Share on Facebook Share on Twitter Share on Reddit + - Kochie backs negative gearing reform By Unconventional Economist in Australian Property, Featured Articleat 8:38 am on February 17, 2016 | 80 comments Watch Sunrise host David Koch and guest SQM Research’s Louis Christopher fight the good fight today on negative gearing. Good work boys! Share on Facebook Share on Twitter Share on Reddit + - YOU MAY ALSO BE INTERESTED IN CBA completes rate hike quartetFrom CBA: Commonwealth Bank has today announced ANZ joins stampede to hike rates on specufestorsFrom ANZ: Principal and interest owner-occupier Pascometer screams sell Sydney propertyWeeo, weeoo, weeoo, from the Pascometer Joye: The RBA must hikeFrom Chris Joye: The once market-orientated RBA Comments Stephen February 17, 2016 at 8:40 am Glad that Bimbo Armytsge kept her tits out of it – chicks and Sheila’s know nothing about economics… flawse February 17, 2016 at 8:46 am Mate you better watch out for that chick that was on TV last night crushing a melon between her ethighs – she’ll add you to her list!!! 🙂 GeorgeMEMBER February 17, 2016 at 8:57 am Didn’t get one last night? The Claw February 17, 2016 at 10:20 am chicks and Sheila’s know nothing about economics What! That one with Richie Benaud’s hair knows her way around the economic machinery. She might not crush melons like in Flawses DVD, but she sure has crushed interest rates in her part of the world. BubbleyMEMBER February 17, 2016 at 11:24 am . BubbleyMEMBER February 17, 2016 at 11:25 am Well done Stephen, you have proved you’re an idiot in one sentence. billygoat February 17, 2016 at 11:39 am @stephen. Wow! At 47 I’m 30 years past being offended by tone & inference (maybe you need a strong man to pick you up off the floor after hearing a female use ‘big’ words) of your comment. Maybe you should consider the notion that you attract what you put out. For eg: ignorance. Good luck with the ladies. Maybe you’ll drown in std (transmitted debt) if you can’t see past titties!! Just wow! Stephen February 17, 2016 at 12:13 pm You are probably right Billygoat…I had hoped my comment crass enough to be recognised as irony. I can do worse… Tassie TomMEMBER February 17, 2016 at 6:42 pm @ Stephen – now that you put it that way – it’s actually quite funny. A paraphrase of instructions from Channel 7 management to the Sunrise directors. flawse February 17, 2016 at 8:45 am Kochie!!!! That’s a biggie I reckon!!!! ‘Christopher – “Path of least resistance” Kidding right? The whole RE/builing industry is a sacred bloody cow. But blimey what a good interview! Janet February 17, 2016 at 8:49 am There’s going to be blood spilled at many a BBQ this weekend! Those previously intimidated into staying quiet,(“Don’t upset people, dear”) are going to let rip….. Andy! February 17, 2016 at 9:39 am lol this has been years of build up… Tassie TomMEMBER February 17, 2016 at 10:24 am The thought of that made me giggle. alex February 17, 2016 at 8:49 am An epic moment when the ancient myths are exploded and a new truth enters the mainstream media. The added bonus was an excellent campaign line “why should I, would doesn’t negatively gear, support the politicians (with 500 properties) who do?”! Fantastic. footsoreMEMBER February 17, 2016 at 9:01 am That is definitely the best way to get the punters worked up. BubbleyMEMBER February 17, 2016 at 11:29 am Kochie is well respected by the majority for his economic opinions. The punters listen to him. He will have more impact than a hundred politicians and economists backed up by graphs and info panels. We need this guy. flawse February 17, 2016 at 11:35 am Exactly!!! popularly…If he isn’t a game changer he sure throws a lot of weight into the ruck! (Hm Rugby 🙂 ) alex February 17, 2016 at 1:01 pm Kochie the Conduit! doctorX February 17, 2016 at 8:53 am you know that you live in a failed state when important policies are decided in morning reality shows Pfh007MEMBER February 17, 2016 at 8:55 am Failed states don’t have Breakfast TV ! doctorX February 17, 2016 at 9:37 am really, I think Breakfast TV is a symptom of a failed state flawse February 17, 2016 at 11:38 am Dunno about failed state – but failed society. Actually my memory tewlls me Kochie entered the Breakfast Show arena as a serious (well Australian serious) financial show. They had to shift its emphasis to the latest from Hollwood but even so I think in the populace he carries weight! Tassie TomMEMBER February 17, 2016 at 6:46 pm If it wasn’t for Sunrise, Rudd never would have become opposition leader and then Prime Minister and Hockey would have never (almost) been opposition leader and eventually national treasurer. Kochie is a kingmaker – make no mistake. Houses and HolesMEMBER