The ALP’s negative gearing policy is a winner


By Leith van Onselen

Ladies and gentlemen, the Australian Labor Party (ALP) has just entered the election race with a sound policy platform.

In former treasurer, Joe Hockey’s, parting address to Parliament in October last year, we received a brief glimpse of honesty. After spending the prior 12 months toeing the company line and defending negative gearing to the hilt, Mr Hockey admitted that the policy was a failure and called for negative gearing to be restricted to newly constructed dwellings only, so that it actually boosts supply:

“…negative gearing should be skewed towards new housing so that there is an incentive to add to the housing stock rather than an incentive to speculate on existing property…”

Since that time, the Coalition has dithered on negative gearing reform, with new Treasurer Scott Morrison seemingly still captured by the Property Council of Australia, where for seven years he worked as the National Manager of Policy and Research.

Over the weekend, the ALP took a leaf from Joe Hockey’s book and announced that if it is elected in this year’s election, it would restrict negative gearing to newly constructed dwellings only, in order to boost supply, as well as halve the capital gains tax discount. Here are the specifics from leader Bill Shorten’s speech to the NSW ALP conference (via The ABC):

…if Labor wins the election, from July next year negative gearing would only be available on newly-constructed homes.

The changes under a Shorten government would not affect the tax arrangements for investment properties purchased before July 2017.

Under costings released from the Parliamentary Budget Office, the measures could save the budget $32.1 billion over 10 years once they come into force.

Mr Shorten said the changes would foster a fair tax system, which supported a strong budget and growing economy.

“We’re doing this because 30 years ago, houses cost around 3.2 times average income — today it’s 6.5 times average income,” Mr Shorten said.

“Labor will help level the playing field for first home buyers competing with investors and we will put the great Australian dream back within the reach of the working and middle-class Australians who have been priced out of the housing market for too long…

A Labor Government would also reduce capital gains discounts from 50 per cent to 25 per cent

“It cannot be rationally argued anything else but with a capital gains tax subsidy of 50 per cent, that the whole system is accessibly distorted and overly generous in favour of income from capital instead of income from earnings,” Mr Shorten said…

We will grandfather existing arrangements for those properties so that investors who have invested under the current tax law will not be disadvantaged by the change and a prospective change,” he said…

“Mum and dad investors who have a house or apartment that is negatively geared right now will keep the deductibility, but after 1 July 2017, negative gearing can only be accessed for new houses and to improve the efficiency and fairness of our tax system.”

The ALP’s negative gearing and CGT policy is a winner, both politically and economically.

By grandfathering existing investors, political backlash would be minimised from the circa 1.3 million Australians holding negatively geared properties, thus making it a realistic reform option.

Nevertheless, there would still be a significant dampening effect on the housing market, since home prices are set at the margin by new entrants.

The resulting ‘correction’ in home prices resulting from the ALP’s policy would likely also be far more orderly than if negative gearing was banned outright, since it would not cause a sudden flood of sales from existing investors exiting the market.

At the same time, limiting future negative gearing to new builds would nullify the property lobby’s (and the Coalition’s) lies that its abolition would push-up rents and home prices. After all, what better way to overcome concerns about rental supply and housing affordability than providing direct incentives to boost supply?

We also know that the Greens support negative gearing reform, given they have announced as policy grandfathering arrangements for existing investors and quarantining negative gearing so that rental losses on both houses and shares could no longer be claimed against unrelated wage/salary earnings. So the ALP would have no problems passing their policy through the upper house if it were elected.

Still, despite the overwhelming arguments in favour of the ALP’s policy, it hasn’t stopped Australia’s conga-line of property lobby rent-seekers from crying foul. Here’s a sample of the scare campaigns being waged over the weekend against the ALP’s proposal:

Property executives slammed the plan yesterday, saying it had the capacity to take investment away from the property market at a time when capital cities were facing a persistent undersupply of housing.

Stockland chief executive Mark Steinert said: “Last time they cut negative gearing on ­rental properties, it was reinstated within a few months because it had such a devastating impact on the rental market.

“I can’t see how this will be any different … The affordability challenge is that you need more rental property, and negative gearing goes directly to meeting that.”

