In one day, Jim Chalmers dropped his controversial trust tax and sat through a parliamentary committee telling him his Budget changes are making the housing crisis worse. Is one backdown enough?
On a day when Treasurer Jim Chalmers was given a series of economic lessons from the country’s respected group of economists that his Budget tax changes were not good for solving the brewing housing crisis, the country’s number one bookkeeper gave in and changed his 30% minimum tax on trusts used by many small businesses and investors.
Typically, the backdown was not an exact return to the how trusts were taxed before the Budget, but it does mean that many business owners using trusts will not potentially face, wait for it, a 70% tax slug!
That always had to change and was one of the many disincentives that the Albanese Government has lined up against businesses since coming to and keeping power in Canberra since 2022.
In case you need reminding, businesses have faced:
- Persistent high inflation.
- Rising interest rates.
- Power and petrol price spikes.
- Work-from-home demands.
- Bigger than normal wage rises.
- Increased tax impositions.
- An escalation of mental stress and workplace complaints from employees supported by the Fair Work Act, which was passed in 2009 under the previous Labor Government.
All the above have helped create the falling labour productivity, which feeds into inflation. See the chart below.
Labour Productivity Growth
Source: ABS
That’s a fall from grace that no Treasurer should be proud of. And it should be a prime motivation for a Prime Minister who understands the importance of thriving businesses, when it comes to promoting economic growth and job creation, as well as reducing inflation levels that don’t breed rising interest rates.
On a related subject, a parliamentary committee hearing yesterday heard from economists from the big banks, along with the RBA’s deputy governor, Sarah Hunter, who all pretty well signed up for the advice to Jim Chalmers that the solution to the housing crisis was supply. And as The Daily Telegraph reports, the economists warned that “the changes on negative gearing and capital gains tax would hamper construction”.
The summary of what the committee, made up of politicians from both sides of parliament, heard is below:
- The housing supply problem will take virtually a generation to fix.
- The full impact of the Budget tax changes are yet to hit the rental market.
- The Budget tax changes will put brakes on new building.
- The RBA has changed its forecast for new dwelling construction with the Budget changes important to that less positive view.
Dr Hunter (who was a regular on my former Sky Business program when she was chief economist for Oxford Economics) is, by nature, an intelligent and honest broker.
She told the committee that tax changes, alongside rising interest rates and the Middle East war were “material factors” on Australia’s ability to build more homes. All the above would, “reduce the incentive to build new homes” and this downturn in building would “play through” to the rental market.
She also said data centre construction and the escalation of building costs are also problems for those who historically invest in building homes.
All this was revealed to the committee, along with, as the Telegraph reported, that “the big four banks have tipped house prices to fall by nine per cent over the next 12 months, with the Commonwealth Bank also reporting that mortgage applications have dropped about 15 per cent since May”.
NAB’s executive chief economist Sally Auld said high housing prices would only be relieved through “a sustained increase in housing supply over a long period of time”.
If you go back up and look at the powerful disincentives I have listed that currently face businesses in this country, and recognise that builders and developers are businesses, you can understand that the Albanese Government’s contribution to really helping boost supply, is not praiseworthy.
And that’s despite an election promise to build 1.2 million homes by the end of the decade. On that subject, look at this from realestate.com.au: Australian Bureau of Statistics approvals data for June has revealed that since the start of the National Housing Accord’s five-year goal of 1.2 million new homes being built around the nation, there have been just 393,426 approved for construction around the country.”
So, we are more than 100,000 home approvals behind what it needed to be just two years into a five-year Albanese government plan to fix the nation’s housing crisis. Meantime, building industry experts say that numbers will decline this year, as federal budget changes won’t help fix this slow build problem.
The backdown on trusts is a start, but we have to accept that Treasurer Chalmers has been dragged kicking and screaming to this change. And if we want to change our housing supply and productivity challenges, Jim will need to endure a lot more dragging and screaming!
