THE BUDGET TAX GRAB THAT COULD DEEPEN THE 2028 RECESSION...

I was not applauding the budget this week. Not necessarily because of the direction of the most controversial policies, more so because of the timing.  

Australia’s economy remains heavily tied to rising land values.

If governments are going to wind back the tax incentives that have driven property speculation for decades as we approach a major cyclical downturn, there needs to be something big on the other side to stimulate the ‘real’ economy.

I’m talking about meaningful income tax reform - policies that genuinely lift productivity.

This offered nothing of the sort. It was a budget tax grab.

I’m going to focus specifically on the property market impact here – particularly the grandfathering of negative gearing and the changes to the capital gains tax discount.

Because recessions that emerge during this part of the cycle are often deeper and longer lasting than mid-cycle recessions.

These recessions impact vast swathes of the economy that has choreographed itself around the finance, insurance and real estate sectors (the FIRE sectors).

Two points are therefore relevant:

1. The extent of the bust depends on the magnitude of the boom. Every boom is followed by a bust. The severity of the downturn depends on how much speculation in land prices there has been during the upswing. The more inflated the land price market, the harder the eventual correction.

2. Government policy shapes the crash - and reinflates the cycle. The extent of the damage during a downturn is often determined by government intervention - such as homebuyer grants, mortgage holidays, and stimulus payments. These can soften the blow and prevent widespread foreclosures.

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