ALP’s negative gearing reforms could unfairly hit fragile markets

The Australian Labor Party’s (ALP’s) proposed reforms on negative gearing and the capital gains tax (CGT) discount could have unintended consequences if it takes a blanket approach towards their implementation, RiskWise Property Research and WargentAdvisory have warned.

A report by the two organisations found that a blanket introduction of the policy could see some geographical areas, especially those with weak or fragile property markets, adversely impacted more than others.

Darwin, Mackay, inner-city Perth and Townsville would be among the areas most affected.

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The reforms could also impact the Sydney unit market as, according to RIskWise chief executive Doron Peleg, the proposals would be the equivalent to a sudden 1.15 per cent jump in interest rates.

Other impacts could include declining dwelling prices, a reduction in dwelling commencements and deteriorating rental affordability.

WargentAdvisory director and report co-author, Pate Wargent, said that following the resources construction boom, once prosperous areas were now struggling.

“The last thing they need is a further dampening of demand. An introduction of Labor’s proposed changes to negative gearing needs a more nuanced response with some mitigating processes and policies that could be implemented so there are no unintended consequences,” he said.

Peleg said the reforms had to better reflect the changed landscape for residential property in Australia, saying that “the bottom line is that the proposed reforms will achieve some of the ALP’s stated objectives, including tackling the fiscal challenge and Budget repair, but not the others”.

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