February 17, 2016 at 8:57 am Bloody unreal. [email protected]MEMBER February 17, 2016 at 9:38 am just remembering 5 or 6 yrs ago at some Gold Coast gabfest that Kochie and Pascoe bagged NG hard. Nice that Kochie is consistent. GavinMEMBER February 17, 2016 at 12:24 pm He seemed very concerned about the get rich quick property scheme’s like Nathan Birch’s here. https://www.youtube.com/watch?v=MFHtE_lgBds ResearchtimeMEMBER February 17, 2016 at 9:41 am A bit of dishonesty on all sides, on all persuasions. UE claims that the brief bit in the 1980’s proved that dropping NG had no impact on rents, and lets be honest, that is complete fiction. We just don’t know because there were boom times in several states (e.g. WA) and a depression in at least one other (i.e. Vic) – and the time was brief the effect un-measurable. But likewise, to suggest that getting rid of NG alone will massively impact the rental market and will be a tax boon for the government is also a complete fiction. By definition, of course if you are wealthy, the more likely you are to invest (i wonder who is the guy with 40?). The problem is now its not the rich who now own houses, but the average Mum’s and Dads who are about to be crushed because of a asset valuation bubble. Truth is no body really knows. Best thing is kill NG, and see what happens. I have my suspicions, that like a lot of lies and porkies being told about the effects, there will be a bit of truth also. In some scenarios it may set off a rental investment crash, especially among the most leveraged, and maybe rents do have to increase to match a minimum investment criteria, because they are probably too low at present. But equally, in a deflation event, rents could fall and a lot of houses become vacant as people lose their jobs and move in with family. Who Knows? The discussion is too biased, superficial. Just do it already – and lets find out. PS – if you do the numbers NG benefit is marginal at best anyway. So to think just keeping it for new builds will not solve new supply issues IMHO. Ask yourself the question, would you buy Surrey Hills Sydney with no NG, or the Ponds with NG – which will appreciate more! Exactly… AlexD February 17, 2016 at 10:28 am I find your ambiguous stance on such issues suspicious RT. Your love of Howard has rendered you deeply conflicted. ”In some scenarios it may set off a rental investment crash..” In that scenario the slack is picked up by buyers looking for a place to live (and as such less renters). We need policies to stimulate supply of new dwellings which was the original intent of NG but, it has clearly failed at that. If it is kept for new builds only you’ll probably see prices come down (particularly if CGT concessions are also axed) and yes there will be some pain for some. It’s probably pain we’re long overdue for I might add. If you’re simply screwing future generations over and your own long term future for some short term gratification, then you probably deserve everything you get. Some hard life lessons are long overdue. ”A bit of dishonesty on all sides, on all persuasions. UE claims that the brief bit in the 1980’s proved that dropping NG had no impact on rents, and lets be honest, that is complete fiction………..blah blah….. Who Knows? The discussion is too biased, superficial.” LOL. Lets be honest, UEs position on NG is well documented, far more data driven and far less “superficial” than yours. ResearchtimeMEMBER February 17, 2016 at 11:36 am I am not really fussed on NG either way, I don’t think it wise to make operating losses – it only makes sense only if there are big capital gains to be made in the interim. And that is clearly not the case anymore. hence the video above by Koche was total twaddle. I respect this blog enough to point out errors. UE is clearly in error as is everyone else who uses that example. Its fiction. The concept that if you don’t rent you buy is so base and unrealistic – its something reserved for university lecturers who typically have no idea about the markets they profess to be experts in. Stupid assumption like that as a foundation invalidate any conclusion they reach – in any case does not match actuals, mobility and alternates. Its the nuances that are critical, and has larger affect as one goes to second, third order derivatives over time. I say drop it, give it five years and see what happens. It could provoke a housing and banking crash – who knows? People in the future may blame NG, but I reckon it would be the straw that broke the camels back. The tide has turned… maybe we could make some clover on it? Lets hope so… flawse February 17, 2016 at 11:44 am Rt Thanks for your thoughts. You have a presumption that we CAN go on this way! From