Is the government gearing up for a housing change?
Sep 26, 2024
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In a thought-provoking discussion, Greg Jericho, Chief Economist at the Australia Institute and popular columnist, dives into potential reforms of negative gearing and capital gains tax. He argues that these changes could enhance fairness in the housing market. The conversation also touches on misleading pricing tactics by major supermarkets and how these issues intertwine with broader economic concerns, including inflation rates and housing affordability. Jericho emphasizes the need to shift perceptions of housing from investment to necessity.
Reforming negative gearing and capital gains tax could create a fairer housing market, addressing affordability issues faced by ordinary Australians.
Recent scrutiny of major supermarkets reveals manipulative pricing strategies, highlighting the need for stronger regulations to protect consumers.
Deep dives
Negative Gearing and Its Impact on Housing
Negative gearing allows property investors to reduce their taxable income by claiming losses on investment properties. This practice gained momentum after 1999 when the capital gains discount made it more appealing by allowing investors to keep half of their capital gains tax-free. Consequently, housing became primarily viewed as an investment opportunity rather than a place to live, resulting in skyrocketing property prices that outpaced household incomes. As investor interest surged, housing affordability became a severe issue, leading to calls for policy reforms to tackle this growing disparity.
Capital Gains Tax: A Major Factor in Property Prices
The capital gains tax, which permits individuals to exempt 50% of their profit from the sale of an investment property, significantly altered the landscape of the housing market. This tax policy incentivized investors to purchase properties with the expectation of benefiting from future value increases while simultaneously utilizing negative gearing to offset their upfront losses. As property speculation became the norm, ordinary Australians struggled to afford homes, as prices climbed dramatically. This led to ongoing debates about the necessity of re-evaluating both capital gains taxes and negative gearing policies to restore balance in the housing market.
Government Regulation and Supermarket Pricing Strategies
Recent scrutiny of major supermarkets, Coles and Woolworths, by regulatory bodies has highlighted questionable pricing strategies during a period of high inflation. Evidence suggested that these retailers frequently manipulated prices by temporarily inflating costs on popular items before reverting to slightly lower prices, creating a false sense of savings for consumers. This behavior, coupled with rising competitors’ profit margins, raises questions about the level of genuine competition in the retail grocery sector. Calls for increased regulatory measures, including potential divestiture powers, have emerged as means to improve market fairness and protect consumers from exploitative practices.
Despite claims that it’d lead to some sort of housing armageddon, reforming negative gearing and the capital gains tax concessions would make the system fairer, says Greg Jericho.
On this episode of Dollars & Sense, we discuss the allegations of dodgy conduct against the big supermarkets and the government’s apparent interest in negative gearing and capital gains tax reform.
Greg Jericho is Chief Economist at the Australia Institute and the Centre for Future Work and popular columnist of Grogonomics with Guardian Australia. Each week on Dollars & Sense, Greg dives into the latest economic figures to explain what they can tell us about what’s happening in the economy, how it will impact you and where things are headed.
We’d love to hear your feedback on this series, so send in your questions, comments or suggestions for future episodes to podcasts@australiainstitute.org.au.