Why Chalmers's Budget Will Change Property Rules

The topic is tax.

Jim Chalmers's 2026 budget will change tax rules that many people may not like.

There is a point where things get out of control.

The government has decided to make changes to tax rules for property after being rejected twice.

The budget will limit negative gearing and change the capital gains tax discount.

Many people will say that the prime minister broke a promise by making these changes.

But the problem of housing is getting worse and many people think something needs to be done.

Australian house prices have gone up a lot since 2000, making it hard for young people to buy a house.

The bigger problem is how this affects Australian society.

Most people think that hard work and ambition should determine your future, not your background.

But the property market has changed this, and now many young people can only buy a house if their parents help them.

This is creating a society where the people who own property have more power.

If you weren't born into a family that owns property, you may never own a house.

Houses in cities like Hobart are now too expensive for many young people.

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It's easy to give out money, but it's hard to take it back when it's gone too far.

Paul Keating got rid of negative gearing in 1985, but brought it back in 1987 after a scare campaign.

Negative gearing lets investors write off losses against their other income.

The more money you earn, the more you benefit from tax breaks.

But negative gearing has turned providing shelter into a big business in Australia.

We want to know what you think about the budget.

Most of the benefits from the capital gains tax discount go to the top 10% of earners.

That's how it's always been.

In the past, investors mostly bought existing houses, which didn't add to the housing supply.

Things haven't changed much now, with most investors still buying existing houses.

Economist Saul Eslake says that negative gearing doesn't increase the housing supply.

He also says that it pushes up the prices of existing houses, making it harder for people to buy.

Only about 23% of negatively geared investors buy new homes.

Keating introduced a capital gains tax to make sure people who trade assets pay tax.

You were taxed on the profit from your investment after inflation was taken out.

But in 1999, Peter Costello changed the system to a flat 50% discount.

You only paid tax on half your earnings, which helped push up property prices.

The trend of property prices goes up sharply after the changes to CGT in 1999.

Other factors like low interest rates and high immigration also helped push up prices.

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The rental crisis myth

These changes may not fix the problem immediately, but they could help in the long term.

The government is making changes to negative gearing, capital gains tax, and trust taxes.

Australian real estate will likely stay expensive, but these changes could help with home ownership.

Limiting negative gearing to new homes could add to the housing supply.

One argument against the reforms is that they will lead to less housing being built and higher rents.

But the COVID-19 experience shows that this may not be true.

When investors left the property market, many young people were able to buy homes.

This didn't lead to a shortage of rental properties, but rather a change in ownership.

The properties didn't disappear, they were just owned by different people.

The renters became owners.

'Bank of mum and dad' moniker downplays problem

Housing affordability is not just about price, but also about mortgage repayments and income.

The price of a dwelling has risen much faster than wages over the past 25 years.

For most of that time, low interest rates helped cover the gap.

But now, interest rates are going up, and the property market is changing.

If the government wants to improve housing affordability, maybe it should just build more houses.

Home buyers are now asking for loans that are five or six times their income.

The 30-year rate cycle has ended, and interest rates are now climbing.

Dwelling prices in the two biggest capitals are now going down, and the rest of the nation will likely follow.

Things have never been tougher for first home buyers, and many need help from their parents.

The 'bank of mum and dad' is a problem that needs to be addressed.

Even baby boomers who made a fortune from property can see the issue and are open to change.

Their children may not be able to afford a house without help, so they are giving them money.

But then they think about their grandkids and wonder what will happen to them.

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