a macro viewpoint we CANNOT and MUST NOT go on this way. Artificial contrivances that favour investment in non-productive processes has to go – and building houses to meet the demands of the population ponzi is not a productive activity. NG has to go – but I agree with you – get rid of it on everything! Note the4 anti GST debate was falsely framed. Treasury finding that it would not help with teh economy was just a disgrace – by what criteria???? GDP??? FFS! Budgetary savings – get rid of Treasury! BubbleyMEMBER February 17, 2016 at 11:55 am “UE claims that the brief bit in the 1980’s proved that dropping NG had no impact on rents, and lets be honest, that is complete fiction.” RT, I know you have seen the charts. You have the proof so I dont understand why you would say something so obviously wrong. ResearchtimeMEMBER February 17, 2016 at 11:56 am Look – its just the way I think – but I am 100% certain NG will stay (as per previous reasons stated). In the advent of a housing crash, your not going to throw more petrol on a burring fire. I only suggest (politely) that you have to look at third, fourth, fifth (if possible) order effects. I have seen a housing crash – I know what happens and what to look for. 99.999% in Oz haven’t, and lets be brutally honest, we haven’t had a national housing crash ever in this country. Not once!! So the concept of actually have one and understanding where to assign those costs are totally and utterly foreign concept. But there will be massive costs – and they will be socialised, the only question you should be asking is where do you assign them? And how much? PS – Bubbly, are you nuts? The charts merely show nothing other than dominant economic conditions in that particular state at that time! Nothing more. Hence some were up and some down. Context is everything. Its called Macro Business for a reason… ResearchtimeMEMBER February 17, 2016 at 12:08 pm Furthermore Bubbles – lets apply some basic logic here. Houses are very illiquid assets, and even if there were changes to NG, the chance you could either sell your investment property is a minimum of three to six months anyway collectively (especially in the 1980″s where there was far less financial opportunity for debt). And the worst part about your logic, is that rents are typically stuck at 12 month rolling price levels, and take considerable time to change. Moreover, a lot of rentals in those days was public housing which doesn’t exist anymore. And how long did Keating drop NG for??? No where long enough for any of these effects to demonstrate themselves – hence the reason why some states went up and some down. Please, think about it before you post. AlexD February 17, 2016 at 12:41 pm “NG has to go – but I agree with you – get rid of it on everything!” What do you think would be the economic and political fallout from this relative to the alternative proposed by UE? ResearchtimeMEMBER February 17, 2016 at 12:56 pm Complicated subject, countries that don’t have negative gearing still allow people to deduct interest repayments, e.g. Switzerland and the US (even for your own home mortgage). And there is no discussion to get rid of it there? And may I add, the net benefit to the individual is far, far greater than NG! I don’t think it matters, as long as the investment regime is competitive. As I keep saying on this blog many times, people underestimate how transformed the world of finance really is. Personally, if you allow companies to deduct bad investment decisions from their profit from other business segments – why not individuals? its the double standard that grates me – everyone wants to drop company tax rates, but raise personal tax rates. If you are a worker, you are in business. If you teacher, you are creating a benefit and there has to be some monetary compensation. Whether you like it or not – you are in business. This applies to all in sundry. I don’t like Mum’s and Dads getting suckered in by NG. Its OK for the wealthy, because typically they are far less leveraged, and have sophisticated advice. Mum’s and Dads often have no idea what they are doing, and are buying an investment property because they saw a seminar on TV. And all their neighbours are doing it, including the cat and dog. On that bass it should be banned. And realistically, if they dropped it three years ago – it wouldn’t’ have made an ounce of difference to the housing market. But now, I think it could trigger a major decline on sentiment alone!!! flawse February 17, 2016 at 1:03 pm Alex I know that UE is trying to build a story that will get passed politically. I suppose i think that anything that passes politically will not do any good. Would it slow sown the creeping disaster? Maybe. Economic