Raushaan Seychell:
So, look; really insightful to really go to the Budget lock‑up, see a Budget announcement and I think the real big overarching theme that we’ve gotten from the Budget is a shift from taxing income to taxing wealth. So I guess my main question, especially when it comes to housing, because that falls under the idea of taxing wealth –considering it’s been thought of as an asset for a very long time. I guess, especially with capital gains and negative gearing reforms, where does and especially – I know I asked you a question about the indexation of capital gains tax. How does that sort of increase, you know, we mentioned, I think, it was about 70,000‑ish new first home buyers. How does that compare to the original 50 per cent capital gains tax discount?
Jim Chalmers:
Yeah.
Seychell:
Yeah, and statistically make people better off?
Chalmers:
Yeah. So, first of all what we’re trying to do with these tax reforms is 2 closely‑related things. First of all, we’re trying to align a bit better the way that we tax people who work and people who earn their income in other legitimate ways from assets. And so we’re trying to strike a better balance there with some tax cuts for workers and these changes to capital gains and negative gearing.
And that’s the second challenge we’re trying to come at is really to make it easier for more people to get a toehold in the housing market. You’re right to point out, we think about 75,000 extra people because of our policies will get into the housing market for the first time and that’s because of the changes to negative gearing which is, you can keep negatively gearing a new property – something that’s newly built but not existing properties. If you’re doing it right now you can keep doing that, but for new investments they’ve got to be new properties. First change.
Second change is capital gains, and there will still be a discount just calculated differently. You still pay at your marginal rate, but what it effectively means is it gets rid of a distortion in the tax system. So when John Howard and Peter Costello all those years ago at the end of the 1900s, they made a change to capital gains and it really distorted the market, and it really encouraged people to get into established housing – push the price up, made it harder for people to get in and so we’re trying to rectify that.
Seychell:
Yeah, and I think I was really curious about – I know you mentioned the existing properties for negative gearing; you can still do it. Now that is sort of something that people are sort of describing as maybe not enough but I have sort of heard separately, you know, that this – I guess we’ve had generations of people who’ve been told that they can put so much money into their – into negatively gearing or investing in property to the point that it could cause a lot of damage. I guess was that something that was considered going into the Budget?
Chalmers:
Well, what we’ve tried to do with recognising and respecting the decisions that people have already taken with these transitional arrangements, we know that some people would like us to go much further. But we’re trying to minimise the market disruptions and that means some transitional arrangements, what the smart guys call grandparenting of some of these arrangements just to try and recognise the decisions people have taken in the past so that mostly it’s a forward‑looking change.
But people who’ve said to us, you know, ‘Why are you changing the arrangements so future generations can’t access this really generous trip’, and you still can – you’ve just got to negatively gear a new property and that’s because the main game in housing is still that we don’t have enough homes. And so we’re using this change as a way of saying, if you want to keep doing it, it’s got to be a new property.
Seychell:
Yeah, no. I guess, and as well on top of that, something that really drew my attention was the – also the reforms to capital gains tax also affecting stocks as well, investing in shares. I guess shares are potentially seen as by some, a little bit more productive compared to housing. I guess, what was the methodology behind going after that too because that might be something that people have questions over?
Chalmers:
Yeah, I think this is part of the distortion that was introduced when the capital gains tax discount was changed in 1999. What it did was it made, you know, established housing more attractive compared to some of these other kinds of investments.
So we had a look at an average over a 20‑year period and what that work told us was that over that period on average, established housing was being over‑compensated and shares and units were being under‑compensated. And so by getting rid of that distortion it may be that for a lot of people – I’m not providing financial advice to anyone here – but for a lot of people it may be that if established housing becomes a bit less attractive, then shares and units and new buildings might become more attractive.
Seychell:
Yeah, yeah. And I think over to – I know resource taxation and changes to resource taxation was a heavy piece of conversation for a lot of people.
Chalmers:
Yeah.
Seychell:
So one thing of course, there is the national reserve at 20 per cent – which again has been a point of conversation across the board in One Nation circles too as well – which is something that I’ve been very interested in.
But also. Now again, lots of conversation about export taxes for gas and we have spoken with Minister Bowen actually about the, I guess, the complications surrounding potentially renegotiating existing contracts. I guess I’m sort of wondering in terms of where does that leave us for future contracts for potentially looking at, you know, contracts for, you know, new gas expansion projects?
Chalmers:
Yeah, yeah. I mean the way I come at this is I think that there are 2 more important priorities. One of them you’ve mentioned, which is this big gas reservation change, and it’s actually a really very substantial change we’re making to reserve some of our gas so that we de‑couple the prices Australians pay from the roller coaster ride which is the international gas market. So I think that’s really important.
And the second thing is making sure that the highest priority now is we’re effectively chasing barrels on global markets, particularly from our Asian refining partners, and so we’re prioritising that over some of these other sorts of things.
Now I really wanted to communicate to the people listening to this and on social media more broadly. I mean, I understand that there’s an appetite for us to do more than we have. We changed the PRRT in the first‑term to get more revenue, we got another $1.6 billion in the Budget, we’ve got the gas reservation thing. But I do know that a lot of people would like us to go further. It’s not something that we’ve been working up, and that’s because we’ve got these other priorities for the time being.
Seychell:
Yeah. And I think as well with regards to, you know, the PRRT reform. Again, I guess there has been a bit of criticism on it potentially not generating enough revenue as well. So I think that is something which, you know, has still been a bit of a contentious piece and a point of debate, I guess?
Chalmers:
Yeah, I understand that. You know, there is a constituency out there that would like us to raise much more in this regard. We’re raising a bit more. Partly because of the changes I made to the policy in our first term, partly because in the Budget last night, we updated our expectations for how much it will raise. So it’s raising a bit more, but I mean if your question is to acknowledge that there are people, potentially a lot of people, that would like us to go further and faster, I do acknowledge that. I try to be upfront with people and say these are our other priorities for the time being.
Seychell:
Yeah. And we were really curious – we asked the Prime Minister this, and I’m sort of really keen to pick your brains on it as well with regards to how, I guess with young people now there’s a bit of an expectation in terms of how you build your wealth, how you build security for the future. Again, it falls into that overarching theme of now taxing wealth over income. In a much more uncertain time than ever, people are still looking for some form of security, some form of stability. How would you sort of expect young people who have not necessarily bought into the property market or maybe even in the share market or stock market as well, I guess how do you see them building security and setting themselves up for the future in what looks like it’s going to be a fundamentally different period of time to do that?
Chalmers:
Yeah. Well first of all, I mean, I have to be careful about not providing financial advice to anyone –
Seychell:
Of course.
Chalmers:
– for obvious reasons, I’m sure you understand that. Really our job is to try and make sure that where we can afford to give people things like tax cuts, you know, to create a bit more room for people to earn more, keep more of what they earn so that they’ve got a broader range of possibilities when it comes to, you know, whether they’re able to save or invest in other areas. And so that’s really our part of this story and you know, superannuation is an important part of the investment landscape, housing will still be an option to people if they want to negatively gear a new home, and there will be other opportunities as well.
But really for us, one of the big motivations behind the Budget is recognising that there are intergenerational issues at play in our economy and in our society. And we don’t want to be the generation that leaves the generations that follow us with a deal which is worse than the one that we’ve got. And that’s a really big motivation for us so that we can give young people more options.