When looking at politics, I like to remind people that it’s always wise to remember the power of “framing“. For example, in the past week, when Malcolm Turnbull managed a deal with The Greens to pass the backpacker tax, it was hailed as a victory. This is in spite of the fact that once one takes into consider the changes to the backpackers’ super and the increase in landcare, it cost the Budget bottom line more than if they’d agreed to Labor’s compromise of thirteen percent. However, when a Labor government has negotiated with The Greens, they’ve usually been portrayed as being dictated to by those radicals or “held to ransom”. (Carbon tax, anyone?)
Similarly, we’ve been treated to the Liberals wringing their hands and complaining that our students were beaten by Kazakhstan in recent Maths tests. Whether this is a justification to stop wasting money on kids in the government system and abandon Gonsk, or whether it means that we need to vastly increase the education budget but target it better, is a whole other debate. For now, I’d just like to point out that, if you look at the table, the United States were also beaten by Kazakhstan, as were Finland and Germany, so it’s hardly as though this is the equivalent of being defeated at Rugby by Lithuania.
To quote “Lonely Planet” on Kazakhstan:
“The world’s ninth-biggest country is the most economically advanced of the ‘stans’, thanks to its abundant reserves of oil and most other valuable minerals. This means generally better standards of accommodation, restaurants and transport than elsewhere in Central Asia. The biggest city, Almaty, is almost reminiscent of Europe with its leafy avenues, chic cafes, glossy shopping centres and hedonistic nightlife. The capital Astana, on the windswept northern steppe, has been transformed into a 21st-century showpiece with a profusion of bold futuristic architecture…”.
Apparently though, being beaten by Kazakhstan is a “wake-up call”. (I wonder who’s been asleep! My bet is that the current mob of muddlers that we refer to as the Federal Government wouldn’t ever think it was them…) It seems that we are using “Borat” as our frame of reference. To quote our Education Minituare, Simon Birmingham: “I don’t want to denigrate Kazakhstan, or indeed their artistic skills with movies like Borat.”
So, in the context of all this framing, whenever the government does something that helps investors over the Budget bottom line, I’ve been amused by the language. Scott Morrison and the rest of the gang always talk about “mums and dads”. The poor “mum and dad” investors who negatively gear or buy shares or invest in super.
Now I don’t know why the Liberals hate the childless so much. Remember Peter Costello urging us all to have three kids: one for mum, one for dad and one for the country. Remember John Howard taking away your hard-earned money in taxes to give to “mums” in the form of a “baby bonus”! (Yes, the baby bonus of $5000 was great, but when Kevin Rudd gave people with kids $900 during the GFC it was a waste because they’d only waste it on booze and gambling.)
But it seems if you’re a “mum and dad” investor… Should that be a “mum or dad” investor”? Mm, doesn’t quite work, does it?
Anyway, if you’re a “mum and dad” investor we should leave you alone because you’re really the salt of the earth, just trying to “get ahead” for the sake of the children. Yes, don’t think of them as greedy; think of them as caring. And when they go into debt with negative gearing, it’s not like when Labor governments go into debt, because “mums and dads” are using the money to invest in the future. Labor wanted to go into debt to waste money on things like the NBN and we Liberals can do it cheaper and have it all finished by 2016. (Well, not 2016, we never said that and we’ve removed all the estimates from our website and the AFP will raid anyone with anybody with any information that we don’t like. On the NBN’s say-so, we never told the AFP to raid anybody. That’d be political, like the FBI getting involved in American politics. Just wouldn’t happen!)
However, I suspect that the “mum and dad” investors that the Liberals are most concerned about aren’t the people recklessly borrowing a few thousand: I suspect that they’re the mums and dads like Gina Rinehart and Rupert Murdoch. Rupert certainly has children and there’s no doubting that Gina is a mother. I’d love it if an interviewer were to ask if these were the “mums and dads”, Scott had in mind. Or at the very least, ask at what point in the acquisition of properties we could stop feeling that these “mum and dad” investors deserved canonisation rather than taxation.
But let’s not let the framing alter the facts. I’m going to take a $1,000,000 house because it’s easy to do the numbers.
Let’s say, my wife and I are on $100,000 each and we have a reasonable amount of capital in our home already. We go to the bank and say we want to do a bit of negative gearing. Strangely, although the bank will ask about our dependents at some point in the conversation, whether of not we’re “mum and dad” investors won’t be the first question that they’ll ask. No sir, they’ll want to know all about our income and our assets. So, after filling in countless forms they’ll lend us the million dollars need to buy the house. At 4.66% interest, an interest only loan will cost us $46,000 a year. Add $5000 for rates and other repairs and you have $51,000. It would be reasonable to expect about $40,000 a year in rent, leaving us a deficit of about $11,000 a year. This is then taken off our tax leaving us a deficit – meaning that we’d need to find an extra $6,000 net in the first year. As inflation will slowly increase the rent, eventually we’ll be positively geared and end up paying tax unless we go back to the bank and use the extra income to help us negative gear another property to avoid that evil tax thing.
Now, let’s say instead that my wife and I… Actually, let’s say a mum and a dad go to the bank and instead of being on $100,000 each, they’re on a total of $75,000 and they say to the bank they want to borrow a million to become investors and let’s see if Scott Morrison is prepared to go guarantor on the loan…
All right, I’ll start comparing apples to apples and PCs to PCs. To work out a comparison for the same people purchasing a home to live in, relies on so many assumptions that it’d be impossible to do before someone said, “Hang on, what if they had a deposit of $200,000?” or “Wouldn’t they have an interest and principal loan?”, but if we ignore all the possibilities and do it as simply as possible, then a couple using an interest only loan to acquire the same house to live in, would need to find an extra $11,000 in that first year (I’m presuming that they’re renting exactly the same house as the first example). Even if the bank would lend a 100% of the money without wanting mortgage insurance, it’s far easier for the couple purchasing for investment to find the money needed. Yes, even if both couples are childless.
As yet, I haven’t heard the Liberals talk about not cutting funding to some of the richer private schools on the grounds that they people sending them there are just “mums and dads”, but I’m sure that day can’t be far away.
I read a joke a couple of years ago which asked if Tony Abbott and Joe Hockey were both drowning and you could only save one of them, what kind of sandwich would you make? Well, Scott Morrison’s stewardship of the economy sort of reminds me of that joke. I mean, I can picture him being asked in some future interview what is the number one challenge for the coming months and him answering:
“I’d just like to ensure that all the mums and dads out there have enough bread to make their kiddies lunch and that they don’t do what Labor would do and give them money to buy it at the canteen!”
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