Australia’s Shadow Treasurer, The Hon Chris Bowen, MP was the special guest at a recent FSC BT Political Series lunch event.

Shadow Treasurer announces timetable for proposed reforms to negative gearing and corporate gains tax discount

Australia’s Shadow Treasurer The Hon Chris Bowen MP has announced 1 January 2020 as the start date that Labor plans to restrict negative gearing to new investment properties and halve the capital gains tax (CGT) discount.

Speaking at an FSC BT Political Series event recently, Bowen emphasised that all housing investments which are negatively geared before 1 January 2020 would be fully grandfathered. But any investment properties purchased after that date would not be able to be negatively geared unless they are new homes.

“We've listened to evidence from independent voices, such as the government’s own Financial System Inquiry, the International Monetary Fund, and the Grattan Institute,” said Bowen. “Just last month the IMF again endorsed reforms to negative gearing and the CGT discount.”

 At the FSC event, the Shadow Treasurer also announced Labor’s intention to revamp the existing ‘Build to Rent’ scheme where superannuation funds and other institutional investors are given tax breaks for building new rental properties. Under a Labor government, from 1 January 2020, the managed investment trust withholding tax rate would be lowered from 30% to 15%, to stimulate new construction and housing supply.

“The essential benefit of Build to Rent is that it provides a more stable long-term tenancy,” said Bowen. “It's an internationally proven way to provide better housing choices for people who rent their home. It's been successful in the United Kingdom, the United States, Germany and Japan.”


Corporate gains tax

Addressing CGT, Bowen said a Labor government would cut the deduction for investors who sell an asset after holding it for a minimum of 12 months from 50% to 25%. However, this will only apply to investments entered into from 1 January 2020 onwards.

The current CGT discount for superannuation funds will not be impacted, said Bowen, even when the superannuation fund is started post-1 January 2020. The 50% active asset reduction which applies to small business will also be exempt.

In a statement issued on the day of his FSC speech, the Shadow Treasurer argued that: “the benefits of both negative gearing and the capital gains tax discount are skewed towards the wealthy, with the Grattan Institute estimating almost 70% of the benefit of the CGT discount accrues to the top 10% of income earners”.

The independent Parliamentary Budget Office (PBO) has costed Labor’s policy to reform negative gearing and the capital gains tax discount. It will raise $2.9 billion over the forward estimates (to 2022-23) and $35.1 billion over the medium-term (to 2029-30). The PBO also advised that the Build to Rent policy would have an unquantifiable financial impact.


Defining the purpose of superannuation

During the FSC event, Bowen also reiterated his desire to legislate an overriding objective for superannuation at a Parliamentary level.

“Most of us would think there is an objective to superannuation which would have been agreed on a long time ago, but there simply hasn’t been one,” said Bowen. “I think the main benefit of an objective is that every time somebody suggests fiddling with superannuation … we can compare the impact of that [proposed change] to the objective.”

While he described a legislated objective for superannuation as “pretty high” on his list of priorities, if elected, Bowen also admitted that “It might take a while because I do genuinely want it to be bipartisan”.


Financial sector helping address Indigenous disadvantage

During his FSC speech, Bowen acknowledged the efforts of many in the financial services sector to address Indigenous disadvantage. The FSC has a long-term relationship with the First Nations Foundation, a training and outreach charity that seeks to build more financial literacy among Indigenous Australians. To date, FSC members have donated over a million dollars towards the charity.

“If I get the opportunity as Treasurer, I look forward to working with the FSC and with the financial sector more broadly on what we can do to lift financial literacy and economic engagement among our first peoples,” said Bowen.

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