“Well, for most middle-income people it (negative gearing) is the one chance they’ve got to build some wealth.”
Scott Morrison, Treasurer
Mm, so it’s official! According to our Treasurer, simply working and trying to save won’t be enough to build wealth. We need to invest!
Mr Morrison has also informed us that two-thirds of people who are taking advantage of negative gearing have a taxable income less than $80,000, while Mr Turnbull has been telling us that Labor’s policy will send prices down if you already own a house and up if you want to buy one.
Now I think we should just take them at their word for the moment and accept that everything that they’re saying is correct, although Turnbull’s simultaneous rise and fall statement is rather reminiscent of Tony Abbott’s promises to reduce or eliminate taxes, impose no new ones, not cut spending to Health, Education, the ABC, pensions, etc, and still bring the Budget back to surplus in his first term of government.
Most of you probably have some idea how negative gearing works by now. An investor – who’s probably simultaneously a mum and dad, if you listen to Scottie – takes out a loan to buy a property. They then rent this property out. Because the rent doesn’t cover the cost of the interest (as well as the rates, repairs and real estate agent who manages the property), there is a loss which is deducted from the investor’s other income. Over time, the property experiences a capital gain and when it’s eventually sold, tax is paid at the capital gain rate which – for most investors – will be less than if they’d originally paid income tax on it.
So like I said, let’s take Scottie and Malcolm’s mums & dads investor on $80,000 a year.
Assuming that it’s only a single person, one needs also needs to assume that they’ve paid off their house and only have one credit card with a $20,000 dollar limit, because with mortgage repayments of $1500, the “how much can I borrow calculator won’t lend them anything at all. But for the sake of argument, let’s assume that there a two of them earning $80,000. With the same assumptions the calculator now gives them enough to buy a dog kennel. No land, just the kennel.
Mm, ok, let’s rip up the credit card and presume they have no living expenses and that they own their own home. Great! Now they can borrow enough to buy a house.
So let’s say they decide to borrow enough to buy in a decent area where they’ll attract the sort of tenants that’ll look after their house. You know, no riffraff. Buying in Melbourne let’s assume that they buy something for half a million – that gets them a nice flat somewhere. If they wanted to borrow a little more for a million they could buy in a decent middle class area and…
Oh wait! They’re only earning $160,000 a year. And they’re borrowing.
Shouldn’t they be living within their means? Isn’t that what the Liberals told us ad infinitum?
Ok, this is different. It’s borrowing to invest. Labor were borrowing to do things like build the NBN, and that wasn’t an investment…
Oh wait, yes it was. But the Liberals promised it faster and cheaper. Under the Liberals we’ll get it in 2016. Well, it would have been if it wasn’t for the fact that we’ve had to buy enough copper that it could fit round Malcolm Turnbull’s ego. You see, the some of the copper was old and it needed replacing.
Anyway, the thing is that when governments borrow, it’s bad and it could leave their children with debt, but when mums & dads borrow to invest in real estate it’s a good thing because real estate could never go bad unless Labor get in power and then it’ll all go bad and these mums & dads will lose their money and leave their children with debt and . . .
Hang on, I’m getting confused again. I best ask Peter Costello to explain. He’ll know what to do. He’s a wiz with money. Why I remember him announcing that we were going to sell our gold reserves back in the late 90s. We got about $300 an ounce. Some people suggested that it might have been better to sell it slowly over time, because as Australia was a gold producer, a fire sale like that could reduce the price for our miners and mean less tax for the government. But old Pete knew what he was doing. In the years after the sale, gold steadily rose and is now worth over three times that. Shame we can’t sell it again.
Well, I hope this has made it all clearer for you. When governments invest it’s bad, but when mums & dads invest it’s good and if they lose money because of the housing market dropping, it’s Labor’s fault!
And as for the cost of a new home being out of the price range of young home buyers, Joe Hockey had the answer to that. Just get a better job! He did.
* * *
Is it just me, or does anyone else find it strange that both Abbott & Credlin have denied the affair but not that she said he couldn’t do the job without her or most of the other claims about her bullying behaviour. The other thing that I thought strange was that Abbott’s statement argument that his government wasn’t dysfunctional because of stopping the boats, repealing the carbon and mining taxes and its start on Budget repair, but given all those things occurred in 2014, one has to ask what had he done lately? His statement was akin to me arguing that you can’t accuse me of drink driving because I did a breath test in my early twenties. Oh, I guess the drink driving analogy may have sounded like I was having a go at Peta’s little indiscretion. And by indiscretion, I meant her drink driving non-fine, non-conviction because although she was over the legal limit, she had a letter from the Eternally General Brandis, not anything that she’s denied doing with Tony Abbott.
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