fallout…sure!!! I keep warning about that. However we can keep on postponing the economic fallout and making it eventually worse – which is why we are in the position we are in today – The answers lie back in time. My reasons for wanting to get rid of negative gearing on everything wrt houses as we understand it here is 1. This country needs to save and invest in itself. By invest i mean in productive assets that will result in less of the mcKibbin Solution – our having to sell our nation off to foreigners at an ever increasing rate. (The McKibbin Solution) Confining negative gearing to new builds possibly will not do anything in this regard and may even make it worse. ( I’d need to think about that for a while – it’s a complex question) In any case investment in the consumption item housing is not what we need. 2. This NG on new builds makes no sense from a macro view. You can’t fix a distorted economy by continuing to reinforce the distortion. We are creating a double standard in order to sell a BS story. Story is more money goes into new builds and everyone gets a lovely house with a big plus for the nation’s economy. As per above that’s BS. So why create another damned gorilla to sit around in our economy for the next 30 years? Note: If we go with UE’s ‘Fix the population ponzi’ as FIRST priority accomapnied by no NG on housing then we’d be getting somewhere. Just FWIW! AlexD February 17, 2016 at 2:31 pm So if approximately 1 million investment properties were to come on the market in a short period of time in order to avoid the imminent removal of NG and/or CGT concessions, what would be the likely impact on house prices in that supply-demand environment? What would be the likely impact on the finance sector and the liquidity of banks? What would be the likely voter response at the next election? Do you think NG &/or CGT concessions will be reinstated at the following election as a consequence of the above? Given your ideas are likely to be framed by FIRE sector interests as the cause of the above problems, do you think you would be making any future reform in this area even more difficult? Are you not playing into the FIRE sectors hands in the long term? Do you think UE’s plan is more likely to lead to a more gradual correction and less of the above fallout? Given he also argues for improves supply/population management etc, do UE’s ideas provide a mechanism for limiting the damage from a future shock? If you believe a large correction of prices is inevitable, wouldn’t that be a more appropriate time for your more extreme reform ideas given the risks above? flawse February 17, 2016 at 4:15 pm Alex I hear you. You’re probably right from he perspective you take. It’s quite legitimate. From my point of view we are still fiddling while Rome, the nation, burns. We will continue to pour money into non-productive assets. To fund this we will sell off more and more of our country. This is how it is being done and how it will continue to be done. I disagree with UE’s MB straight line model of how Banks and he external account interact.work. That makes a difference. I know UE appreciates the interactions i’m talking about so I’m not being critical on that front but it does alter how you think things will turn out. This statement by HnH this morning needs writing up the top of every topic on MB ” Reform by definition involves creative destruction and almost always delivers the second before the first. If reform is about freeing up capital for its most efficient uses, it obviously needs to be liberated before it can be redeployed.” As long as we are deploying debt into this whole Sydney/Melbourne housing schmozzle and everything that goes with it the worse situation our economy will be in and the higher the price we will pay. We are not going to fix it by just deploying more of it into new builds. We don’t FIX anything – we just make it less worse. I’ve been at this argument, one form and another for 45 years (and a bit longer when I started worrying about it) I’ve been saying for years in here and elsewhere ‘The answers lie back in time’ It really is no throwaway line. It’s a fact. Yes we are in line for all those bad things to happen and our future looks bleaker by the year. Postponing really fixing this problem has consequences for present and future people. So yes we can limit our reform. But let’s not get all sanctimonious (and i’m not throwing stones) about how good we are and how we are all out fixing the problems. I’m not talking about politics. I’m talking about what ought to happen or, in this case, what we as a nation together need to do. It’s up to others to choose their road. I don’t mean to criticise their stand coolnikMEMBER February 17, 