A big budget all about housing

38.995 - 64.902 Patricia Karvelas

The government has delivered its boldest, most reforming and potentially riskiest budget yet, ending negative gearing on housing and confining it to new builds from July 2027. They are replacing the capital gains tax discount with a discount based on inflation and a minimum 30% tax on gains from the 1st of July 2027. Guys, this isn't small stuff. They say it will help

64.882 - 83.547 Patricia Karvelas

75,000 Australians get into their first home over the next decade and trusts are under the gun. A minimum tax of 30% on discretionary trusts will also begin from July 2028. In exchange, workers are going to get a permanent $250 tax offset.

84.108 - 108.745 Carrington Clarke

Now, this is a budget designed during a major energy crisis, which has had a big impact on the bottom line. But interestingly, in the short term at least, it's helped the government as some big energy companies make a lot of money from those elevated prices and add to the tax take. But the government warns if the crisis continues, then it could put us into a world of pain.

109.527 - 112.972 Patricia Karvelas

Welcome to a special Budget Night edition of Politics Now.

113.333 - 114.975 Carrington Clarke

And ABC Business Daily.

215.814 - 236.072 Patricia Karvelas

But what I think is really interesting, and I want to get all of your thoughts pouring over the papers, and I like your fresh eyes, by the way, I think that's good, is that They've gone hard on taxation on housing and changing the arrangements. But this smart thing, and it is politically smart, of giving it back to workers, even if it's modest, and making that permanent.

236.112 - 243.827 Patricia Karvelas

We thought it would be a one-off in the budget leaking before. It is permanent. That's about saying we'll take the money, but we'll give it back permanently.

243.807 - 258.94 Carrington Clarke

That's true to an extent, but these tax reforms, putting that in inverted commas, does lead to a considerable increase in the amount of money that the government is taking in terms of tax receipts.

258.96 - 263.79 Patricia Karvelas

So over the longer term, the revenue is much better for the budget, bottom line.

263.77 - 280.005 Carrington Clarke

Exactly. So something like $77 billion over 10 years. That's a huge change. And yeah, coming into this budget, I was apprehensive about whether or not it would live up to the preceding hype about whether or not this was going to be a major reform.

327.433 - 350.889 Carrington Clarke

And they point out that it's like 80%, 90% of the investment from investors is into existing properties. At the moment, it's not going into new builds. So they want to completely shift that mix and they want investors – Investing in new builds, they say that will help to force up supply of property, which is what they want if you want is to have lower prices.

351.229 - 358.542 Carrington Clarke

But that coupled with the significant changes to CGT, and again, without all this speculation, would they just reduce it a little bit? Would there be a new number?

358.562 - 367.757 Patricia Karvelas

So the current thing, just for those not across it, although they're all nerds, our podcast listeners, they know, it's a 50% discount. The change is quite significant now, isn't it?

367.737 - 391.833 Carrington Clarke

Well, it's kind of back to the future. So the Howard Costello team changed the arrangement because it used to be just wanting to tax what they call the real increase. So that's above inflation. So previously, the calculation would be minus the inflation that what's happening in the broader economy, and then you would just be taxed on the extra bit. Now they're going back to that system.

391.953 - 418.586 Carrington Clarke

So if you're investing over multiple years, they will subtract the inflationary aspect of that price increase, but then you will get taxed on the rest of the real increase. And this is a fascinating change because the argument from the government is those two things working coupled. The CGT discount and negative gearing meant that we have supercharged the return on existing property investment.

981.383 - 1005.616 Patricia Karvelas

I think it is too. And that's why I started the pod saying I do think it's... reforming and it's bold and it's politically risky. And it's politically risky, you know, elephant in the room. They've broken promises to deliver this budget. This is not what they told us they'd do at the last election. And so now they have to demonstrate that this promise they've broken is worth it. And that's hard.

1005.997 - 1020.702 Patricia Karvelas

That's really hard. Now, the Treasurer said in the lead-up to the budget that it's very hard to promise things in an election because of dis- and misinformation. Look, he's right. It doesn't mean, though, that you shouldn't be honest. Also, it doesn't mean that this won't happen now.

1020.682 - 1034.057 Carrington Clarke

One of the things that is surprising, last week we had the interest rate decision from the Reserve Bank. It was only a week ago, isn't that crazy? I also received the statement of monetary policy. I went through a process similar to this where we were locked down.

1034.117 - 1056.634 Carrington Clarke

I noticed that the predictions, the forecasts from Treasury were a little bit more rosy than the predictions from the Reserve Bank when it comes to some of the key variables that they're looking at. And underpinning that difference is what they think is going to be productivity. You know, this key word that we kept hearing, how much productivity is going to be increasing in Australia.

1057.015 - 1063.802 Carrington Clarke

Now, the government is predicting it's going to be growing at 1.2%. The Reserve Bank only thinks it's going to be growing at 0.7%.

1089.641 - 1110.122 Carrington Clarke

Yeah, well, exactly. But they think it's going to be a lot rosier than what the Reserve Bank thinks. Now, they say there's measures in here when it comes to competition policy, better utilising skilled migrants, ways of making the economy more productive. But it's still not as high as the government would like it to be for the economy to be moving at great speed.

1110.102 - 1114.75 Carrington Clarke

and be able to move to grow without putting more inflationary pressure into the mix.

1115.07 - 1136.886 Patricia Karvelas

So there's lots of other parts of the budget which we will be poring over over the next few days. Your podcast, my podcast. I mean, these are just the big ticket items, to be clear. A budget is huge, my friends. I mean, there are so many areas where people are specifically affected. And so don't think that, you know, poring over all of this is over.

1136.866 - 1164.848 Patricia Karvelas

I do think, though, that broadly this is going to be a really difficult political sell, even though it deals with, you know, the headline issue of intergenerational fairness, which has become very popular, very much in the zeitgeist. But I see this as the kind of budget you deliver when you know populism is on the rise, where you want to say, hey, we're willing to smash it. You want more change.

1164.828 - 1181.959 Patricia Karvelas

We've heard you. We haven't given you enough change. And the way the opposition is going to frame their opposition to this is really key for them because are they going to go to the next election arguing for lower taxes on a small group of people who have trusts? Can you imagine that?