Most “independent modelling” is nothing but hired fluff and puff. Geez. Who can you trust these days?
More dramas for the government last week, as tried to keep its scare campaign around negative gearing upright, (even though half of its voters actually support some level of reform).
Anyway, if you listen to the various Coalition mouth pieces, Labor’s policy seems to be about to warp space-time itself, both hammering house prices and sending house prices through the roof.
What kind of monstrous policy would increase and decrease house prices at the same time?
But things got awkward when Morrison tabled some “independent modelling” from BIS Shrapnel that he said showed that Labor’s policy would lead to a spike in rents, a collapse in construction and a $19 billion dollar hit to the economy.
But then BIS Shrapnel came out and said that actually, the report was written last year and has nothing to do with the particulars of Labor’s policy. I guess they’re still hoping for some Labor work down the track.
Awkward.
And then the numbers in the report turn out to be a tad ridiculous.
As Grattan Institutue CEO John Daley writes:
“The report claims that removing negative gearing for existing (but not new) properties would shrink cumulative GDP by up $190 billion over ten years.
All tax increases drag somewhat on economic growth, but some have less of an economic effect than others. Treasury estimates that the loss of economic activity from every dollar of tax collected ranges from almost nothing, for broad-based land taxes, to 50 cents for company tax and more than 70 cents for residential stamp duties (the most inefficient taxes).
The consultancy’s report suggests that the annual increase in tax collections from the change to negative gearing would be $2.1 billion. The $19 billion hit to GDP would make the loss of economic activity from each additional dollar of tax collected more than $9. That’s right, more than ten times the economic harm of stamp duty, almost universally accepted among economists as the most economically damaging tax….”
Spot on. If ever there was a stupid tax, it is stamp duties. But to argue that negative gearing reform is ten times worse is a bit OTT.
Awkward.
But the real hoo-ha comes because no one knows who commissioned the report. BIS says it was written for a private client, but refuses to tell us who.
Was it one of the property or developer lobbies? Was it the Liberal party themselves? Was it some concerned philanthropist hoping to further the objective pursuit of truth?
Everyone wants to know who and BIS isn’t saying.
And that probably means that is was commissioned by some heavily vested interest. If it wasn’t, what harm in saying?
Awkward.
And here is another great lie in the foundations of democracy: That there is such a thing as “independent modelling”.
It’s right there alongside the idea that corporate donations to political parties don’t corrupt the democratic process.
The only way that both of these things can be true is if money doesn’t mean what we think it means – if we imagine that people aren’t motivated by money.
I consider myself a money expert. I have a lot of it. We’re intimate. And I can tell you, money is very motivating.
So we have this idea that some vested interest comes to an economic consultancy and says, I want you to look at this topic, I’m going to give you a lot of money to do it BUT, I’ll be totally happy with whatever results you find, even if they’re not the results I want, because I’m only interested in the truth.
It’s ridiculous right? And it’s just not how the world works. When reports are commissioned, the conclusions are almost pre-written. Maybe the numbers change a bit.
“I want a big number. Something in the billions.”
“$25 billion?”
“ooh, maybe that’s pushing it a bit…”
“How about $19 billion?”
“Yes. Let’s go with that. Here’s $50,000.”
You stop and look at it for a second and of course it’s ridiculous. Of course it’s a total scam. Nothing but fluff and puff.
But still, the media reports “independent modelling” as some sort of fact, and not as the whiny bleating of gassy vested interests that it is.
Same story with the Trans-Pacific Partnership (TPP). The government is trying to rush it through parliament, and refuses to let it be reviewed by an independent panel, and prefers to take the word of paid ‘consultants’.
It’s not like there’s a rush. We have two years to get it through parliament. And it’s not like there isn’t an independent body just ready and raring to go. This is exactly what the Productivity Commission was designed to do.
But the government doesn’t want to let them look at it because they’re afraid of what they’ll find. There’s 6,000 pages, 30 chapters, much of it written by American Pharmaceutical and Ag companies.
AND it opens the way to foreign companies suing the Australian government if they don’t like what we’re doing.
The risks are huge, but we don’t want to trouble the PC with it? Give them a quick flick through?
Rubbish.
Economic consultants just take the bullshit that even politicians are too modest to put their name on, dress it up in a glossy report, and ram it into the democratic process.
The sooner we clear all the lobbyists and ‘independent consultants’ out of Canberra the better.
Indy says
Hallelujah. Great again Jon. No wonder the media is rattled by you.