2016 at 9:05 am Well done Kochie and Louis Christopher! JasonMEMBER February 17, 2016 at 9:17 am I wonder if Kochie knows that the ALP rules apply to shares and managed funds as well. Actually I don’t wonder that at all. He clearly doesn’t. As for NG being paid for by “the rest of us” – by definition it is being directly paid for by the investor themselves because it shelters their own tax. Finally, the myth that it costs the budget $7 billion or whatever a year needs to be exploded. That number ignores the capital gains paid on profits on sold investment properties which are part of the overall investment equation. For 2013, the overall position was about flat according to the ATO tables and in 2014 I would expect it to be positive given the boom in the market in 2014 and reduction interest rates. reusachtige February 17, 2016 at 9:22 am Seriously, I love you! It’s great that such a kindred spirit has found the strength to fight the good fight to protect us investors who have worked hard to profit from those not brave enough to get skin in the game. I’d love to meet you and hang out at the seminars some time! JasonMEMBER February 17, 2016 at 9:28 am For what it’s worth, I don’t own any investment properties. Tassie TomMEMBER February 17, 2016 at 7:02 pm Reusachtige – you’ve got an awesome “bullshit detector”, and an awesome method of expression. +1 from me. Dan February 17, 2016 at 9:41 am > As for NG being paid for by “the rest of us” – by definition it is being directly paid for by the investor themselves because it shelters their own tax. Where do you think the money is coming from to cover the short fall in tax revenue? It’s a lurk costing Australian tax payers billion every year in lost revenue, and that’s the least of the things wrong with the arrangement. > Finally, the myth that it costs the budget $7 billion or whatever a year needs to be exploded. That number ignores the capital gains paid on profits on sold investment properties which are part of the overall investment equation. For 2013, the overall position was about flat according to the ATO tables and in 2014 I would expect it to be positive given the boom in the market in 2014 and reduction interest rates. Glad you brought up CGT, the 50% discount is another fantastic piece of middle class welfare. Personally I don’t see anything wrong with deducting business losses from business income at tax time, it makes sense under a fair regime. The problem is that speculators of all persuasions are able to claim losses against PAYG income unrelated to their investment activities, they can even generate on paper losses that don’t exist by claiming depreciation on fittings and fixtures (and plenty of other dodgy means – e.g. claiming the cost maintenance and improvements to their PPOR by saying the work was done on their investment property). How is that not a distortionary force in the market? As someone who is unable to afford my own home I’m forced to give money to property speculators in order to support their loss making investments – how is that not enormously unfair? JasonMEMBER February 17, 2016 at 9:46 am I’ve been saying for years that the 50% discount is too generous. It generates a potentially substantial permanent difference too early in the holding period. Also, some of the other things you mention are out and our fraud and should be cracked down upon. AlexD February 17, 2016 at 11:03 am Agreed Dan. I found Jason’s post very blinkered and I concur that both NG and CGT concessions for IPs are a concern Explorer February 17, 2016 at 11:17 am The people paying for the wealthy to reduce their taxes is, on at least one counterfactual, the least well off in our society. If there were all that revenue that presently is reduced through negative gearing were available, the National Disabiity Scheme and Gonski could be funded better, or there could be better care for those with disabilities, terminal illness, rare diseases with expensive drugs not on the PBS, dental care for full pensioners and lower socio-economic children,…add your own underfunded cause or project. Gabe February 17, 2016 at 9:41 am That is why the CGT discount needs to be scrapped altogether and limit NG to those with gross income below 150k. That IMO is a better strategy with more impact then fiddling with NG and a 25% reduction in the discount. JasonMEMBER February 17, 2016 at 9:44 am I could live with CGT indexation being reintroduced and capping out investment property losses (but not on other assets) at some appropriate amount (maybe $100k). Rusty PennyMEMBER February 17, 2016 at 10:33 am “I wonder if Kochie knows that the ALP rules apply to shares and managed funds as well.” I haven’t read any expansive detail other