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Australians thinking of selling their home for a profit or who have high incomes will face a tax crackdown if the International Monetary Fund (IMF) has its way.
The IMF has criticized Australia for allowing a 50 percent capital gains tax break for those who sell their principal place of residence.
“Revising tax breaks could make the tax system more efficient and equitable,” he said.
“The capital gains tax exemption for the sale of primary residences, which costs about 2.5 percent of GDP annually in foregone income, should be restricted.”
The Washington-based IMF is also calling on the Australian government to review Stage Three income tax cuts that will start in July 2024, at a cost of $254 billion over a decade.
Australians who made big profits from the recent boom in house prices face a tax crackdown if the IMF gets its way (Sydney auctioneer Karen Harvey pictured in May 2021)
Treasurer Jim Chalmers acknowledged the IMF’s call to cut spending or find savings, but refused to back its call to remove the capital gains tax discount.
‘The point that the IMF is making is that when we have these budget pressures, we have to make sure that we have the tax system that can sustain the funding that we want to see in our areas of national interest. priority,’ he said.
“We recognize that when the budget is under as much pressure as it is now, there is a role for spending restraint that the IMF supported.”
The IMF has also called on Australia to review the Stage Three tax cuts that will take effect in July 2024.
“With the cuts taking effect beginning in the 2024-25 fiscal year, there will be time, if necessary, to reassess the parameters to properly balance the costs in the budget and the benefits to the economy,” he said.
But Dr. Chalmers also rejected the IMF’s call to review the tax cuts, which will reduce the number of tax brackets from five to four for the first time since 1984, and give a $9,075 tax break to those earning more than $200,000. at a cost of $254. billion in 10 years.
“That is not our intention, our policy has not changed,” he said.
Labor has backed the previous coalition government’s plan to abolish the 37 percent tax bracket and create a new 30 percent tax bracket for everyone earning between $45,000 and $200,000.
The International Monetary Fund has criticized Australia for allowing a 50 percent capital gains tax break for those who sell their principal place of residence.
A new top marginal tax rate of 45 percent would apply for those earning more than $200,000, which includes members of parliament.
The existing 50 per cent capital gains tax rebate came into effect on 21 September 1999 and is available to Australian residents who sell a home and have owned their property for at least 12 months and have not rented it out for a year.
Baby boomers who bought their home before September 20, 1985 do not pay capital gains tax.
But if the IMF gets its way and convinces Labor to break an election promise, Australians who benefited from the recent rise in house prices, or future booms, could be hurt.
While Sydney house and unit prices plunged 13.8% in the year to January 2023, the median value of $999,278 is still 27.7% better than before the pandemic, data showed. CoreLogic data.
Treasurer Jim Chalmers acknowledged the IMF’s call to cut spending or seek savings, but refused to back its call to remove the capital gains tax discount.
Even after a 15 per cent drop over the past year, Sydney’s median home price of $1,205,618 is still 10.4 times the median full-time wage of $92,030, even factoring in a mortgage deposit of 20 percent.
The banking regulator considers it risky for a borrower to owe a bank six times their pre-tax salary and critics of the existing capital gains tax credit argue the policy has made it harder for young people to enter the real estate market.
In Brisbane, property prices peaked a little later in June and have since plunged a record 10.7 percent to $698,204.
However, house prices in the Queensland capital soared 42.7 per cent during the pandemic.
Hobart house and unit prices have plunged a record 10.8 per cent to $666,431 since the May peak, but this would be insufficient to undo the 37.7 per cent increase during covid.
Melbourne’s median house and unit price has fallen 9.3% from the February 2022 peak, back to $746,468, but it would still be insufficient to offset the 17.3% pandemic rise.
House prices in Adelaide have only fallen 2.1 per cent since peaking in July 2022, at $646,045, but prices rose 44.7 per cent during Covid.
While former Labor PM Bob Hawke introduced a capital gains tax 37 years ago, current Labor PM Anthony Albanese vowed in 2021 that he would not touch the capital gains tax discount policy introduced by the PM. Liberal John Howard.
Former Labor leader Bill Shorten lost the 2019 election by vowing to remove negative leverage for future purchases of existing homes and to halve the capital gains tax discount from 50% to 25%.
The IMF is more concerned about Australian interest rates than some major banks, forecasting a Reserve Bank cash rate of 3.85 percent and describing the current level of 3.1 percent as “broadly neutral territory.” “.
“Significant rate hikes to date and uncertainty about the strength and delays of transmission channels imply great uncertainty for monetary policy going forward,” he said.
The Commonwealth Bank expects a peak of 3.35 percent, or a level of 3.5 percent if the RBA raises rates by 0.4 percentage point on February 7.
NAB forecast a cash rate of 3.6% for March, while Westpac and ANZ forecast a cash rate of 3.85% for May.