Antichrist says
he he..the hypocrisy here is great Jon. A self interested spruiker who continually draws upon dodgy “independent modelling ” in attempts to further his interests and paint glossy pictures of your perceived ideal, thru a dodgy self obsessed blog followed mostly by sycophants, whilst bragging about his wealth in a crass attempt to garnish legitimacy…(“i have lots of it”) aka your hero donald trumpet, …(im “successful cause im rich” therefore i must be right…right!) strikes a blow for democracy and fair play!
Jon Giaan says
i like to think of it as a blog for free-thinkers like you anto. i’m always saying you’ve got to question authority, even mine (which I’m the first to admit is limited to making money through property investment. never pretended otherwise.) If you feel this way about it why are your reading though? Is it for my lyrical and poetic writing style? i do write words nice. 😉
Antichrist says
I suppose the obligation of a free thinker is to cover the bases and expose themselves to contrary opinions. To be open to different takes on issues and to try to see (if perhaps not appreciate) different angles on issues; to keep ones ears and eyes open..With that also perhaps comes the obligation to call a spade a spade if one perceives that as necessary. I am rich in time, and try to invest that not in the pursuit of capitalist ideals, but instead to enrich my and others futures through broadening knowledge and understanding. This is what i believe. The freedom we have Jon obliges us to try to move this planet forward …to work for the betterment of others. I just felt, in this case, you needed to be pulled up a tad for your hypocritical post. Now, i dont know how your idolatry of Trump falls within your stated ambit of this “making money thru property investment” blog, but its a pretty long bow to draw. And also must surely be questioned. In all fairness Jon, i am subscribed to numerous blogs and informative websites, and at times i enjoy your take on things, and appreciate you taking the time to express yourself. Good on you. The flip side of publishing is being open to, and the ability to take criticism , which is never easy i suppose, but can if taken in the right light, help us develop as good human beings. Look, it aint the sycophants who help us grow dont ya think! and anyhow..i love to read Rons take on things!. His tin foil hat is getting thicker than mine every week!
Simon says
you didn’t ask him to say exactly what he disagrees with, or even better, what should be done differently
I disagree with making money from property when artificial shortages cause homelessness, I’ve got no problem with people selling bottled water, because the poor can have as much water as they want, but there’s no bottom end of the market for housing, where there’s no money to be made, but plenty of room for those in poor manufacturing jobs to live, then make money from making nice houses for overpaid public servants
Tara Tate says
https://knowledgesource.com.au/economic-consultants-are-full-of-bullst/#fromemail
Jon Giaan says
that’s exactly what I’m saying.
Tara Tate says
Apart from your completely mystifying appreciation of that appalling misogynistic racist Donald Trump, I generally enjoy and agree with your comments Jon. It is a relief to see someone finally call the TPP out for what it is – a massive giveaway to multi national companies – trading our water and air protections, affordable medicines and Australian jobs and industries for more obscene profits for companies who are hard pressed to pay any taxes in this country. Seriously, do the people with ridiculous amounts of money (and that includes you too apparently Jon) and their bought and paid for politicians have another planet to move after they have finished trashing this one in pursuit of the God of money and free market capitalism? I love to make a quid through clever investing but not at the expense of my children’s future. I hope more people like you with a voice will continue to expose the TPP for the monstrosity that it is.
Jon Giaan says
i get the feeling its getting harder to pull these cons off, and that’s giving me hope that our grandkids won’t end up scrawling nasty graffiti on our graves.
Kathy says
Tara, I agree with you, except on one small tiny matter and it is that we no longer operate under a free market capitalistic system and haven’t for a long time.
We are now operating under a crony capitalistic system, where the insiders, those in the know, those with the most connections, those with the biggest lobby groups, those who make the largest donations to political parties and mostly, those with vested interests, are the winners and beneficiaries of the system.
That’s why the TPP will be an absolute disaster for most ordinary people, but will benefit just a few on the inside.
It’s why the Council elections here in Brisbane is exposing so much corruption and graft at the highest levels, which is not by any means restricted to Brisbane City Council by any stretch of the imagination.
Richard Miller says
Okay, so here’s what were being told….negative hearing on all-but new builds will soon disappear from the tax system for newly purchased investments. We’re told this will assist in retaining tax revenue and will not harm house prices or the economy…..all generally tod to us by people who are fortunate enough to have positively geared investments which are off-set elsewhere by a loss making investment.
So, for those of us who aren’t in this very fortunate situation we are left with new builds as our only viable bricks & mortar investment…..yes that’s the same new builds that currently sit vacant or the same new builds that are being sold 10’s of thousands below cost as they are no longer valued at what their predicted value was supposed to be!