than bluster here really, I am curious on this. With the changes, would the dividends of a share portfolio held in a trust be offset by the interest expense by a property in a family trust? Or is it isolated to ‘the asset’ or ‘class of asset’ ? “As for NG being paid for by “the rest of us” – by definition it is being directly paid for by the investor themselves because it shelters their own tax. ” No, by definition, the first iteration is that the income tax liability is reduced due to legal deductions. The second iteration is that tax receipts have a shortfall, which the rest of us cover (i.e. pay for). JasonMEMBER February 17, 2016 at 11:02 am Re the ALP policy – it isn’t 100% clear but from the ATO statement, it looks like all investments will be lumped into a single category. Hence my earlier comment that the wealthy (who have investment assets) probably won’t be overly affected. AB February 17, 2016 at 11:22 am “With the changes, would the dividends of a share portfolio held in a trust be offset by the interest expense by a property in a family trust?” Yes is my reading. No quarantining between asset classes. http://www.alp.org.au/negativegearing From 1 July 2017 losses from new investments in shares and existing properties can still be used to offset investment income tax liabilities. These losses can also continue to be carried forward to offset the final capital gain on the investment. Rusty PennyMEMBER February 17, 2016 at 1:20 pm So segregating PAYG, or even personal exertion income from cost of capital deductions. To date I’ve been secular to NG. To me the housing price issue is an embedded scarcity premium which can completely dissolve with a proper supply response, and the advantageous cost of capital via NG won’t have any effect. Likewise, it’s a loophole that has horrible social consequences to those that have been missing out, and in the absence of dealing with the supply issue, I have no problem with them targeting this gift to the do nothings. You’re right, if PAYG or personal exertion income can’t be offset, but other (substantial) investment income can be offset, it’s a free gift to those well off. flawse February 17, 2016 at 4:20 pm Appreciate all comments here. Justtwo things…something else has to be profitable and secondly we need a real cost of capital. negative RAT IR’s are not a realisitic cost. As long as that continues, negative gearing or no, investing in RE while the population Ponzi contiues will be extremely profitable (generally) AnonNLMEMBER February 17, 2016 at 9:24 am I’m genuinely impressed. This is the role media should play in society. Andy! February 17, 2016 at 9:40 am Agreed JobbyMEMBER February 17, 2016 at 12:17 pm I was watching Media Watch a few weeks ago and apparently Kochie was the only journo to ask Nigella Lawson a question about her personal life, when interviewed, in defiance of her express instructions not to be asked questions of a personal nature. Who’d have thought Kochie was one of the last ones holding the flag high for integrity. the_bystanderMEMBER February 17, 2016 at 9:40 am People rag on Kochie a lot, but he doesn’t put up with any bullsh*t when it comes to issues he’s passionate about. He’s gone in to bat strongly for refugees over the years, so it’s good to see that he’s also willing to give good public policy an airing without the usual kowtowing to lobby groups or calls for false ‘balance’. BubbleyMEMBER February 17, 2016 at 12:03 pm I noticed his diction was very slow and he kept the numbers at a very simple easy to interpret level. He knows his audience may not be interested in this topic, its a fluffy morning show after all, but he made it digestible for people who are having their first cup of coffee for the day and may not have all their cognitive functions yet. blacktwin997MEMBER February 17, 2016 at 2:45 pm If you put a moustache on Kochie he might resemble Kelvin Thompson. Coincidence? Auld Kodjer February 17, 2016 at 9:56 am [The names of the characters in this drama have been changed to protect the guilty]. Episode 1. Somewhere in Sydney on a Wednesday afternoon: Telephone: Ring, ring … Kochie: Hello Head of 7 Group: Hey Kochie, its Tim here Kochie: Hey Tim, what’s up? Head of 7 Group: Good show this morning. Got some good ratings … Kochie: Thanks Tim. Did you see my negative gearing piece? Head of 7 Group: About that Kochie, I was just chatting to [Ian / Brian / Andrew / Shayne]. Do you know how much the Big 4 spend on advertising with us every year? Kochie: [silence] Episode 2. Somewhere on morning television in Australia on a Thursday morning Kochie: We’ve got a great show lined up this morning. Joining us for another look at negative gearing will be [Mark Bouris / John