A ban on self-managed super funds borrowing money to buy housing has blindsided the sector, which says Labor should instead target “unscrupulous” operators spruiking property as an investment.
The federal government’s overhaul of negative gearing and the capital gains tax (CGT) discount will pass the Senate on Thursday with the support of the Greens, after Labor agreed to close a “loophole” allowing Australians to use a self-managed superannuation fund (SMSF) to buy “tax-advantaged” investment properties.
Financial groups have criticised Labor’s tax bill, which has undergone multiple rounds of changes following backlash to the proposal, as a “patch-up job on the run”.
But Treasurer Jim Chalmers and Prime Minister Anthony Albanese defended the package, insisting it would help more Australians purchase their first home and make the tax system fairer.
The Greens on Tuesday secured an amendment to end an exemption allowing SMSFs to borrow money to invest in residential housing, as well as changes to ministerial discretion in the tax bill that would have allowed a future minister to wind back the reforms.
Labor has also agreed to an eight-week extension of an inquiry into proposed changes to the National Disability Insurance Scheme (NDIS) and several amendments to clarify protections for disabled Australians as part of negotiations with the Greens.
The Coalition, which has vowed to repeal Labor’s tax bill and has not yet offered support for the NDIS changes, described the government’s deal with the Greens variously as “dangerous,” “dishonest”, and “dodgy”.
Self-managed funds ‘surprised’ at borrowing changes
Generally, super funds are not permitted to borrow for investments, but an exemption allows SMSFs to access limited recourse borrowing arrangements to purchase single assets like residential or commercial property.
Of the $1 trillion invested by SMSFs, only about $80 billion is through these arrangements.
About one per cent of total housing mortgages and less than half a per cent of new residential borrowing is attributed to SMSFs.
Peter Burgess was disappointed by the announcement. (Supplied.)
Existing and in-train borrowing arrangements for investment properties would remain under the Labor-Greens amendment, but in future, SMSFs would not be able to access the exemption.
SMSF Association president Peter Burgess said the borrowing change had shocked the sector and warned it only “reduced choice” for investors and would not materially decrease house prices for first-home buyers.
“Individuals looking to invest in the residential property market may not have that opportunity otherwise to help them get ahead or perhaps catch up,” he said.
“These types of structures are put in place for people trying to build their retirement situations.”
The SMSF Association represents about 1.1 million members, who Mr Burgess said were “disappointed” at the sudden announcement on Tuesday.
“We were surprised at how quickly this decision was made, there was no consultation that we’re aware of,”
he said.
Mr Burgess also said the move undermined an ongoing review into curbing what is known as harmful lead generation activity.
Consultation is currently underway to ensure Australian consumers are not pressured, misled or channelled into appropriate superannuation switching, financial product advice or investment arrangements.
Mr Burgess said tackling those pushing investment property inappropriately on SMSF holders would have been the better approach by Labor.
“It’s entirely appropriate that the review runs its course,” he said.
“If the concern is that people will be encouraged to buy investment properties through their SMSF because they get more favourable tax treatment, the focus should be on property spruiking and aggressive sales tactics.”
Labor’s tax bill criticised as ‘policy on the run’
Despite agreeing to support Labor’s tax bill, Greens leader Senator Larissa Waters said it still did not go far enough to help Australians trying to purchase their own home.
“Ending rather than grandfathering these tax breaks today would have helped renters get into a home of their own,” she said.
The Greens says the bill does not go far enough. (ABC News: Matt Roberts)
Under Labor’s tax bill, future negative gearing would be restricted to newly built properties, while the 50 per cent CGT discount would be replaced with a model that instead reduced the tax in line with inflation for all assets.
The change also includes a 30 per cent minimum CGT rate, designed to prevent people from waiting until they are in a low- or no-income year to sell.
Following consultation, Labor backed down on several aspects of its proposal, including expanding the number of small businesses eligible for CGT exemptions and signalling carve-outs for “genuinely innovative” startups.
Institute Public Accounts senior tax advisor Tony Greco said he was concerned the bill was now proceeding to law.
“If you fall outside of some of those carve-outs, indexation doesn’t do much … to get indexation just for inflation is not a just reward for the amount of risk that a lot of businesses take on,” he said.
Tony Greco says the changes seem like a patch-up job. (Supplied)
Mr Greco described Labor’s bill as “policy on the run without a lot of thinking”.
“It’s a bit of a patch-up job on the run rather than looking at all those CGT small business concessions and making sure they’re fit for purpose,” he said.
“And there should not be a rush, these are very wide-ranging changes.“
Speaking on Tuesday after announcing the deal with the Greens, Mr Albanese said the tax reforms were “important” and “in the interests of the Australian people”.
Mr Chalmers said the passage of the tax bills would mean a “fair go for first home buyers, tax cuts for workers and a fairer tax system”.
Coalition not yet backing NDIS bill
Opposition leader Angus Taylor has promised to repeal the CGT and negative gearing changes if elected, and has not committed to supporting the NDIS bill.
Angus Taylor says the Coalition will repeal the CGT and negative gearing changes if elected. (ABC News: Ian Cutmore.)
Changes to eligibility and limits to things like community engagement and participation supports are expected to save about $37.8 billion from the scheme over the next four years.
“We must make sure this is economically sustainable, but we must also make sure that those who are deserving of the NDIS get access to it … that is a balance we will continue to fight for every day,” Mr Taylor said.
The government had initially hoped to pass the bill before parliament breaks for the winter in July, but the extended inquiry is now only due to report back on August 14.
Health Minister Mark Butler said this brief delay would cost the budget in the order of “hundreds of millions” of dollars.
Labor and the Greens have also agreed to amendments that would limit ministerial powers to impose cuts to people’s support budgets and increase transparency around automated decision-making.
There would also be “greater protections” for disabled people by ensuring they cannot be “forced” to undergo harmful restrictive practices to gain access to the NDIS.
Greens disability spokesman Senator Joron Steele-John said the party would “continue to fight night and day” against the NDIS changes more broadly.
“The Greens will continue to work alongside the disability community to build pressure on Labor and the Liberals to walk away from these appalling cuts,”
he said.
