Natalie Barr:
Good morning to you. Welcome, Treasurer. We keep hearing your line that you’re addressing intergenerational inequity. Can you explain how exactly these changes will help young people buy a house?
Jim Chalmers:
Good morning, Nat. Look, one of the main motivations for the changes that we made in the Budget, which we understand are contentious changes, is to make it easier for more young people to get a toehold in the housing market. We’ve all heard stories of, particularly younger people, fronting up to auctions and being outbid by people who might already have 7 or 8 or 9 homes. So this is about levelling the playing field. Still providing the appropriate concessions, for example, for people who invest in new builds, adding to housing supply in our communities and in our economy.
But recognising that the intersection of the housing market and the tax system is locking too many young people out of housing. The changes that we announced last night, we expect it to mean another 75,000 first home buyers in the system. And that’s a good thing.
Barr:
Right, so, that’s over 10 years, isn’t it? So, what, 7,500 homes created for young buyers each year. How exactly – are you saying that investors are going to now think ‘I can’t claim the discounts and I’m going to start selling’ and then they’ll be available for young people?
Chalmers:
No, the people who are negatively gearing right now, we respect and recognise those decisions that they’ve taken already. They can continue to negatively gear that property. At some point it will become positively geared and so there’ll be an element of phasing out. If people want to continue investing in housing, they can negatively gear a new property so that it adds to housing supply, as we’ve said. So, those are the arrangements.
What we are trying to do here is to level the playing field for people who are buying their first home. You and I would have both heard concerns raised, not just by younger people, but by parents and grandparents and others, about how hard it is for young people to get a toehold in the housing market. So, what the Budget is really about, Nat, it’s about recognising that some of the opportunities that people have had in the past, we want to make sure that more people can do well into the future, and that’s why we’ve made these difficult decisions.
Barr:
Okay, so you say that investors won’t be competing with young people for that long market?
Chalmers:
Well, it changes the incentives. It means that if you want to negatively gear, you’ve got to negatively gear a new property. The overwhelming challenge we have is still housing supply. The problem begins there, but it doesn’t end there. The composition of the housing market has been changing over recent decades and the way that it’s been changing is very concerning to us because it means that there are fewer and fewer owner‑occupiers in the system, particularly young families and younger workers. The Budget is about starting to address that challenge.
Barr:
Okay, house prices are still high. If I’m a young person, I’m just trying to get my head around, how am I going to suddenly be able to afford to buy a house with your new system?
Chalmers:
Well, it makes it less likely that people will be competing so hard with investors. That’s the first point. When it comes to house prices, we still expect house prices to grow, but a bit more slowly, about 2 per cent slower than they would otherwise. In the modelling that we released last night, we’re not targeting a particular price or a particular price outcome. We’re trying to make sure that there are more affordable options for more people to get a toehold in the housing market.
As I’ve said in a couple of different ways already, Nat, it is a big concern to us and to a lot of Australians, I think this sense that it’s becoming too hard for people to buy their first home. And if that means we have to not make it quite so easy for people to buy their fifth or sixth or seventh home, then so be it.
Barr:
Okay, so they’ll grow 2 per cent slower than before. Look, we’re getting a lot of reaction. Kath says: ‘For my husband and I, 2 schoolteachers, negative gearing was one way we could get ahead. You lied to get votes. Shame on this government. Crushing dreams and telling lies.’ It’s pretty harsh criticism. What do you say to that?
Chalmers:
Well, a couple of things about that. First of all, Kath, if you’re negatively gearing, you can continue to do that, and if you want to negatively gear some more, you can do that for a new property. That’s the first point.
Now, on the politics of the last election, I do understand that people who don’t want to change these arrangements, people who think that the housing market and the tax system is operating just fine as it is, they will focus on the comments and the commitments that we took to the last election. I want to be really upfront with your viewers, Nat, we’ve come to a different view on these policy areas. Our comments and commitments at the election reflected an overwhelming focus on supply. We’re still very focused on supply, but we’ve come to a different view here and that’s why I’m on your show explaining why we have.
And that’s because it has become too hard for Australians, particularly younger Australians, to buy their first home, and that’s why we’re making these changes.
Barr:
Wasn’t it too hard a year ago, before the election, though?
Chalmers:
At the election, we had an almost singular focus on building more homes. We’ve maintained that focus on more homes, but we’ve come to the view, I think it’s become increasingly clear, over the course of the last 12 months or so, that all of our efforts on supply are the most important thing, but not the only thing that we can do to make the housing market work better for more Australians.
Barr:
Did you just dream up these changes after the election?
Chalmers:
We came to this decision in recent weeks. It has become, as I said, Nat, increasingly clear to us over the course of this term that we needed to act on this front. Again, you know, I’m not pretending that the views that we announced last night, the policies that we announced last night, are consistent with the views that we’d held in the past. We have changed our position. We’ve come to a different view on these policies and we’ve come to this different view, I think, for the best possible reasons. That is — too many people, particularly young people, are being locked out of the housing market. That’s why we took the difficult decision we announced last night.
Barr:
Okay, so if you just came up with the idea in the last few weeks, you’re saying it wasn’t a lie from the last election?
Chalmers:
No, I’m saying it was decided in the usual way late in the budget process. It’s because we became increasingly of the view, it became increasingly clear that our efforts on supply were the most important thing, but not the only thing that we should be doing to make the housing market and the tax system work better for more people.
Barr:
Okay, just before we go, can you just explain, you’re going to scrap the capital gains tax exemption on assets bought before 1985, as I understand it. Is that true? Is that all assets, is that on the family home? This affects a lot of our viewers.
Chalmers:
We’re going to make consistent the arrangements before 1985 and after 1985. It was a particularly kind of arbitrary thing. It means that all of the gains that people have made and will make up to the 1st of July, 2027 will still be recognised in the post‑1985 way. So, with the 50 per cent discount that you referred to in your introduction. From the 1st of July 2027, people will apply the indexation model.
Really the reason for that Nat, the reason why we’re making this change to capital gains, is because there’s been this big distortion in the market for a long time now. If you look at the 20‑year period between when the big change was made in 1999, you can see that investment decisions have been distorted. It has overcompensated people getting into existing housing and pushing up prices and its undercompensated other kinds of investment. What we’re changing here is to make it apply to real gains that people make with their investments. Still a discount, still taxed at marginal rates –
Barr:
But if you bought something before 1985 it was CGT free. So, is it still now? It wasn’t 50 per cent, it was free.
Chalmers:
No, we’ve changed the pre‑1985 arrangements.
Barr:
So, you now pay capital gains on something that was bought before 1985?
Chalmers:
You still get the 50 per cent discount up to the middle of 2027 and then after that the discount is calculated differently based on real gains and inflation.
Barr:
That is a change over 40 years that Hawke and Keating put in place. Thank you very much for explaining it, Treasurer.