Labor’s tax changes not the main driver of housing market crash, Treasury boss says

The Secretary of the Treasury, Jenny Wilkinson, has stated that the recent tax changes introduced by the Labor government are not the primary reason for the decline in house prices across Australia. During her appearance before a Senate estimates committee, Ms. Wilkinson attributed the downturn in the housing market to a combination of rising interest rates, global economic uncertainty, and decreased consumer confidence.

This statement comes in the wake of four increases to the cash rate since the start of 2023, with financial markets anticipating another rise in November. Wilkinson reaffirmed Treasury's position that the modifications to negative gearing and capital gains tax would only lead to a modest reduction in house price growth, estimated at around two percent.

"The impacts of the tax measures on house prices and rents are expected to be modest over the medium term, while shifting the ownership of the housing stock towards owner-occupiers," she noted.

Recent data from property analytics firm Cotality reveals that housing values have decreased by 1.1 percent nationally in September and have fallen by 3.7 percent over the last quarter. The most significant declines occurred in Sydney, where prices dropped nearly five percent, while Brisbane and Perth saw declines of 4.7 percent each.

This downturn in housing prices coincides with the Reserve Bank of Australia's (RBA) decision to raise the cash rate by a total of 100 basis points this year, which has affected borrowing capacity and increased loan repayments for homeowners. Analysis from Canstar.com.au indicates that an owner-occupier with a $600,000 variable loan over 25 years will face an additional monthly payment of $364 compared to the beginning of the year. For those with a $1 million loan, the increase in monthly repayments amounts to $606.

The primary catalyst for these rate hikes has been persistent inflation, which has remained above the RBA's target range of 2 to 3 percent. As of September, headline inflation was recorded at 4.3 percent, while the central bank's preferred measure, trimmed mean inflation, stood at 3.6 percent.

Wilkinson also addressed the role of government spending in driving inflation, suggesting that a resurgence in private sector activity has played a more significant role than anticipated. "The things that have been very different from what we had expected, as I said, have been that the private sector level of activity has been stronger than we’ve expected. That’s the predominant driver of this difference," she explained.

In the previous financial year, government spending constituted approximately 27 percent of the nation's GDP, resulting in a deficit of $22.2 billion. This level of public expenditure is the highest outside of the pandemic since the financial crisis of 1987.