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Telling fibs about negative gearing

From the moment a Labor policy is announced, the mainstream media is filled with the dire words from Coalition politicians warning that this policy will be the ruination of free Australia as we know it. From opposition or in government, the warnings flow freely. From opposition we heard ad nauseum from Tony Abbott the destruction to every fabric of our society that Julia Gillard’s ‘carbon tax’ would wreak. And now in government we hear that we can expect the same outcome – economic devastation (in particular for Mums and Dads) – if Labor’s much-needed plan to ‘fiddle with’ negative gearing is implemented.

Prime Minister Malcolm Turnbull has been quick to stride up to the nearest microphone to deliver ludicrous assertions that Labor’s planned changes to negative gearing would deliver a “reckless trifecta of lower home values, higher rents and less investment”. I use the word ‘ludicrous’ because that is exactly what these claims are: ludicrous. They are unfounded. This is nothing but a baseless scare campaign.

On Malcolm Turnbull’s Facebook page – where he is of course predicting horrific outcomes under Labor’s plan – buried among the 800 or so comments was a link to an article by Ross Gittins in The Sydney Morning Herald way back in 2003; ‘Pollies tell fibs about negative gearing‘. Gittins points out that the arguments (used in 2003) about the horrors of removing the capital gains luxury – which are the same being used now by Turnbull – are, to use his mild term, ‘fibs’. Gittins reported:

We all know that when Paul Keating got rid of negative gearing in 1985 this proved disastrous for the rental market and he was forced to restore it.

We all know this because the politicians – from John Howard to Simon Crean – keep reminding us of it.

There’s just one small problem: it’s not true. It’s remarkable how bad we are at remembering events – and how easily history can be rewritten by people with an axe to grind.

A negatively geared property investment is one where you borrow such a high proportion of the cost of the property that your interest payments and other expenses exceed the rent you earn. You then deduct this operating loss against taxable income from other sources.

In July 1985 – and as part of a much bigger tax reform package – Treasurer Keating moved to “quarantine” losses from negative gearing by stopping them from being deducted against other income. The US Congress had already done something similar.

But, so we’re asked to believe, this caused investment in rental accommodation to dry up. Vacancy rates fell very low and rents shot up. By September 1987 – just over two years later – Mr Keating was forced to admit his error and restore the old rules.

However, Saul Eslake, ANZ’s chief economist, has gone back to check this story and can’t find it.

His examination of the Real Estate Institute of Australia (REIA) figures for the capital cities shows that rents rose sharply only in Sydney and Perth (and the Bureau of Statistics’ figures for dwelling rent don’t show a marked increase for any capital).

If the tax change was causing trouble, you’d expect it to be showing up in all cities, not just one or two.

Mr Eslake’s conclusion is that rents in Sydney and Perth surged because their rental markets were unusually tight for reasons that had little to do with the tax change.

And this conclusion is supported by an earlier study by Blair Badcock and Marian Browett, geographers at the University of Adelaide.

They say Sydney was the only case that provides support for the claim that the tax change caused problems. “And even here the flow-on effects of the tax changes have to be weighed against the contribution of the general turndown in housing activity in Sydney to the deterioration of the vacancy rate and a real rise in rents,” they say.

But the academics remind us of a factor the pollies gloss over: the central role that politics played in the whole affair.

I wonder how long that link to a big bag of truth will stay on Malcolm Turnbull’s Facebook page.

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  1. June M Bullivant OAM

    I am sick and tired of grown men and women who are the leaders of our country standing there and telling lies, how do the people find out that they are liars, thank heavens that this publication tells us so that we can share it around. I have never had time for liars, I like the truth, I hate people who use lies to keep in power, they talk about trust, I don’t think so.

  2. Jack Russell

    Anything the LNP have to say about any ALP policy…especially AFTER Labor released it…is a lie. In fact, everything the LNP say is lie. I’m old now and I’ve never heard them tell a truth about anything and, as far as I can see, the LNP and their networks are all and only about destroying truth-tellers and subjugating everything to their despicable agendas.