Aussie Home Loans founder John Symond warned the policy could lead to house price falls on properties owned by investors, many of whom were on average incomes and had fought hard to make the investment.

“Eighty per cent of residential investors are PAYG, hardworking mums and dads, and this will have an impact on the value of their homes,” Mr Symond said.

Property Council of Australia chief executive Ken Morrison warned the proposed changes were “dangerous’’.

“It is a real risk playing with the property market like this when it is such an important part of the economic growth story for the country,’’ Mr Morrison said.

None of these arguments pass the common sense test.

The current policy settings have produced a situation whereby nearly 19 out of every 20 property investors purchase an existing home, not new construction (see next chart).

ScreenHunter_11513 Feb. 14 17.55

Therefore, as a policy to boost housing supply and improve rental availability and affordability, negative gearing has been an epic fail since all it has done is substitute homes for sale into homes for let, at great cost to the Budget.

In a similar vein, the oft-argued claim that the quarantining of negative gearing between 1985 and 1987 pushed-up rents is a flat out lie. The ABS rental data clearly shows that real (inflation-adjusted) rents did not rise nationally over the period that negative gearing was quarantined (shown in red below).

ScreenHunter_11514 Feb. 14 17.59

Moreover, at the capital city level, real rents either fell or were flat in every capital city, with the exception of Sydney and Perth, where vacancy rates were particularly tight at the time (see here for the definitive evidence).

Aussie John Symonds’ new found opposition to negative gearing reform is also curious, given just a few years ago he lamented that negative gearing is killing the first home buyer market:

“Negative gearing is a great tax break, but it needs a total overhaul to make it fairer. First home buyers have no hope of getting into home ownership these days unless they’re helped by their families,” Mr Symond said…

I recommend that you watch shadow treasurer, Chris Bowen’s, interview on ABC Insiders yesterday (above), whereby he does a great job deflecting the property lobby’s lies and seems well versed on the issues. Let’s hope he can see this policy through, or at least force the Turnbull Government to offer similar reforms.

[email protected]

Leith van Onselen

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

  1. they got my vote.

    that symond is the perfect symbol for the Australian property people.

    bloated lying parasites.

  2. The hunt for Generation-Y votes seems to be becoming popular, you would have never believed this during the Howard years.

    • Well a few weeks back they didn’t have my vote, all of a sudden it’s them or the Green’s. I’m a Gen-Y and this issue is important to me. I’ll be encouraging anyone else in my position to vote the same and happy to educate them on how negative gearing has been used to screw them. Most I fear don’t understand.

  3. While I applaud the the realization of common sense, this reversal seems like response to hemorrhaging votes to the Greens rather than a desire to actually reform. Still, this is very brave considering our low IQ nation already considers the ALP as high taxing, high spending “socialists”. Imagine the response when Aussie’s number one asset takes a hit.

    • Fundamentally it’s about votes, not reform. Or didn’t you know?
      Who cares what the reason is, progress has been made.

    • Yes. The Greens policy is better.

      This is a start fo the ALP, but their place as a division of the Laberal party is still solid. They have become a corporatist machine.

  4. Bowen’s performance on ABC insiders on this matter was a faultless display in policy batting.. The question then is, however, how many people are turned on by policy purity and prowess. Nevertheless, it was politics as it should be played.

    • Yes it was. But will it continue? Labor has a chance to set itself apart; play the bigger game, but it will be interesting to see if that can last. It will take a courage that politics doesn’t foster. However…..
      I remain of the view that grandfathering and restrictions to new-build won’t achieve what’s intended. If I was a buyer of an investment property, I’d stick to old stock, where the playing field has been leveled somewhat. Why would I bother competing against that part of the market where others still have a tax advantage over me?

      • Precisely Janet
        Honesty, the last resort of the politician with their back hard against the wall. Of course that only produces the policy statement. The outcome of the Henry tax review (which was told to shut the f. up on NG) shows us what the ACTUAL outcome will be. Labor must indeed be desperate, but they know that there will be enough time to slow the old spinning top to a halt and start rotating it the other way.
        Business as usual for an electorate who just don’t want to lose weight or get healthy……

    • And now MSM will start the tirade and captain MeToo will fall inline.
      I hope I am wrong but in case I am not I will still give my vote to the Greens this time around.

