Grim warning every homebuyer needs to hear as Peter Dutton proposes radical new housing plan that’s never been tried before in Australia: ‘Worst decision’

A leading tax expert has warned Peter Dutton’s radical new housing plan will only push up house prices without solving Australia’s supply problems.

An economist who was once president of the Young Liberals has described the Opposition leader’s announcement as ‘the worst public policy decision of the 21st century’.

Mr Dutton used his campaign launch on Sunday to declare that under a Coalition government, first-home buyers would be able to claim interest repayments as a tax deduction, on a loan of up to $650,000, provided it is a brand new property.

For the first time ever in Australia, owner-occupiers would be able to claim mortgage repayments as a tax deduction. 

They would also be spared from having to pay any capital gains tax when they sold their principal place of residence.

At the moment, only landlord investors can claim rental losses on tax under negative gearing.

When they sell, investors pay capital gains tax with a 50 per cent discount.

Professor Robert Breunig, the director of the Australian National University’s Tax and Transfer Policy Institute, said the Coalition’s policy, designed to last just five years, would only drive up house prices without solving supply constraints.

A leading tax expert has warned Peter Dutton ‘s radical new housing plan will only push up house prices without solving Australia’s supply problems

‘We’re going to stimulate demand for something that’s already overpriced,’ he told Daily Mail Australia.

The United States and Switzerland allow owner-occupiers to claim mortgage repayments on tax, and the UK tried this policy from 1983 to 2000.

But those countries still allowing loan repayments to be claimed on tax also levy a capital gains tax on owner-occupiers when they sell. 

Prof Breunig said the Coalition policy was doing something unprecedented by making mortgage repayments tax deductible for something that would not be taxed later.

‘What’s kind of weird here is – it really flies in the face of everything else in our tax system – is to give a tax deduction for something where we’re not going to tax the income later on,’ he said.

Economist Saul Eslake said the Coalition’s latest policy, combined with its plan to allow first home buyers to withdraw up to $50,000 from their super, would only turbocharge Australia’s housing market.

‘Making interest payments on a mortgage tax deductible will inevitably result in people taking out bigger mortgages than they otherwise would,’ he told Daily Mail Australia.

‘When you combine those two policies, I think it’s a candidate as the worst public policy decision of the 21st century.

Mr Dutton used his campaign launch on Sunday to declare that under a Coalition government, first-home buyers would be able to claim interest repayments as a tax deduction, on the first $650,000 of a mortgage, provided it is a brand new property (pictured are new houses at Oran Park in Sydney’s south-west)

‘When the Coalition says the average, first-home buyer will save $11,000 as a result of this policy – no, he or she won’t; what the average, first-home buyer will do will be to say, “Aha, I can now afford to take out a bigger mortgage to buy a more expensive property” and that’s what they will do and properties will become more expensive as they always do when interest rates fall.’

The futures market sees the Reserve Bank of Australia cash rate falling from 4.1 per cent now to 2.85 per cent by the end of 2025.

Mr Eslake, a former federal president of the Young Liberals, said the Coalition policy would lead to future governments bowing to political pressure to allow all owner-occupiers to claim mortgage repayments against their tax.

‘Part of the risk here is that there will inevitably be demands to extend it beyond the five-year period, which the Coalition has promised; to broaden the eligibility to include first-home buyers of established as well as new homes; and ultimately to extend it to all home buyers,’ he said.

‘So, this could be the tip of a very big iceberg.’

The policy could also become a permanent expense on the Budget. 

‘It would represent a big hole in the revenue base just as negative gearing, combined with the excessively generous capital gains tax discount puts a multi-billion dollar hole in the revenue that’s required to pay for all the spending,’ Mr Eslake said. 

Under the Coalition policy, announced at the Liberal Party’s campaign launched in south-west Sydney, interest payments would be tax deductible on the first $650,000 of a mortgage. 

‘We will allow these deductions for five-years, provided you continue to live in that home for that period,’ Mr Dutton said.

The policy would be available to individuals with a taxable income of $175,000, or for couples earning up to $250,000.

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