The Government’s rush to push its new capital gains tax and negative gearing rules through Parliament without proper scrutiny has produced another nasty negative twist.

In order to persuade the Greens to vote for the legislation in the Senate the Government agreed to ban self-managed super funds from borrowing to buy residential property.

This change was not discussed previously and appeared entirely without warning. It will come into effect in early August giving people in the process of buying a property very little time to adjust their plans.

The Government has belatedly recognised the problem I wrote about on May 29 concerning people who start small businesses from scratch and so have no cost base to index to inflation when they sell their business. Their full gain will be assessed for tax.

Thousands of hard-working, ambitious people start businesses in Australia every year. We need them to keep doing that. Some will fail and some succeed. New businesses are the source of progress and innovation. The Government has now established a taskforce to try to find a solution.

Taxing capital gains the same as income is a backward step for the country. Making a capital gain involves risk of loss. It is not nearly as certain or easy as doing a job and being paid a salary. New Zealand, which has no capital gains tax, will welcome Australian entrepreneurs.

The biggest impact of the ban on negative gearing of residential properties will be on renters. Investors are already withdrawing from the market, causing auction clearance rates to nosedive. That will reduce prices a little for first home buyers.

However not every tenant wants to buy a property. Many are young people who haven’t decided on a career yet, or where they want to live long term, and haven’t found a partner. Some are students. Other tenants include low-income earners and older, divorcees and single people.

These people don’t want to buy a home at present. They just want to rent a property at a reasonable rate. Unfortunately, they will be hit hardest by the changes.

There is already a shortage of rental properties with multiple applications usually received for each vacant dwelling. As investors withdraw from the market and self-managed super funds are banned from borrowing to buy, the shortage of rental properties and high rents will get much worse.

This ban on negative gearing of residential property will probably have to be reversed within a few years, perhaps at the next election in early 2028. Hopefully the ban on self-managed super funds borrowing to buy properties will also be reversed.