So tonight is budget night.
That special night of the year where families huddle together against the chilly autumn air, put on some popcorn or some hot chocolate, and laugh the night away to the sweet sounds of a treasurer explaining how he managed to cock things up in such an epic way, and what he’s going to do about it.
My bet is that Wayne Swan must feel like he’s living through hell right now.
It started on the weekend with a horror interview with the grand old Gandalf of Australian media, Laurie Oakes. It started badly, and ended with Swanny bent over the fence and copping a right old kicking.
Gandalf: “Would you agree that last year’s budget makes for hilarious reading? Why would people believe you after that fiasco?”
Gandalf: “Do you believe, as Greg Combet does, that Labor should be confident of winning the election?”
Froddo: “I believe that.”
Gandalf: “What’s he been smoking? Have you been smoking the same thing?”
We could maybe put some of Gandalf’s merry antics down to being a bit long in the tooth, or being only a few more live crosses away from retirement. But it also reflects a widely held view in the media that there’s no way in the wide universe that Swan will still be treasurer come September, and so we can ditch the niceties and have a bit of fun.
And so that’s the alligator pit that Swanny will be lobbing his budget into tonight.
Even if his budget was a cracker – the best in a generation – he knows that he’ll be on a hiding to nothing. The media is going to tear him to pieces.
Thing is though, the budget is probably an absolute stinker.
Labor’s been trying to manage expectations lately, getting people used to the idea that they’ve somehow misplaced a mountain of money. First it was $12 billion. Then it was $17 billion. There’s even talk of a $22 billion black hole.
What is this, Price is Right?
There’s been a colossal collapse in revenues. That’s the official line. The truth of it is that the revenue predictions from last year’s hilarious budget were wildly optimistic.
It was a tax big, spend big budget.
The spend big happened. The tax big didn’t.
And so now Swanny and co are desperately trying to cut back on spending areas that won’t make people riot, let alone unhappy, in an election year, and sucking every last drop out of the tax system that they can.
And this has made a few people in the property industry nervous. There’s been chatter lately that a review of negative gearing might be on the cards.
To point, on the 9th of May, the Real Estate Institute of Australia even issued a press release warning Swanny to keep his hands off negative gearing, so things must be getting serious.
Swanny wouldn’t be the first treasurer to cast an envious eye over negative gearing. Check out these facts:
According to the latest ATO publication, negative gearing was worth a cool $13.2 billion in 2010-11.
That’d put a fair dent in the deficit.
Apparently 1 in 10 Australian tax-payers are negatively geared, with negative gearers losing $10,947 on average in 2010-11. That’s a lot of people and a lot of money.
And it’s not some rich man’s tax dodge either. 72 percent of negative gearers earn less than $80,000 a year.
And so it’s this pervasiveness that protects negative gearing. If it was just a loop hole for high-income earners, it’d be easy to muster the support needed to shut it down.
But it’s not. It’s mum’s and dads and aussie battlers in Labor heartlands – just doing what they can to get ahead.
If you ask me, the real value of negative gearing was that it turned Australia into a nation of investors, and made a generation of Australians get proactive about their own wealth-creation plans.
But those investors would feel pretty gypped if the negative gearing rug was pulled out from under them now – especially when there’s such a widely held perception (probably true) that the richer you are, the more tax-dodges you have available to you.
Why crack down on the mums and dads who are just doing what they can and playing by the rules?
Trouble is though, apart from encouraging people into property investment, which I say is a good thing, negative gearing doesn’t do that much, and it’s difficult to avoid the charge that it’s just dressed-up middle-class welfare.
(Note that this is on Joe Hockey’s hit list. Maybe it’s the Liberals who are gunning for it..?)
Tin reply, the argument that gets trotted out is that negative gearing encourages investors to increase housing supply, which keeps rents down, especially for low-income earners.
This would be true if investors only bought new houses. But for the past twenty years, around 90 percent of investors have only bought existing houses, so the pressure is on price, not on supply.
And apologists like REIA like to remind us how the Hawke government removed negative gearing in July 1985, and investors “went on strike” and rents soared.
The government got so scared that they brought it back in September 1987.
But there’s a bit of myth-making happening here. It is true that rents did rise, and in a big way in some cities like Sydney and Perth. However, between those two years, while rents rose in four capitals, they fell in the other four. Nationally rents increased 2.7 percent per annum, which is about normal.
So it’s a long bow to draw to say that investors went on strike and “rents soared”.
You should be. This is exactly the trouble – negative gearing is widely misunderstood. Arguments for and against are being made based on cherry-picked statistics, one shoe does not fit all.
I don’t think that any changes to negative gearing would have that much impact in and of themselves. But the potential hit to confidence, just as people are finally waking up to the fact that there’s no bogeyman under the bed, could be catastrophic.
It would be an incredibly reckless and dangerous move.
And to avoid giving people a fatal dose of the heebie-jeebies, you’d need an incredibly effective information campaign, with a supportive media industry backing you up.
Which, is exactly what Swanny doesn’t have.
So sorry Swanny. Forget it. Negative gearing’s off the cards. What else have you got?
We’ll find out tonight.