Australia’s top productivity adviser has urged the federal government to link potential reforms to property tax concessions directly to income tax relief for workers. Danielle Wood, chair of the Productivity Commission, suggested that any reduction in negative gearing or capital gains tax benefits should be used to fund income tax cuts to create a comprehensive reform package.
Linking Property Tax to Worker Relief
The government is widely expected to reduce negative gearing for investors and slash the capital gains tax discount. Ms Wood stated that such a move would “make sense” if paired with income tax cuts, noting that current settings have “distorted investment decisions somewhat.”
According to Ms Wood, removing these distortions could be a positive step. Even as the commission has not recently analyzed the impact on housing supply, she described the overall price impacts as “pretty modest.”
She noted that these changes could shift the balance between investors, owner-occupiers, and new buyers, but suggested a huge impact on overall supply is unlikely if the price effect remains low.
Evaluating EV Incentives and Fuel Security
Ms Wood has likewise recommended that the Labor government scrap the tax break for electric vehicles (EVs). She argued the policy does not deliver the “best bang for buck” for taxpayers, citing a high price per ton of carbon abated and a lack of efficient targeting.
The current policy reduces the cost of certain EVs by exempting eligible low-emissions vehicles from the fringe benefits tax on employer-provided novated leases.
Regarding domestic fuel supply, Ms Wood described the apply of taxpayer funds to boost reserves as an expensive “judgement call” for politicians. However, she acknowledged It’s “fair” to view fuel as one of the few truly “essential products” Australia must secure.
She warned that opening a new refinery or increasing short-term fuel storage would come with “pretty big price tags.”
Tens of Billions in Unavoidable Spending
Ahead of the May 12 budget, the government has confirmed tens of billions of dollars in extra “unavoidable” spending over the next five years. These costs are driven by rising inflation and new commitments across health, defence, and social supports.
A new hospitals agreement with the states is expected to add $25 billion to the budget over five years starting from 2026–27. The government has forecast the require for $14 billion for “critical” defence investments and $1.5 billion for “unavoidable” infrastructure cost pressures.
Social support payments are also seeing significant increases due to inflation indexing. Over five years, aged pensioner payments are expected to cost $1.5 billion more than December forecasts, while disability support pension payments will require an extra $4.4 billion and JobSeeker recipients an additional $3.2 billion.
Other forecast expenses include $6 billion for new and amended Pharmaceutical Benefits Scheme listings and $2.5 billion to cover the cost of halving the fuel excise for three months.
Treasurer Jim Chalmers attributed these pressures to an inflation spike following the Iran war. He warned that conflict in the Middle East is likely to result in higher inflation and higher borrowing costs on inherited debt, both of which will “hit the budget hard.”
Finance Minister Katy Gallagher stated that while the government has made “real progress” on the budget position, it must continue to manage global uncertainty and ongoing pressures through “responsible choices.”
Frequently Asked Questions
What does Danielle Wood suggest regarding property tax?
Ms Wood suggests that any revenue gained from scaling back capital gains tax concessions or negative gearing should be funneled into income tax cuts for workers to create a comprehensive reform package.
Why is the EV tax break being criticized?
Ms Wood argues the tax break is not the “best bang for buck” because it is not well-targeted, is not an efficient signal, and carries a high price per ton of carbon abated.
What is driving the “unavoidable” increase in government spending?
Spending is being driven by a new $25 billion hospital deal, critical defence investments of $14 billion, and inflation-indexed increases to social support payments, alongside pressures from the conflict in the Middle East.
Do you believe the government should prioritize broad income tax cuts over targeted subsidies like the EV tax break?
