Sally McManus, the newly elected Secretary of the Australian Council of Trade Unions (ACTU), has announced an audacious strategy. This initiative aims to tackle Australia’s ever-increasing housing affordability crisis at its source. This proposal to raise an additional $1.5 billion per year in tax revenue, mostly from the richest individuals and investment properties, is a great place to start. As McManus herself said, it’s time to bite the bullet on this. She feels we’ve come to an important turning point.
The ACTU represents approximately 1.8 million workers across the nation, emphasizing the urgency of reforming current tax arrangements that disproportionately benefit wealthier individuals. This measure comes after growing calls to make housing more affordable, particularly for young Australians who find it hard to get a foothold in the housing market.
Proposed Tax Changes
Individual taxpayers making more than $1 million per year would face a new minimum tax rate of 25% under McManus’s proposal. This new higher rate is proposed to apply to family trusts. We’re glad to see this move to close existing tax loopholes that mostly only high earners benefit from.
The initiative is aimed at raising that crucial revenue while moving to a more fair and equitable taxation system. As McManus noted, “Otherwise, we’re just saying ‘too bad young people, you’re not going to be able to ever own a home’.” These suggested reforms come at a time when almost half of all landlords in Australia have negatively geared assets. Housing advocates decry this practice as an accelerant on the housing crisis.
To get investors on board, McManus issued a bold promise. He promised them that he would leave the existing treatment of investment properties untouched for at least five years. This transitional period would give landlords more time to rethink and reshape their portfolios without financial shock.
Government Response and Economic Context
The proposal comes as the federal government has embarked on a larger discussion of tax reform. In fact, Treasurer Jim Chalmers has asked his department to study the possible effects of changing tax concessions ahead of May State elections. Against this backdrop, Prime Minister Anthony Albanese had – until now – been clear that Labor had no plans to wind back negative gearing and capital gains tax concessions. The seriousness of the housing crisis might just force an internal reconsideration of that position.
The recent call by the Productivity Commission on Australia’s corporate tax rate to be set at 20% on profits for companies making under $1 billion is a sound starting point. They proposed an outrageous new 5% tax on net cash flow rather than profits. For Australia, the implicit company tax rate is 25%, applying to firms with a turnover under $50 million. For bigger corporations, the rate goes up to 30%. Taken together, these recommendations show a welcome realization that everything should not be made so easy without comprehensive, pro-growth economic reform.
Broader Economic Implications
Moving forward, McManus stressed that the property tax structure incentivizes capital investment. This has the effect of crowding out investment in more productive sectors, such as Australian businesses. She remarked, “It’s meant that capital is not being invested in areas that are going to increase productivity.” Yet this prevailing sentiment underscores all the more why we need reform now. We need to think more broadly about our housing strategy as a way to support a stronger and more sustainable economic recovery.
New treasurer Jim Chalmers has announced plans to host a three-day roundtable with union leaders, employers and economists. Their aim is to create a consensus around breakthrough proposals for economic reform. These housing supply reforms will help address Australia’s deepening housing affordability, while increasing productivity across the nation’s economy.
It’s not news that Australia is facing a range of urgent economic challenges. Moving forward McManus’s proposal might be the spark for some important policy changes that establish a more equitable taxation system and address the persistent housing crisis that continues to harm millions of American families.
