Morrison: Once and for all time a property parasite?

By Leith van Onselen

Last week, the Property Council of Australia (PCA) took rent-seeking to another level, threatening MPs with electoral carnage if they dare tinker with Australia’s negative gearing laws. The PCA also repeated the oft-told myths that negative gearing “keeps a lid on rental costs and house prices” and is utilised primarily by “ordinary workers”.

The PCA’s lobbying seems to already have paid dividends, with Treasurer Scott Morrison yesterday all-but ruling-out negative gearing reform, arguing that it is a “real opportunity for middle income earning Australians” to get ahead:

Negative gearing has been and continues to be a real opportunity for middle income earning Australians. Nurses and doctors and whether it is a policeman or others, these are people working every day and trying to get ahead, they’re not the problem. We need to look at all aspects of how our tax system works but what we are not about, we are not about taxing and spending. That’s not what we are about. We are not about raising taxes to support higher spending. That’s Labor’s approach. That’s Labor’s approach – it’s not ours.

Treasurer Scott Morrison’s ongoing defence of negative gearing is not surprising. After all, between 1989 and 1995 he was the National Manager, Policy and Research, at the PCA. So understandably he has fallen into line.

We also know that the Coalition Government has not ordered Treasury to undertake any analysis of options to limit negative gearing, choosing instead to use the advice from the property lobby rent seekers – the PCA in particular – to craft its policy on negative gearing.

I am not usually someone that favours ad hominem attacks. But there is just too much industry capture on Morrison’s part to ignore. Instead of looking objectively at the facts on negative gearing, he has time and time again resorted to the PCA play-book to defend it.

This time, it is the claim that negative gearing is the domain of “middle-income earning Australians”, which is false. Let’s look again at the data.

In August last year, the Reserve Bank of Australia (RBA) comprehensively debunked the Coalition’s claim that negative gearing is being used primarily by middle income earners, with head of financial stability, Luci Elliss, noting the following before the parliamentary inquiry into home ownership:

The Property Council has cited Australian Taxation Office statistics to prove cutting negative gearing would hurt many people on low and middle incomes. It says 66.5 per cent of investors who made a loss on a rental property had taxable income of $80,000 or less.

But Dr Ellis said the RBA analysis was based on the Household, Income and Labour Dynamics survey which covers all income and all households while the Tax Office data cited by the Property Council only looked at the taxable incomes of people who lodged tax returns.

Dr Ellis said because of these limitations the ATO figures do not capture the fact that many negatively geared properties are owned by people with low taxable income but high “actual income”, mostly because they were drawing untaxable income from superannuation [or reducing taxable income via negative gearing].

The chart Ellis referred to comes from the RBA’s submission to the home ownership inquiry, and shows that nearly 80% of investment property debt is held by the top 40% of income earners:

While the incidence of property investment increases with the level of income, the Household, Income and Labour Dynamics in Australia (HILDA) Survey also suggests that most investor households are in the top two income quintiles. These households hold nearly 80 per cent of all investor housing debt…

In October last year, the Australian Bureau of Statistics (ABS) hammered another nail into the coffin of negative gearing lies via the release of its two-yearly housing occupancy and cost data. The Guardian’s Greg Jericho dissected this data and found that investment property ownership is clearly skewed towards the highest income earners, with the richest 20% of households accounting for 39% of all housing investors:

Finally, modelling last year from the National Centre for Social and Economic Modelling (NATSEM) revealed that one third (34.1%) of the benefits of negative gearing were captured by the top 10% of income earners, whereas 15.7% of negative gearing benefits goes to the next 10% of income earners (see next chart).

So that’s the top 20% of income earners receiving around half of the negative gearing benefits, according to NATSEM.

The data is emphatic: investment property ownership – and negative gearing – is overwhelmingly a rich person’s game. It is not the domain of “middle-income earning Australians”.

If Treasurer Morrison used to head the Property Council’s research team and is still today spouting their myths then what choice have we but to conclude that he is captured by the lobby?

Today we have some slim hope that that may not be the case. Various media articles suggesting that reform of property taxes is, in fact, still on the Government’s agenda, suggesting that I may have been premature in lambasting Treasurer Morrison’s position.

According to The Australian’s David Crowe, the Coalition is considering applying “caps of $30,000 or $50,000 on the amounts that workers can claim on their investment properties, in order to target the changes at those who gain the lion’s share of tax breaks worth $8 billion a year”. This way, benefits for wealthier investors would be trimmed, without affecting ordinary workers.