Negative gearing just became an election headache for the Coalition, but they’ve only got themselves to blame.
Back in July last year I made the following call:
Until last week I thought negative gearing was part of the furniture. Now I’m not so sure. It will survive this government. But the next? Suddenly it’s looking like its neck’s on the chopping block.
And now, with Labor’s announcement that they’re taking negative gearing reform to the election, it’s head really is going to be on the chopping block. It’s shaping as one of the key points of policy difference between team red-tie and team blue-tie.
As I wrote back then, you could get a sense that the mood was shifting in Australia. More and more people were taking shots at negative gearing.
… like the boffins at that hot-bed of Militant Marxism, the RBA.
As I noted back then, the RBA’s critique of negative gearing was totally off then-PM’s Abbott’s hymn sheet:
I imagine Abbott’s pissed. He doesn’t need the RBA dropping bombs like this. He doesn’t need the RBA’s economic credibility trampling all over his public statements. If this was China, someone at the RBA would be shot. Probably several people.
And it makes you wonder about Abbott’s relationship with his public service, or how long people think he’ll be sticking around. It’s not often you see the organs of government hang the PM out to dry like this.
I might go buy a lotto ticket.
Anyway, the point was that negative gearing was becoming increasingly isolated. Very few economists were willing to stick their neck out for it, and elements of the popular press were becoming openly hostile. Think Waleed Aly’s viral rant on The Project.
And so this gave Labor the cover they needed to make negative gearing an election issue. Where the people lead, our brave leaders will follow.
Here’s the key excerpt from Bill Shorten’s speech to the NSW ALP conference (my emphasis):
…if Labor wins the election, from July next year negative gearing would only be available on newly-constructed homes.
The changes under a Shorten government would not affect the tax arrangements for investment properties purchased before July 2017.
Under costings released from the Parliamentary Budget Office, the measures could save the budget $32.1 billion over 10 years once they come into force.
“We’re doing this because 30 years ago, houses cost around 3.2 times average income — today it’s 6.5 times average income,” Mr Shorten said.
“Labor will help level the playing field for first home buyers competing with investors and we will put the great Australian dream back within the reach of the working and middle-class Australians who have been priced out of the housing market for too long…
A Labor Government would also reduce capital gains discounts from 50 per cent to 25 per cent
“It cannot be rationally argued anything else but with a capital gains tax subsidy of 50 per cent, that the whole system is accessibly distorted and overly generous in favour of income from capital instead of income from earnings,” Mr Shorten said…
We will grandfather existing arrangements for those properties so that investors who have invested under the current tax law will not be disadvantaged by the change and a prospective change,” he said…
“Mum and dad investors who have a house or apartment that is negatively geared right now will keep the deductibility, but after 1 July 2017, negative gearing can only be accessed for new houses and to improve the efficiency and fairness of our tax system.”
Yep, that’s the leader of a major political party telling you that he wants to make your house worth less. (= more affordable.)
And he’s trying to right the wrongs faced by our poor battlers at the hands of greedy investors.
Sell it like a working class hero, Shorty.
But he does have the opportunity to sell it all the way to the next election, thanks to
… the Coalition.
The Coalition have only got themselves to blame for the wedge they’ve just found themselves in.
It all started with Hockey’s farewell / F’you speech last year, where he said it was time to review negative gearing.
… negative gearing should be skewed towards new housing so that there is an incentive to add to the housing stock rather than an incentive to speculate on existing property and we should never ever forget small business.”
Labor’s gone, “Thanks J-Ho. That’s a great idea.” Now their policy is for negative gearing to be restricted to new housing.
But Labor knew they had the cover they needed when the Coalition admitted that negative gearing was unfair. Well, not exactly. But they said they were looking to target high-end investors, by either capping the number of properties that can be geared, or limiting the annual amount that can be deducted.
But once they conceded that negative gearing was being used disproportionately by the wealthiest segments of the Australian population, (which actually is what the data says), then it’s open season on negative gearing. Now we’re just arguing about how we fix it.
Labor just has the boldest plan on the table. And in an era of budget emergencies, $32 billion goes a long way.
This will be a headache for Turnbull, and there will be pressure to match Labor here.
But either way, for negative gearing as we know it, its days are numbered.
What do you think?