What happened to the adult conversation we were going to have with everything on the table? If anything proves we are going to an early election it is Malcolm Turnbull’s reaction to Labor’s proposed negative gearing and capital gains tax changes.
Malcolm has hit the airwaves saying homeowners across the country will see the value of the family home “smashed” under Labor’s “very blunt, very crude” negative gearing policy warning “this should put concern into the minds of every single house owner.”
He suggested that 30% of potential buyers, the investors, would be removed from the market for existing properties. This implies that investors are only interested in loss making ventures to avoid paying tax – a situation that was brought about when John Howard cut the headline rate of capital gains tax to half the income tax rate in 1999, making negative gearing much more attractive. As Scott Ludlum put it, “Australia suddenly became a nation of losers.”
“Normally investors would not be interested in an investment that is expected to run at a loss, but many are happy to purchase property where the rental income doesn’t cover the interest payments, because they expect to make large capital gains in the future from selling it, which are subject to the massive discount.”
“In the financial year before the discount was introduced, property investors actually reported a net rental income of $219 million, but in 2000-2001 they reported almost half a billion dollars in losses, with the amount climbing over 10 years.”
Considering the demand for housing in Sydney, it is hard to imagine the house prices going down too much, but even if there was a small adjustment, if the price of your home goes down, so does the price of the next home you buy. All homeowners have been through these cycles before.
If the investors who are relying on tax deductions are removed from the market, then it opens it up to first home buyers, an issue that has been of growing concern. Of course, the market is not closed to those who wish to invest to make a profit, only those who were looking to reduce their income to avoid paying tax.
Mr Turnbull would have us believe that this will preclude first time investors from taking advantage of the concessions we have enjoyed. This attitude implies we can never change anything. It makes no sense. John Howard let people put $1 million into superannuation in one year. What if we all insisted on that perk being continued?
The grandfathering clause means current investors will not be disadvantaged and there is time for people to consider their investment options. It may also help reduce risky borrowing where people overextend.
Restricting negative gearing to new properties will stimulate construction, providing construction jobs and increasing supply. The assertion that it would increase rents is not justifiable. If more people are able to become homeowners, they will no longer have to rent. If there is increased supply combined with increased home ownership it is difficult to see how this would force up rents.
Malcolm said he would respect the intelligence of voters but, when given the opportunity, he has reverted to spin, classifying the reduction of the capital gains tax concession as a tax increase. What rot, Malcolm!
Currently, you only pay tax on half of what you earn from capital gains. Labor is proposing that you pay tax on 75% of your capital gains. It is NOT a tax rate increase at all. Why should this income be treated more favourably than income earned through labour?
Malcolm is desperately trying to say Labor’s proposed changes will hurt mums and dads, but this is pure spin. The ones who will be most affected are those who are trying to minimise their tax through rental losses and reduced rates for capital gains.
A quick look at the Pecuniary Register for Members of Parliament gives an indication of why they would fight this. Data compiled by Deakin University researchers suggests MPs could own more than 500 properties in total, worth several hundred million dollars. These investments range from holiday apartment rentals to more complex arrangements including trusts, with a mix of investments negatively and positively geared.
Two of the biggest property owners in federal parliament are Nationals MPs David Gillespie and Barry O’Sullivan, who owns 42 properties.
Mr Gillespie has declared an interest in 18 properties, including 15 units in Port Macquarie, in his electorate, although he said just one was negatively geared.
Labor is to be applauded for a policy that addresses so many issues. The Coalition’s reversion to attack mode shows they know it. Scott Morrison’s address to the National Press Club was an absolute fizzer which shows they have no plan, not a good look when threatening an imminent election.
When asked about the Coalition’s plan, Mr Turnbull said “We are not going to run our tax reform agenda in a political way, what we are looking at is a whole range of measures across the board. But I can tell you the big difference between our approach and Bill Shorten’s is that we will think the consequences through.”
But will they give us time to think through their policy assuming they eventually come up with one? Current rumour has them announcing an election the day after the Budget is due to be handed down. Will Scott squib it? We shall see.
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