.
Labor will reform negative gearing effective from 1 July 2017, a policy which will help put the Australian dream of home ownership back within the reach of middle and working class families.
Australia aspires to be a fair society and we expect our tax system to align with this aspiration.
For most Australians this is the case – their tax is withheld fortnightly on the basis of their wages. The more an employee earns, the greater the amount of tax they pay. This simple principle of progressive tax scales is a fundamental pillar of our tax system, and ensures that the burden of tax falls on those most able to bear it.
While this principle applies to fortnightly pay cheques, it does not apply to other aspects of the tax system. Significant tax subsidies are available for people that hold investments, establishing a significantly more favourable tax basis for holding capital, rather than earning income.
Higher income Australians are able to use these tax subsidies to reduce the income tax they pay, primarily through negatively gearing property. Ultimately, a dollar of tax avoided by high income Australians is an extra dollar of tax paid by all other Australians.
Labor is committed to ensuring that the tax system is fair for all Australians.
Labor will reform negative gearing to ensure that our tax system is fair, sustainable and targets jobs and growth.
Negative gearing refers to the situation where investors make an investment (mostly in property) that loses money in the short term (e.g. loan and related costs are greater than rental income), in the expectation of making capital gains in the future.
The investor can deduct any losses associated with the investment from their salary and wage income.
Labor will limit negative gearing to new housing from 1 July 2017. All investments made before this date will not be affected by this change and will be fully grandfathered.
This will mean that taxpayers will continue to be able to deduct net rental losses against their wage income, providing the losses come from newly constructed housing.
From 1 July 2017 losses from new investments in shares and existing properties can still be used to offset investment income tax liabilities. These losses can also continue to be carried forward to offset the final capital gain on the investment.
Further information is available here.