Significance of Tax Policy Issue for Australia's Fiscal Repair

TAX POLICY

Table of Contents
Task 1: Significance of the Tax Policy Issue...............................................................................................1
Task 2: Key Stakeholders of the Policy and Impact on them.......................................................................1
Task 3: Winner and Losers..........................................................................................................................2
Task 4: Implications for accounting and taxation........................................................................................3
Task 5: Impact on ATO...............................................................................................................................3
References...................................................................................................................................................5

Task 1: Significance of the Tax Policy Issue
This tax policy issue is significant because it is important to make sure that Australia’s tax
system is sustainable, just and aimed at growth and jobs. Negative gearing and Capital Gains Tax
(CGT) discount encourage real-estate investors (housing) to take debt. This reduces the stability
of the housing market and crowds out 1st house purchasers. Limiting the negative gearing
deductions on just purchased rental housing will place comparatively modest downward pressure
on prices of the house. These loopholes in taxation and concessions benefit the rich (Dixon,
2018). Hence this issue is critical in terms of greater fiscal repair in the country.
Task 2: Key Stakeholders of the Policy and Impact on them
Investors and homeowners – The main benefit of the tax reform would be for any
individual/group purchasing already-built properties. The proposal is probably to take some of
the heat from the competition for established houses as investors turn their focus toward off-the-
plan properties. Younger Australians are likely to get the greatest benefits. First home purchasers
will not have to contend with investors for established homes any more. Australians belonging to
the age group 45 and above will be the most negatively geared. Home builders and property
developers can also reap some benefits from the plan (Yardney, 2018). With investors removed
from the market for established homes, new stock will be in greater demand. This can lead to
higher investment in greenfield property development. Further, decreasing the discount on
capital gains tax will result in higher income people paying greater CGT. This will decrease the
variance between the tax paid by lower and higher income rental investors. Thus, this would
alleviate inequalities in the existing system. A steady and staged transition will have little effect
on average Australians, but it would enhance access to suitable, safe and affordable housing.
This will benefit the Australian community’s well-being (Grattan, 2016).
Government and the economy – A reduced CGT discount for investors implies more tax payable.
This means more tax revenue for the government, which can be re-employed toward education,
welfare and housing initiatives. Reform of negative gearing can save the government A$1.7bn
from the yearly AUS$3.04bn cost of negative gearing deductions, without damaging “mum and
dad investors.” The key is incremental transformation. Steady reform over 10 years or more
reduces the burden on government budgets (Tacadena, 2018). In the long-run, setting-up an
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