Jim Chalmers has finally conceded his Budget’s negative gearing and capital gains tax changes have contributed to falling house prices, but that’s about as far as the backdown goes. The Treasurer isn’t budging on the policy itself, and he’s certainly not conceding Treasury’s forecasts were wrong.
Treasurer Jim Chalmers is now budging on accepting his Budget has contributed to the fall in house prices but at this stage has no interest in changing the policies. However, he won’t concede that Treasury got their forecasts on what house prices would fall by wrong!
And he won’t be doing a Paul Keating, who took away negative gearing in the 1980s, only to restore it two years later because rents rose too rapidly. This is disputed by some economists, but for the man in the arena, Paul Keating, there clearly were issues going on with rents to make someone as self-assured as this former Prime Minister to U-turn on his own policy.
The Australian has looked at the current Treasurer’s current view on the state of housing, and this is a summary:
- He has admitted the Budget’s negative gearing and capital gains tax reforms have led to recent house price falls.
- He argues the Budget was not the only reason for the house price fall.
- He won’t change the policy even if there is a long-term negative effect on property prices and business investment.
- He says Treasury’s forecast of a 2% fall in house prices is not yet wrong. The call was for over two years, even though prices have fallen by 3.7% in three months!
- Treasury economists also expected the rental increase to be $2 over that time.
All this has plenty of relevance to question about whether the RBA will want to raise interest rates with yesterday’s economic growth numbers bumping into this house price fall, that some experts claim will be the biggest home price slump ever.
That’s unlikely given the collapse of the 1890s when Melbourne house prices fell more than 50% in real terms and Sydney saw a 36% crash, and Morningstar says house prices then went nowhere for 60 years!
But there is a real lesson here: that you do have to be careful with economists and property investors. Those who say the rent rise in the 1980s after the Keating changes to negative gearing was not significant, arguing that the government thought the reforms did encourage over-investment in stocks.
For the record, the then-Treasurer took negative gearing away on 1 July 1985 but then brought it back in August 1987.
The stock market crashed in October 1987.
Back to today, and some economists think the June quarter economic growth numbers of 0.4% for the three months to June 30, and the annual figure of 2.1%, are high enough for the RBA to raise rates on September 29.
Before addressing this issue, let me teach you a little bit of economics. To get this economic growth number of 2.1%, economists add up the past four quarters, which started in the second half of 2025 before the RBA started raising rates in February this year.
If you take the 0.4% for the recent June quarter and multiply it by four to annualise it, you get a low 1.2% growth. That isn’t strong enough to justify a rate increase as the housing sector looks to be in a crisis situation.
On top of this revelation, the National Accounts numbers also told us that our productivity has slumped to a low 0.2% for the year. This isn’t good news for inflation because higher productivity lowers costs and puts downward pressure on inflation.
Following the growth statistics, financial guess merchants in the money market are tipping a 72% chance of a rate rise in September.
