Three cheers for Fairfax‘s Peter Martin:
There’s only one thing standing in the way of lower interest rates, and the Abbott government has just been handed a way to deal with it.
…Normally it’s fear of inflation that holds the Reserve Bank back from cutting interest rates, but not this time. Both price growth and wage growth are disturbingly low.
But not house price growth…The Reserve Bank is worried about reigniting what it regards as an unsustainable boom in house prices and pushing them to the point where they collapse and cause financial damage.
It’s the only thing standing in the way of it cutting rates.
…The report of the Murray financial system inquiry has another suggestion.
On Sunday it pointed its finger at the tax system. In its words: “The tax treatment of investor housing, in particular, tends to encourage leveraged and speculative investment in housing”.
…The Murray inquiry isn’t prescriptive. It wants capital gains tax and negative gearing investigated by the tax inquiry Abbott is expected to announce this week.
Abbott could give the Reserve Bank cover by announcing at the same time as the tax inquiry that he is inclined to act against negative gearing. He could say that when the new rules are decided on they will apply from December 2014, deflating the housing market straight away and making it easy for the Bank to push down rates.
It would help the Bank help him, and quite possibly allow much lower interest rates. And it would rake in more tax as well.
Hear, hear!