So as an investor in a new build you will have all the cudos of helping pay for a re-badged stimulus package (remember the gfc?….overpriced building projects just to create employment.), however your genorisity will have left you with an asset you can’t sell (not without suffering a huge financial loss) and can only rent at market rate WITHOUT negative gearing to assist you in absorbing the loss.
In the short term this won’t be a problem. As time progresses and more and more people sell their investments at a loss 2 things will happen…..firstly the requirement for new builds will cease or substantially slow as new & existing properties flood the market. Secondly as supply increases the cost of housing will decrease…..not just the houses with “for sale” signs planted in their front yards…..every single home! The equity you currently have in you home will gradually be eroded, your borrowing power will gradually decrease…..as time marches on you may soon find you owe more than your house is worth!
Okay, it will be very embarrassing for the Government but that’s about all! There will be no compensation, no restitution…..after all the Government will have looked after their own interests, the burden on public housing will have decreased as more and more renters take advantage of your loss, the pressures on the Government to address housing affordability will be gone, billions will have been retained rather than paid to the very people who currently make SFA on their investments.
My question over this whole discussion is this….the principle of negative gearing relates directly to the fact that interest and other expenses associated with operating an investment property are expenses associated with operating a business / generating an income….abolish negative gearing for investment properties then what?…..work related travel? Tools of the trade? PPE? Vehicles?…..the list goes on and on! Don’t let the government get their foot in the door…..once they do the door is open for all sorts of unpleasant tax reforms…..
If Governments want to make savings there are plenty of other places they should look. Maybe it’s time we, as the silent majority, told the Government how to run this country!
Simon says
there’s people in an even less fortunate situation of not being able to afford housing,
instead of playing pyramid schemes with a life essential, how about opening a business that employs people as a wealth vehicle, it’s a bit hard, because 350 to 400 / week of the wages you pay need to go straight to rent, whereas in asia, you can rent a really nice house for 150 / month,
the wealth of a country is tied to it’s manufacturing, that’s why little england ruled the world, that’s why china is going from dirt floors to gold plated, if you play pyramid schemes with housing, you wipe out manufacturing,
Richard Miller says
Simon, it makes no sense to compare rent in Asia with rent in Australia…..not without comparing comparative income. Rent in Australia as a percentage of income is near identical per sq. metre of living space….the fact we earn more and want to live in bigger homes may make the prospect of living in Asia seem very attractive but the truth is you would be no better off.
The fact is that housing purchase prices are too high in Australia. It makes it very hard for new home owners to enter the market, it makes it very expensive to invest in the market…..but implementing strategies to make housing more affordable quite literally means reducing house values…..so 95% of the population have to suffer so that 5% can buy a cheap house! And believe me “suffer” is what we will do…..the houses many of us have bought and paid for many times over will soon be worth less and less, mortgages will eclipse house values, investment properties will be the first to flood the market, followed by family homes as people ditch their overpriced houses in an effort to shield themselves against future losses….,sure a few people will pick up some really cheap houses but for the majority of people it will be a very painful experience.
In reality house prices shouldn’t matter….you buy & sell in the same market, but if you owe money on that / those houses the cost of housing matters a great deal. Owe more than the collective worth of your house / houses and that’s the end of any future credit!
Yes, there’s so much more to this discussion than can be covered in a simplistic blog! It would take hundreds of pages to fully dissect the full impact of abolishing negative gearing.
Simon says
Hi Richard, you’re totally missing the point, If you manufacture in australia, you have to pay wages that will allow people to live in australia, then this cost goes on top of your running costs, and off your profits, and if that housing cost is high, then there isn’t any profits, or manufacturing businesses
America used to be the richest country in the world because 25% of it’s workforce made things of value, manufacturing, now it’s 5%, and america is losing it’s middle class,
If australia had strong manufacturing, we wouldn’t have to sell all of our minerals to china to pay our bills, and debate which of our other assets we should pawn to pay our bills
I’m completely fine with houses in australia staying the same or doubling in price, as long as some cheap land somewhere is released at a price where people can afford to house themselves and manufacturing workers,
somewhere with transport and utilities
Richard Miller says
Sorry Simon I’m not missing the point, I’m just not going to waste my time stating & re-hashing the most obvious & simplistic facts! You’re dead right that it’s expensive to do business in Australia…..the cost of manufacturing here is linked directly to the cost of living! Unfortunately that’s what we’re stuck with! Lowering the cost of living is a far bigger issue…..if you come up with a plan to do that you will also need to realise that employers will then argue for a reduction in wages…..which might make us more competitive in a global market but try convincing Australian workers of that!