Symonds] BubbleyMEMBER February 17, 2016 at 12:06 pm That will provide “balance” to the article. GavinMEMBER February 17, 2016 at 12:27 pm LOL nice, I wouldn’t rule this scenario out. ShawnoMEMBER February 17, 2016 at 10:08 am “Why should I fund a politician with over 40 properties, probably negative geared?” Good question Kochie. It feels like we heading into tough times as a country, but the bandits who are making money hand over fist want the situation to remain exactly as it is, ie the government funds them from a diminishing tax base. Well done guys Andy! February 17, 2016 at 10:19 am I almost covered my monitor with coffee over that line – pure gold! Tassie TomMEMBER February 17, 2016 at 7:11 pm It was awesome wasn’t it. It’s real “us and them” – “them” being the 1.8 million property investors of which 1.2 million are negative geared, and “us” being the rest of the population. “Them” is a lot, but “us” is clearly the majority. Geez – Kochie might even have a couple of NG IPs himself, or maybe he picked the top of the market and sold them a few months ago – collecting his 50% CGT discount. Who cares? Today he is one of “us” – a taxpayer, paying more tax and receiving less services than he deserves to because of those folk with capital, who are using the rest of “us” to magnify their capital. Good on you Kochie. And GO THE POWER !!! Janet February 17, 2016 at 10:14 am From NZ – ASB ( CBA’s NZ subsidiary): From 23/2/16 additional margins will be added to the carded rate of new and rolled over mortgages to reflect the LVR. Those with 5% or less equity will pay an additional 1.5% obver the carded rates. 5% – 10% = +1.3% 10% – 15% = +0.75, and 15% – 20% = +0.3% So unless you have +20% equity in your home/gross portfolio that you want to finance, the cost of borrowing is about to go up. The BurbWatcherMEMBER February 17, 2016 at 10:25 am Aha, seems like their will be some selling ahead by the highly leveraged? PeachyMEMBER February 17, 2016 at 10:41 am Are those figures currently 0%? Janet February 17, 2016 at 11:32 am Yes….and No ( of course!) Each bank has to comply with the LVR regulations as a sum of their total lending book. ( The current restrictions on banks are 5%, 10% and 15% of those figures above, for different LVR classes of housing loans, depending on the region and the property’s occupancy status.) How they get within the RBNZ caps is up to them. It’s difficult to say if whatever previous ‘discouragement’ ASB has been using to move the balance of their lending book about is in these figures, but I’d guess, some. What is new is the announcement of the actual margins in black-and-white. doctorX February 17, 2016 at 11:06 am sef inflicted credit squeeze that will ultimately destroy banks Ubietz February 17, 2016 at 10:15 am He’s one Greek economic joke away from getting a baklava thrown at his bald dome tonyddMEMBER February 17, 2016 at 11:26 am When a national economy has a 20 odd year winfall of a once in a century resources boom, there are many tax, finance, banking and other rorts that the community allows to go under the radar. But as the money spigot is wound down, attitudes change and change quickly, as in this case. There will be a chain of such people power changes in the election build up. Population Ponzi is next. Temjin February 17, 2016 at 12:31 pm Well done Kochie! It’s a win against rentiers’ propaganda campaign. Sunrise is certainly a great forum to “educate” the mass that lacks the time or will to dig into the details to digest the truth. Just hope Kochie survives the backlash from the group’s um…valued advertisers. IanMEMBER February 17, 2016 at 12:42 pm Well done to Kochie for a presentation perfect for his audience. So we now have a situation with a) Kochie has convinced most of his viewers, b) ALP has announced a positive package (subject to some reasonably significant clarifications in detail) and c) NLP have so far shown an inclination toward removal of NG also. So why is this an election issue? Just nail it now! TimMEMBER February 17, 2016 at 3:36 pm Whoever thought the morning TV sewer pipe would cough up a golden turd? 24 karat yo! Signs and wonders. Signs and wonders… MitchMEMBER February 17, 2016 at 3:51 pm For many marginal investors, they use the retained income (unpaid tax) derived from the gearing strategy in their TR to cover their cash costs and outgoings, and obtain this benefit through an income tax withholding variation at the time they are paid, instead of a lump sum at eofy tax time. So they keep their heads above water managing outgoings throughout the year rather than waiting for a nice refund at tax time. Its likely that removing NG will sink these marginal investors because they won’t have the regular