I’d like to add to my last post about Commonwealth Bank’s loan applications falling by 15% since May 12.
CBA is drawing attention to that date because that’s when the federal government announced its budget, containing sweeping changes to Australia’s property taxation rules.
What were those changes again?
Just to recap those changes, the government is only allowing property investors to negatively gear newly built properties.
But investors who owned existing properties before the budget will still be able to deduct their net rental losses against their wages and other personal income.
On top of that, the government abolished the 50% capital gains tax discount, replacing it with a discount based on inflation indexation, as existed prior to September 1999.
It has also introduced a 30% minimum tax rate on net capital gains.
Those two CGT changes mean a lot of people selling their homes will be paying more tax under the new regime.
RBA rate hike also a contributing factor
A lot of people like to complain about the budget, especially investors who stand to lose the most.
However, there is another reason for the sharp fall in loan applications that CBA is experiencing — along with its rivals NAB and Westpac.
It’s because the Reserve Bank lifted interest rates by 0.75 percentage points in February, May and March this year.
Yesterday, when RBA governor Michele Bullock delivered her press conference, following the central bank’s decision to keep rates on hold, she was asked why Australia is experiencing a property downturn.
As expected, Ms Bullock refused to be drawn on whether the RBA’s rate hikes or government’s budget was the larger cause of property owners’ current predicament.
She essentially said both were contributing factors and did not go into much further detail.