One of the other problems here is that Australia has a local economy which dictates price for goods manufactured overseas….consider this as an example….in 2011 I considered purchasing a new Toyota 4wd. At the time the vehicle hadn’t been released here so I was directed to the U.S. Toyota website for additional information. On the U.S. Website I found all the information I desired as well as the RRP in the U.S. If US$24,000. At the time our $ was worth US$1.10 so it would be fair to assume the Australian consumer would be in a position to enjoy a new 4wd for around $22k! When the vehicle was released here it had a RRP of just shy of $50k plus on road costs. So in that price there was GST and then somewhere around $20k of profit to Toyota Australia!
Just look on sites like EBay and you’ll find thousands of examples of these inflated Australian prices on everything from electronics to cars. Australian retailers tell us it’s the cost of doing business in Australia because of high wages…..seriously….do Toyota expect me to believe that it costs them $20,000 to sell me a car in Australia? Do electrical retailers expect me to believe it costs them $350 more to sell a TV in Australa as it does in America? The fact is that here in Australia goods aren’t priced based on a cost + expenses + modest profit basis, they’re priced through market research of what we will pay! It is practices like this that drive our cost of living up. If you don’t believe me I’ll refer back to the Toyota….at the time Holden were selling their Commodores for about 40k for a base model…..this is what it was costing them to make, transport & sell…..so why would Toyota sell a better equipped vehicle for less than that…..the market here dictated that the vehicle should be priced much higher!….and so the cost of goods drive the cost of living and in doing so drove up the cost of doing business here!
So feel free to find a solution….the fact is that we can manufacture here but at a higher cost which in-turn opens the door to price hikes on cheaper imported item to match the locally produced items.
In closing, this is a hugely complicated issue which cannot be isolated to cost of rent, cost of housing, cost of living, interest rates or any one economic factor.
Richard Miller says
Simon…..cheap land? So you would have low income earners restricted to one area!
I know that’s not what you’re saying but you can’t have different prices for different people…..that’s where governments should be implementing more effective strategies to make home ownership more affordable for low income earners (why can’t low income earners salary sacrifice their mortgage repayments?)…..
Cheap land isn’t a viable solution but there are so many unexplored possibilities that just may be!
ZB says
Yeh Simon, sorry but Richard is right. You cant go and compare Australia with Asia given that we have different levels of income. From what I understand we usually earn about 8 or 10 times as much here, and cost of food and housing is likewise on par with income. In that light $150/month actually puts them on par with us as using about the same % of net income.
Simon says
He’s totally, completely and utterly wrong, he’s right for a wage earner, he’s wrong for running a business, my post was about running a business and being able to afford to pay wages,
I make motorbike parts, china sells similar products for about my material cost, I looked at setting up in malaysia, but found they wanted 100G in the bank before I reg my biz, while I was checking the place out, I found I could send a large box if fairings from malaysia to melbourne for $50, or any part of australia, then I sold the box to a sydney customer, and paid over $100 to send it sydney, from malaysia, I can send to tassie, NT, back of Bourke, for $50,
So not only are my costs a 1/4 to 1/ 10th as much, my housing a tenth as much, my workers a tenth as much, but even freight to my australian customers is a fraction of what I pay here
Kathy says
Richard, first of all, housing is a non productive consumption item. When did it turn from being a place that provides shelter to being a purely investment class? We here in Australia, and also in some other parts of the world speculate and gamble on real estate capital gains, thanks to the huge availability of credit, instead of concentrating on a return on investment in the form of yield.
Shouldn’t an “asset” by its very nature, be something that contributes money to you, not costs you money? Why is it a good idea to spend $1 to make, at best, 40 cents, or more likely 30 cents? Because the asset MIGHT go up?
Australia has one of the most, if not the most, generous negative gearing tax benefits in the world. We are able to make a claim for losses made on property investment on ALL our income, not just those made by the “asset”, and for a negatively geared property, I use that term extremely loosely.
Contrary to your assertion, this little trick is NOT available for business owners, the real economic drivers of the land, the real employers of people and where real productivity exists. Nor is it available for those who borrow to invest in the stock market either. Losses are only claimed against the income made by the business or by the share portfolio, and not any other income.
Quite frankly, if you want to buy property on the hope that you will make money through capital gain, then call it what it really is. Speculating. Gambling. The BHP (buy, hold and pray) strategy. But don’t call it investing, and then bleat about how you’ll be ruined if the enormously overly generous tax breaks are reined in a little for what is essentially a small section of the population.
Bear in mind that negative gearing’s primary purpose was to create more housing to overcome the supposed housing shortage. But most “investors”, a full 96% in fact according to some statistics, buy existing properties. So it’s not even being used for it’s purported intended purpose.