cashflow throughout the year to keep on top of their costs (assuming rental income is cash inadequate) probably leading to a spate of delinquencies and bankruptcies. Before that happens, we might see a period where many owners with properties around Australia build up significant liabilities to their councils, their bodies-corporate, insurance companies and so on as they drown in a sea of unpaid bills the benefit of NG once allowed them to cover. I wonder how significant or broad an impact this will have on the cost of rates, insurances, body corporate levies (and so on) for the broader house holding or buying constituency following the thousands of financial failures from IP ownership in a non NG scenario? Furthermore, I also wonder just how much of a financial impact removing NG will have on all those small, micro and medium enterprises and ventures that have been funded by owners’ personal mortgages on homes and IPs? It seems to me that some of these follow on consequences to the broader community have not entered the discussion (other than the financial consequences to the banks) about the pros and cons of eliminating NG? Is anyone aware of any analysis or research that might have looked into these themes? Tassie TomMEMBER February 17, 2016 at 7:15 pm I hadn’t thought about the knock-on effects of “trading while insolvent” the IP business. Ouch – it’s going to burn and then it’s going to sting. MediocritasMEMBER February 17, 2016 at 4:43 pm My biggest beef with NG is not actually the reduction in tax revenue. It’s the fact that, in order to run a big loss, many NG’ers deliberately take out a big loan so as to claim the repayments. So what has now happened? Money that would formerly have been going to the government as tax revenue is now being redirected to the banks as mortgage repayment (a larger amount actually given the marginal tax rate), and endogenous money supply (hence inflation) has risen due to creation of a loan that otherwise would likely not have existed. (Anecdotes, but I know people who took large, interest-only loans for investment properties, purely to NG and go for the capital gain. Without NG, they would not have done this). So revenues have been simply redirected from the government to the banks and inflation is higher than it should be, another tax on the un-invested. Will the financial sector spend on schools, roads, hospitals, social support, defense, research, etc? Nope, those things will suffer, while banks instead prefer to invest in financial assets, creating a pointless, unproductive bubble. I have the feeling that people talking about the impact of removing NG are completely missing the elephant in the room. It isn’t about the effect on rents, it isn’t about the boost to govt revenues, it’s about a large, ongoing, deflationary force as new loans are no longer rolled out to fuel NG. That’s why grandfathering NG is pretty much essential. Even if the govt immediately spends all the gained revenue back into the economy, it will still fail to offset the shrinkage of endogenous money that will occur due to gained revenues being smaller than the credit created to NG those amounts. Bear in mind also, that the size of the deflation can be much larger than expected, and spill across borders because of the amount of credit being generated through shadow-channels, in which the loan itself can be rehypothecated into secondary, tertiary, etc, credit. That is to say, when a rehypothecated asset (such as a mortgage) is paid off unexpectedly (hence deleted), it isn’t just one debt that gets repaid and is effected. If that asset was posted as collateral for borrowing via shadow banking, then rehypothecated and posted again, (repeat up to 30 times), then collateral has just been eliminated for 30 loans in the shadow system! That collateral will have to be replaced with something (this was a key factor in the 2007/8 financial crisis). The government should be prepared to run up debt to prevent deflation which, when spent into the economy, will inflate prices where it arrives in the economy, and counteract contraction of credit (both traditional and shadow) that accompanies falling prices in asset markets. I’m not saying this is a bad thing, it’s a GREAT thing. But the process along the way to a better outcome could be a little messy. Relevant parties need to anticipate what will happen and be ready to act. A little “citizen QE” might be on the menu. (If I’m right about this, then there are plenty of good trades to line up both on the short and long side). flyingfoxMEMBER February 17, 2016 at 9:57 pm So revenues have been simply redirected from the government to the banks Along with a very large dose of credit creation and destabilization .