Labour policy hits negative gearing and capital gains

Bill Shorten has unveiled tax changes that will tighten negative gearing and capital gains tax provisions, affecting new rather than current property investors writes… 

Michelle Grattan, University of Canberra

Opposition Leader Bill Shorten has unveiled tax changes that would tighten negative gearing and the capital gains tax discount, saving A$565 million over the forward estimates and $32.1 billion over a decade. house seesaw coin tax

Under pressure to convincingly fund Labor’s spending promises, Shorten said the proposals would help fund health and education as well as assist in balancing the budget, and would “bring fairness back into the housing market”.

A Labor government would confine negative gearing to new housing from July 2017. But current investments and any made before that date would be fully grandfathered.

Shorten said:

“Labor will help level the playing field for first home buyers competing with investors and we will put the great Australian dream back within the reach of the working and middle-class Australians who have been priced out of the housing market for too long.”

But he stressed that under an ALP government, “the family home will always be 100% capital gains tax-free”.

Existing investors would be “grand fathered”

Labor would also halve the capital gains subsidy for assets bought after July 1, 2017 – reducing the capital gains tax discount from the present 50% to 25%.

Once again, investments made before that date would be unaffected.

The initiatives, announced at the NSW ALP conference, have been costed by the Parliamentary Budget Office.

The opposition says that significant tax subsidies are available for people holding investments, “establishing a significantly more favourable tax basis for holding capital, rather than earning income”.

It says those benefiting from the tax break for negative gearing property and the capital gains discount are concentrated in the higher income ranges, as low and middle income earners are more likely to spend their income on consumption while higher income people are able to accumulate capital and use tax benefits.

Under negative gearing, which is mostly in property, investors are able to deduct any losses from their salary and wage income.

The opposition says negative gearing and the capital gains discount have not achieved their aim of boosting the housing supply and encouraging the construction of more new houses.

“This year they will cost the budget over $10 billion. That’s more than the government spends on higher education and child care.”

Shorten said analysis by McKell Institute suggested the changes to negative gearing might create up to 25,000 new jobs in construction.

It’s a con

Treasurer Scott Morrison accused Shorten of a “long con of Australians” by claiming this was the most important structural budget reform in a decade.

Morrison said that once again Shorten’s numbers “just don’t add up”. “

With Australia in deficit to the tune of $37 billion, Labor’s tax measure would add just $0.56 billion to the budget over the next four years,” Morrison said.

The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra This article was originally published on The Conversation. Read the original article.

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'Labour policy hits negative gearing and capital gains' have 6 comments

  1. February 15, 2016 @ 1:09 pm Fred

    Would be interested to hear your thoughts on all of this Michael.
    Shorten is slim chance of winning the next election, so he can come out and promise all sorts of hoopla knowing he probably won’t have to implement it. But its seems the Libs are also considering some tinkering around the edges.


    • February 15, 2016 @ 1:17 pm Michael Yardney


      You’ll be hearing my thoughts about this in future blogs – as you can imagine I have strong views


  2. February 15, 2016 @ 2:17 pm David Lee

    Michael we are still to see what Morrison means by tightening up the “excesses of negative gearing” but I am very nervous about what is happening in this area on both sides. The politics of envy seems to be driving this change. My wife and I have used the strategy to build enough income in our retirement not to be a burden on the the government and now they are changing the rules.
    We should have just spent all our money on holidays and settled for the pension. Given that bank interest is less than the CPI, the stock market is so volatile and constant changes to the super rules means it is almost impossible to plan a decade ahead, how the hell can you make money when they bugger up housing as well.


  3. February 17, 2016 @ 11:53 pm Clarence Peters

    I am a prospective first home buyer, I welcome anything that can help me owner occupy.

    There seems to be only representation on this site for investors, any chance of addressing both sides of the story Michael?
    What would you think/say/do if you were in my position?


    • February 18, 2016 @ 6:56 am Michael Yardney

      Clarence in my opinion negative gearing does not increase the price of homes for the average first home buyer, while Bill Shorten’s plan may.


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