If all this does is make housing more affordable for all Australians, then that to me is a good thing, and I say this as a property investor, share holder and small business owner. Right now this policy exceedingly favours the rent seekers and not the average person.
Richard Miller says
Kathy, I don’t disagree with your comments but you seem to be missing the point….investors ARE gambling on capital gains….for the most part people who have invested in real estate don’t make any income (if we did negative gearing wouldn’t be a topic of conversation would it!)….negative gearing simply makes an otherwise unaffordable long term investment more affordable. Consider this….25% of my mortgage in an investment property is already paid by me, 25% through negative gearing and 50% through rental income. Abolish negative gearing and I’m faced with either putting in another 25% or having the tenant do so by means of rental increases…..in the pursuit of a capital gains payout 20 years from now!
So, assuming I make a sound business decision and pass the cost on to the tenant…..the cost of private rental increases, and inevitably the reliance on public housing increases.
Consider also the fact that many property investors (me included) haven’t invested in real estate to get rich along the way, or to make huge capital gains at the end. Instead many of us recognise that as working Australians we will need to be self-funded as existing pensions and entitlements are phased out. Failure to do so now just means that I will become a burden on the tax-payer! So my strategy, rightly or wrongly, has been to invest in real estate, a decision made with negative gearing as a fundamental determining factor.
The one thing I do disagree with is your comments regarding the broader concept of negative gearing….if you think for a moment it doesn’t apply to other forms of “income creation” think again. Every business, from your sole tradesman, to the big end of town off-sets income with expenditure to limit their “profit” as it is the profit on which they pay tax. So a tradesman can claim vehicle expenses, tools, safety gear, etc. as work related expenses but I can’t claim the interest on a loan, insurance costs, water and council rates, repairs, improvements and so on? That makes no sense at all…..
Maybe if I was to start a business named Richards Investment Properties it would make it seem more like a “real” business for you and you’d allow me the same rights as any other small business!
I certainly think there is some room for negotiation when it comes to negative gearing but the actual costs of operating an investment property should be non-negotiable. If you want to see something abolished have a look at some of the related expenses that can be claimed….things like “special building write-off” which is a deductible expense identical depreciation! So investors get to claim “depreciation” on property holdings that are actually appreciating! That’s where the situation gets completely ludicrous! Maybe something like that would be a better starting point! It’s not money that’s been paid out of anyone’s pocket…..its jus a bonus that is ridiculous to continue paying.
ron says
good article jon….i cannot imagine the damage ‘big pharma’ and monsanto are doing everywhere in the world. its a super conspiracy by them both to control mankind through ‘food production’ (shit for food..pardon me) and pill popping for side effects so powerful you won’t know where you are or why you are here. i have seem many people on these pills epidemics..its a nightmare. and lobbyists and consultants seemingly are swimming around parliament houses like drugged up pirhanas. i have spoken to many people who have been in public service etc. the appalling stories told..well its just so frustrating..re government, at all levels. we need smaller government by about 80 % conservatively. they don’t produce anything ..except debt and more debt. the private sector doesn’t need a lot of supervision..just get on with the job please. of course there a/holes in the private sector..but government won’t stop them being a/holes.
Colin Glover says
Self interest will always win out the day. We are seeing it being played out right at this moment in the coal industry. Black lung disease has raised its head again after being “cured” and relegated to being monitored by the self interest group – the mine owners. Like all good capitalist when profits get thin they look to the easy low hanging fruit to cut costs. Let the lethal dust levels rise, save money, no body will know because we are the monitors and nobody is checking the lung X-rays for evidence.
Then theres the CAN do company – what a history of monitoring with self interest at its heart.
Tom says
The REAL ‘Powers-That-Be’ in Canberra must be having soiled undies, after 4-Corners exposed yet more malfeasance in the Aussie finance industry.
Just imagine – “ALP promise a Finance Industry Royal Commission, to complement Abbott’s vindictive political witch-hunt!!!”
What a lovely headline. Such a move would have a lot more public support. Nearly everybody is suffering or adversely affected by the blatant daylight robbery. How, in the name of blazes, can they justify 20%+ interest rates on borrowings, when their cost of money is almost zero? They can rob us with impunity. It is one thing to make a warranted business profit. It is another entirely, to rip people off!!!
Where are the Public Servants tasked with keeping an eye on the industry? Corrupt or incompetent???
Or is the industry ‘Self-regulated’?
Kathy says
If any economic recommendation is put out by BIS Crapnel, then you’ll be fairly safe by doing the opposite of whatever they are suggesting or recommending.