  3. Jaquix

    I dont know how Turnbull can sleep at night telling outright lies like this. Perhaps he is really worrying about his own job – because a Table shows that the electorate topping the list of Top Ten electorates benefitting from neg gearing is – yes, you guessed it – WENTWORTH. Taxpayers in the western suburbs (more of Malcolm’s Mums and Dads) are subsidising neg gearers there to the tune of $20,000 ) Thats a lot of money which could be used for ‘budget repair”.

  4. Jaquix

    To clarify, its $20,000 per person claiming neg gear benefits.

  5. Carol Taylor

    Clearly Turnbull’s attempt at an election scare campaign based on unions has fallen somewhat flat, hence the need for a brand new scare campaign. To a good portion of the population the words mums and dads and ‘investor’ are a contradiction in terms, however the Libs in their ivory towers are yet to work it out.

  6. Conservatives Rule

    I own 7 properties and I have worked hard for them. I currently supply housing for around 20 people. Thanks to Negative Gearing.

  7. Michael Taylor

    You may well do, CR, and good luck to you. It doesn’t mean Turnbull should lie though.

  8. Jack

    Negative Gearing is a rip off Like how multi nationals abuse the Tax System where they borrow more in a higher taxing country like Australia and end up paying less tax even when they don’t even need to borrow anything.

  9. iggy648

    One of the worst legacies we are leaving for our children and grandchildren is the unaffordability of accommodation. From memory, Sydney has the second least affordable housing in the world after Hong Kong. People paying such a high proportion of income in mortgages, means that they don’t have money to spend on other things, which must be stifling the growth of the economy. Mr. Turnbull assures me that Labor’s plans will reduce the cost of housing, so I’m going to vote Labor. SImple choice for me.

  10. z

    how old could be entitled as “Mum and Dad investor”? is there anyone who aged over 70 still earn high income, need negative gearing to offset their income tax ?

  11. Julie

    Mum and Dad investors rant by Turdball sound like a Dodgy American snake oil salesman. Turnball is a pathetic cardboard Cut out. He doesn’t give a FU&K about people. A Home is for living in.

  12. wam

    a brave confession from a hard working abottian, who did it all on his own with no government help like those dole bludgers get. conviently forgetting that we have bought you 7 properties and you get 7 rents.
    You are/were in debt relatively speaking many times the gillard debt but it wasn’t a crisis for you, was it? So you know for certain the rabbott was lying even now with double the debt the AAA is merely threatened and you also know turnball et al are lying. Do you have a conscience????
    my pollie has only 12 investment houses but was writing in the paper showing a $9000 loss. oops rent from 12 houses is a loss??? How is poor barry coping with 50 dwellings?
    Played golf with a couple of returned soldiers and they have 3 properties between them and live on subsidised army accom so they wont like labor’s direction but there are no lost votes there.

  13. Justin

    Wam You need to learn how to write properly.You might understand whats in your head.I can never understand your post’s.Take more time to get them to read clearer .

  14. Steve Laing -

    So Conservatives Rule, do you want us to give you a medal, for your hard work and the fact that 20 people live in properties you own (“I supply housing for 20 people” – its all about you isn’t it! Just a tad egocentric when you could have said, 20 people live in houses that I have negatively geared). Why should you deserve some special tax break so you can invest in houses? Why isn’t this normal in other countries, just Australia?

    And when I hear people say “I worked hard for them”, it implies that people that don’t own 7 investment properties don’t work hard.

    So, Ok, lets hear it, what is the hard work that you do that means that the rest of us have to subsidise your savings plan? Because so far, all I hear is somebody that seems mightily pleased with themselves.

  15. totaram

    If you have $10 million in super converted to an allocated pension plus you have say 10 million in shares yielding dividends of about $200, 000 a year, you might want to have a negatively geared property of a few million which would bring your taxable income down below the limit. So you could be earning $600,000 a year and paying no tax at all. And one year later, if the property has increased by say 100,000 you could sell it and pay tax on about $50,000. Sound good? But you have to have lots of money to start with.

  16. Conservative Rules

    Yes I am mighty pleased with myself because I’m clever.

  17. Michael Taylor

    We’re all proud of you, CR. You’re an inspiration.

