LABOR’S CHANGES TO TAX BENEFITS FOR RESIDENTIAL PROPERTY – ECONOMIC DISASTER OR SOUND FINANCIAL POLICY?

As the federal election looms the debate about potential changes to taxation rules becomes more heated, especially when Australia’s most precious sacred cow – the family home – is involved.

Currently people who purchase a residential property for rental purposes are entitled to claim costs in excess of revenue as a deduction against other income. They also pay capital gains tax at a reduced rate when the property is sold.

If elected, Labor proposes removing the beneficial tax treatment for all but new properties, that is properties which add to the rental supply. The Government is adamant that such a policy change will reduce house prices, hence reduce wealth and consumption – in short cause a recession.

What do economists think?

DANIELLE WOOD, Program Director Budget Policy and Institution Reform at the Grattan Institute, published an op-ed in The Age last week explaining what she believes are the likely effects of the new policy if implemented.

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