Tie property tax changes to income tax cuts, productivity chief says

Australia’s top productivity adviser has urged the federal government to link any reduction in property tax benefits to income tax cuts for workers to ensure a comprehensive reform package.

Linking Property Tax Reforms to Income Relief

Productivity Commission chair Danielle Wood stated that any move by the federal government to wind back property tax benefits should be paired with income relief for workers. Ms. Wood noted that the government is widely expected to reduce negative gearing for investors and slash the capital gains tax discount.

Ms. Wood argued there is a “case” for these changes, as current settings have “distorted investment decisions somewhat.” She suggested that shifting these incentives could be beneficial and would reduce pressure on income tax over time.

Regarding the housing market, Ms. Wood indicated that while the commission has not recently analyzed the impact on supply, overall price impacts would likely be “pretty modest.”

EV Tax Breaks and Fuel Security

Ms. Wood also criticized the government’s electric vehicle (EV) tax break, stating it is not delivering the “best bang for buck” for taxpayers. She described the policy as an inefficient signal that carries a high price per ton of carbon abated.

The policy, which exempts eligible low-emissions cars from fringe benefits tax on novated leases, has seen take-up far exceed initial estimates. The annual cost to the budget has grown from a forecast of $55 million in 2024–25 to roughly $560 million.

On the issue of domestic fuel supply, Ms. Wood acknowledged that securing fuel is an essential requirement for Australia. However, she warned that increasing storage or opening a new refinery would come with “pretty big price tags,” leaving politicians to make a “judgement call” on the expense.

Unavoidable Budget Spending Pressures

Treasury and finance department data reveal tens of billions of dollars in additional spending driven by inflation and critical investments. A new hospital agreement with states is expected to add $25 billion to the budget over five years starting in 2026–27.

Other significant costs include $14 billion for “critical” defence investments, $6 billion for the Pharmaceutical Benefits Scheme, and $1.5 billion for infrastructure cost pressures. Additionally, the government will spend $2.5 billion to halve the fuel excise for three months.

Social support payments are also rising due to inflation indexing. Aged pensioner payments are expected to cost an additional $1.5 billion over five years, while disability support pensions and JobSeeker payments will require an extra $4.4 billion and $3.2 billion, respectively.

Treasurer Jim Chalmers attributed these “unavoidable spending pressures” and higher borrowing costs to inflation spikes following the war in Iran and ongoing conflict in the Middle East. Finance Minister Katy Gallagher added that while the government has made progress on the budget position, it must continue to manage global uncertainty and ongoing pressures.