In his 2005 tax policy paper, Malcolm Turnbull described negative gearing and the CGT discount as a “sheltering tax haven” that is “skewing national investment away from wealth-creating pursuits, towards housing”, and has caused a “property bubble”. Turnbull also acknowledged that “Australia’s rules on negative gearing are very generous compared to many other countries” and that “the normal deductibility principles do not apply to negatively geared real estate such that the taxpayer is not obliged to demonstrate that the negatively geared property will generate positive cash flow at some point in the distant future”.
Moreover, in 2014 Turnbull acknowledged that the tax system favours richer older people over younger working Australians: “Looking at Australia’s tax regime you would say that it is too tough on people earning income… but is incredibly concessional to older people who have made their money…”
The International Monetary Fund found in September 2015 that, starting around the turn of the millennium, Australian house prices have become radically disconnected from real per capita GDP – “house price inflation has greatly exceeded income growth … and has exceeded the OECD average”.
Since 1997 price-to-income and price-to-rent ratios have nearly doubled. Sydney’s price to income ratio of 12.2 makes it the second least affordable city in the world, behind Hong Kong. Melbourne ranks fourth. It turns out that London and San Francisco are cheap by comparison.
Our current tax arrangements are seriously distorting. The ready availability of large amounts of leverage to buy residential property – much more than for shares or any other asset class – combined with negative gearing and concessional capital gains tax rates, leads to a distorted market for housing.
More money flows into it than otherwise would. That drives up prices and creates significant risks to financial stability, as the financial system inquiry warned. The Australian economy is already badly unbalanced, with too much capital being channelled into unproductive land/housing and not enough into productive enterprise.
Not only has the Abbott/Turnbull/Abbott? government got no new policies, Turnbull is now resorting to using Abbott lines.
In June 2015, Tony Abbott said:
“Millions of Australians have mortgages and the last thing they want to see is the decline in the value of their most important asset. (Mr Shorten) is someone who wants to be the prime minister of Australia and he wants your house to be worth less.
Do not trust this man with your house price, do not trust this man with your superannuation, do not trust this man with your future and do not trust this man with the government of Australia because what he wants is your house to be worth less.”
Which is remarkably similar to Malcolm’s current line:
Every homeowner in Australia has a lot to fear from Bill Shorten. The consequence of [Labor’s policy] will be a decline in property prices
…what Bill Shorten has done, he has set out to smash the residential housing market… That will lower the price of property… Bill Shorten is going to gnaw away at that equity. His policies will make your home worth less…
Bill Shorten’s policy is calculated to reduce the value of your home.
Former Reserve Bank governor Bernie Fraser said “The current negative gearing (and related capital gains) tax arrangements… divert savings and resources away from potentially more productive investments into (sometimes speculative) property investments to take advantage of the tax concessions. This does nothing to improve economic growth (or the budget bottom line).”
Furthermore, tax incentives for investing in housing “can accentuate short term fluctuations in house prices and sustain long term increases in house prices which far outstrip increases in the earnings of most Australians”.
“This last-mentioned consequence, plus the fact that the benefits of the concessions flow disproportionately to people on higher incomes, make the current measures manifestly unfair.”
Scott Morrison has said that rents will skyrocket, basing his assertion on a report written by BIS Shrapnel which says Sydney apartment rents would be $40 higher in 2026 if negative gearing were limited, because landlords would pass on in full to tenants the value of the lost tax concession.
The chief executive of the Grattan Institute, John Daley, disagreed saying some of the assumptions in the report didn’t pass the “giggle test”. The vast majority of 50 economists surveyed by the McKell Institute also disagreed with the report which even the authors quickly stated was not modelling Labor’s policy.
Turnbull has forsaken what he knows to be true for the attack dog approach. How very disappointing.