  18. totaram

    I don’t blame CR. He was “incentivised” to do what he did and since he could do it why shouldn’t he? This was the Howard govt.’s way to get the private sector to take on huge amounts of debt, which they did, very happily. This allowed Howard and Co. to dish out huge amounts of “middle class welfare for the battlers” to win the elections. It also allowed Costello to produce his “surplus budgets” and prove how wonderful they were as “economic managers”. The 3 sector balance financial identity tells us that the govt. cannot deliver a surplus budget unless the private sector goes into debt (we always have a trade deficit anyway). Having got households to increase their ratio of debt to disposable income from around 30% to 150%, the “surpluses” were duly delivered, and put into the “future fund” (another scandal).

    The Future Fund scandal

    All this has caused the rise in house prices to depart from the rise in GDP by a huge amount, and this is a mini-GFC waiting to happen. Labor’s policies may allow a soft landing rather than a crash and should be welcomed. As usual, the real villains have long departed and still preen themselves as having done a “wonderful job”. Unfortunately, the neo-liberal myths about “bringing budgets into surplus” will take a long time to dislodge. They seem so believable, because we all know that household budgets need to be brought back into surplus, — but a macro-economy of a sovereign issuer of its own fiat currency is not a household. Read more here:

    Listening to past Treasurers is a dangerous past-time

  19. wam

    sorry justin this was an poor attempt to embarrass our resident supporter of the rabbott who has 7 houses paid for by renters and government assistance. Such blinkered pompous crap artists are annoying.
    To buy 7 houses must have involved debt.
    His debt in relation to his pay from ‘work hard’ must have been many times higher that labor’s debt to income ratio. Such personal house debts of 300-400% are NOT a crisis.
    Yet this twit accepted the rabbott’s use of debt crisis for gillard’s 30%. And even when the rabbott doubled the debt it was still labor’s fault. Even turnball has spent $10 billion, since he stabbed the rabbott, and there is billions to come, as he trys to con a second term.

    ps is it ‘clever’ to import 457s from overseas and fleece them? is it clever to leave the dumbest school leavers at the mercy of tertiary institutions and their persuasive adverts with $96000 debt on a signature?

  20. Cliff

    Maybe you would like to read this and the speech has to be tracked down. I would hear love hearMalcayman saying its a form of Tax Avoidance on a continuous loop

    Mr Eslake found that in August 2005 Mr Turnbull co-authored a paper where he wrote: “Australia’s rules on negative gearing are very generous compared to many other countries”.
    Then, in a speech to a conference co-sponsored by The Australian newspaper and the Melbourne Institute of Applied Economic and Social Research in September 2005, he described negative gearing as a form of ‘tax avoidance’.

  21. Neil Hogan

    TurnBullShit has also been calling Labor’s policies the policies of envy, no Malcontent, “Labor’s policies are policies for equality!!” but we don’t really expect someone who squirrels away money in tax havens to understand that!!

  22. Kaye Lee

    “The government’s dire warnings that rents will soar and property prices will crash if negative gearing and the capital gains tax discount are wound back are not supported by the facts, a Grattan Institute report has found.

    And the government’s claim that “mum and dad investors” were the biggest beneficiaries of current policy settings was also wrong, the paper said.

    In fact negative gearing largely benefited the wealthy, with the top 10% of income earners before rental deductions getting almost 50% of the tax benefits, contrary to claims by the government and Property Council, the paper found.

    The government could raise $5.3bn a year – with little effect on house prices or housing supply – if it reduced the excesses in the system, the paper argued.”

  23. denisc

    @Conservatives Rule
    Really? YOU supply 7 ‘magical’ properties that otherwise somehow wouldn’t exist?

  24. Terry2

    Geraldine Doogue shirtfronted Morrison on Negative Gearing this morning and, to my mind, he didn’t come through too well when confronted with the Grattan Institute report and the input from Deloitte Access Economics.

    This scare campaign is starting to fall apart !

    Scott Morrison backs Govt’s negative gearing policy amid claims the tax break has cost the budget billions

  25. eirik01

    So, CR you earn several thousand dollars a week and don’t pay much (or any) tax on it. Yes you are a clever parasite.

  26. Conservatives Rule

    Yes and it’s all done ever so legally .

  27. Möbius Ecko

    No Conservatives Rules you are not supplying housing for 20 people. You are denying them owning their own homes so they are forever stuck in the rent trap making you wealthier and keeping them poorer.

  28. Susan

    Liberals ….. Never let truth get in the way of a good story!

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