The Finance Brokers Association of Australia (FBAA) says the federal government may yet be forced to reverse course on its tax attack on investors if housing prices or rental costs surge, as predicted by many.

FBAA Interim CEO Peter White AM said that while he urged the government not to proceed with the overhaul of capital gains tax and negative gearing because it will hurt those it’s designed to help, time will tell if the government or critics are right.

“Our political leaders have ignored the warnings and broken a solid promise, so they clearly believe they are on the right track, and now we must wait and see,” he said.

However he noted that the legislation was still to get through the House and Senate.

“While we assume it will pass as is, there is a possibility that it will only pass with some amendments, so there is still an element of the unknown.”

Mr White warned that the government will face its greatest test if the changes backfire.

“It is not obvious at this time how a reduced supply of rental properties coupled with increasing demand due to factors including population growth can do anything except drive up rental prices for many who are already struggling.

“At the same time, the government seems to think that if more properties are available for purchase, suddenly more first home buyers can afford them, but this ignores the many other factors that lead to housing affordability.”

He also pointed out that it’s likely prices on newly built homes and apartments off the plan will rise as investor demand increases, and this would drag up prices across the entire housing market.”

“If the government is right and the outcome is positive we all celebrate, but if it’s wrong how quickly will it react?” Mr White asked.

“If these changes make lives worse, will the prime minister and treasurer immediately admit they got it wrong, take responsibility and correct it?

“I’d like to see them publicly commit to a course correction if needed, as this will allay the fear many people currently have, and help to rebuild trust that has been lost due to this severe, broken promise.”

Call for brokers to be proactive

Mr White also called on mortgage brokers to be proactive by contacting clients and urging them to seek professional taxation advice for their future investment decisions.

“While brokers can’t provide taxation advice unless professionally qualified to do so, we can initiate conversations and remind clients that once they have an investment strategy based on the new laws, we are there to assist them with the finance options that will help them achieve their goals.”