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Wednesday 16

January, 201911:36 PM



KPMG gives backing to Labor's negative gearing plan

KPMG gives backing to Labor's negative gearing plan

In a move that could well upset the current political discourse, one of the world's leading accounting and consultancy companies, KPMG, has backed the negative gearing reforms to tackle house prices that the Australian Labor Party has set out.

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By Nigel Frith 11.01.2019

In a move that could well upset the current political discourse, one of the world's leading accounting and consultancy companies, KPMG, has backed the negative gearing reforms to tackle house prices that the Australian Labor Party has set out.

Current Prime Minister Scott Morrison and the Liberals have railed against the proposal for some time and have based their election platform on intervening less in the market. However, with the polls suggesting that Labor is out in front at the moment and KPMG putting its weight behind key proposals, this could be an important moment in the pre-election run-up.

When Labor first set out its negative gearing policy, which centers around making houses more affordable for the average Australian, several leading investors and the Liberals criticized the party for trying to introduce a policy that could wreck the housing market.

However, according to a key report from KPMG, this is not going to be the case. Calling the ideas of tackling the housing affordability issue and altering capital gains tax benefits "sound," the company said that the main concern is not the policy itself, but how it would come into play.

KPMG Chief Economist Brendan Rynne believes that Labor's plan is "unlikely to distort" any investor decisions to enter into the property market.

Given that housing is such a major concern in Australia, a large company such as KPMG supporting Labor's policies is likely to do wonders for Bill Shorten's chances of getting his party elected later in the year. One of the problems that often comes with this type of approach is that if no major businesses offer backing, then it is likely to fall dead in the water, even if it gets public support. KPMG giving its blessing in this regard is somewhat of a coup for Labor and will give the party bargaining power in political debates as election season approaches.

Saying that the Labor Party's policies "would need to be managed carefully," Rynne detailed in his report how "it will take time for the developer market to produce new dwelling stock for tax-approved investments" but noted that this could well affect how the rental market receives investment in the short term.

This news comes as KPMG also speculated that Sydney is not due to see house prices rise again until at least 2021, although Melbourne will see an estimated 2.4% growth next year and 4.7% the following year if current trends continue, which will put its real estate market back on track.

Labor has said that it will only allow negative gearing benefits to apply to new houses under construction so that there is a greater supply helping bring down prices. However, in a move to appease investors who fear that they may lose out over deals secured in the current environment, the party will grandfather in any funding brought in before the passing of new legislation.

Any move would also see capital gains tax discounts halved from 50% to 25%. These potential market moves have naturally caused some concern, and Treasurer Josh Frydenberg predicted that Labor will end up dropping the reforms. Several weeks ago, John Symond of Aussie Home Loans called the proposals' effects similar to those of a "nuclear bomb" dropping onto the property market. While these dissenters have been voicing their thoughts for a while, Labor having KPMG on its side will be a huge boost.

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