The run up to Jim Chalmers productivity roundtable has got all the vested interest groups scared, and today’s group is the housing industry.

The Housing Industry Association has just put out a release not just arguing against any changes to taxation on housing but arguing against even talking about changes to taxation.

Why? Well because they say “talk of more taxes” will “impair market confidence”.

Oh no, anything but that!! Yes, the market confidence fairy is so important for ensuring housing supply!

The HIA media release comes after a report put out today by the McKell Institute arguing for changes to how capital gains is taxed.

As you might know if you buy an investment property and then sell it more than 12 months later , you get a 50% tax discount. So if you made a $100,000 profit, you only pay tax on $50,000. This has distorted the hell out of the housing market and worked with negative gearing to turn the housing market into a casino where you almost can’t lose.

The McKell Institute has suggested changes which it says will be revenue neutral (ie won’t reduce or increase the amount of tax).

It argues three things:

1. Decrease the CGT discount for all existing detached dwellings to 35 per cent.

OK this is fine. I would go to 25%, but sure. This means you could still buy an apartment and get a CGT discount, but just 35% not 50%. What they are doing is getting rid of the CGT discount for established houses – so you could not buy an old house and then sell it later and get any discount. Seems good.

2. Retain the CGT discount of 50 per cent for all new investments in detached houses, and grandfather all existing investments.

OK, why keep the 50% distortion in place? A new detached house is one that is a stand alone. (ie a :”house”) and has been built but no one has lived in yet. Not sure how they can say this will improve supply given this discount is already in place – I suspect they are putting a lot of store in people shifting from buying established houses to new houses.

3. Increase the CGT discount for all new attached dwellings to 70 per cent.

Wait, what??!! They want to increase the tax discount from 50% to 70%?!

Holy wow. This is essentially a big boon for property developers, because your “mum and dad” investors are sure as heck not building new apartment complexes.

Cripes.

Here’s a tip – how about stop distorting the housing market with massive discounts that will transfer wealth to those who can afford to invest in property and build apartments and instead have the government borrow and build the houses and apartments and rent/sell them to the public?

Anyway, it says something that even changes to the CGT discount which would see property developers get a 70% discount on building apartment get criticised by the housing industry.