  5. The risk is that the Liberals come out and occupy the other side of the battlefield, promising to not disturb negative gearing rorts if elected…

    • No problem! Status Quo + GST rise to 20% ….15% isn’t going to raise enough, apparently!? The money has to come from somewhere…..

      • That would be a nice little hit to aggregate demand. Bring it on, I say! People will start to understand what a rorting based economy really looks like.

      • “The money has to come from somewhere” I’m not sure that such commendable rationale has been in any way significant in determining (especially Labor) policy for some while. Of course, when weighing the popular vote against financial sanity one has to consider the personal benefits of being in power, for however brief a period.

    • If the Libs don’t also end negative gearing then for me it will be worth voting Labour to get this policy implemented.

  6. reusachtigeMEMBER

    Fools! This will be painted as one of the reasons the ALP lost the election which means the issue of tackling negative gearing will dead a buried for a very long time… so bring it on I say! ahahahaha!!!

    • A win by the ‘tax rorts for old people’ Liberal Party is the best case scenario. Australia needs to take rorting and killing the productive economy to its absolute logical conclusion. It’s the only scenario where any of you will learn.

    • You touch on an interesting point, reusa. Will the Libs jump to the protection of NGers as a wedge? Or does Morrison’s strange critique of the Bowen proposal – “it won’t raise much money”- suggest he may be tempted to outbid Bowen in the severity of a NG cut.

      Without a GST on the agenda, The Libs will be hungry to raise some savings/cuts. This NG story may still have twists and turns to come.

      “mine is bigger than yours” is a pretty stuffed way to run a rational policy development process though

  7. If there is any way of blaming negative gearing reform for the loss of any asset holder’s wealth, or rent going up anywhere, it WILL be rolled back. Australia is a nation of tax rorting wannabe property millionaires, most of whom now believe it’s the natural path to wealth.

    Better to wait until the whole property sector falls over, and the AAA rating is gone, and the ONLY way to address broken government budgets is rolling back tax rorts because there’s nothing more to cut and nothing more to sell. This is the sole circumstance where rolling back NG will stick.

    Basically, you’re stuffed for the next decade at least. I’m in favour of crashing the economy hard, because the sooner Australians have rorted themselves into rapidly declining living standards, the sooner we can discard the dirty little economic brain bugs that have infested the population. Enjoy the decline, peeps!

    • You know what?
      This past 25 years It HAS been ‘the natural path to wealth’.

      ‘Natural’ or otherwise………many have done extremely well out of it.

      Decline? What decline? I don’t see know stinking decline……..

      • Precisely! Which is why we should leave it as is. Either I’m wrong and it really is the path to sexy prosperity, or I’m right and after some time cutting rorts will be the only option left, and people will be screaming out for it, and the lesson will last for 30 years or more.

    • Today's Empire Tomorrow's Ashes

      Oh I agree, I want to see people impoverished, on the street, the charities having to support more people, the further concentration of wealth in a diminishing number of people.

      Bring that sh$t on.

      LOLz, guffaw. Bloody rorters. Stupid country.

      • ErmingtonPlumbing

        Mmm nice,
        No doubt all the pedophiles will be cheering along with you also, with all that extra, impoverished, easy meat avaliable on the streets.

      • Today's Empire Tomorrow's Ashes

        Oh well EP – you can’t have everything.

        Australia and every single stupid greedy inhabitant needs a wake up call.

        We must crash everything and have a full on depression so everyone can realise where it all went wrong and never repeat the mistake.

  8. wasabinatorMEMBER

    Cue: stampede of people buying before the deadline! They could have said from the date thIs policy was announced, but no. It will end up with the same ‘one last party’ effect that the first home buyer triple grants had. Then after this damage has been done, either labor won’t be voted in, or reverse the policy one they are in. Sorry, far too jaded now 🙂

    • For that to happen, people, need to think there’s a serious chance the ALP is about to form government…. We don’t even have an election date yet. I think any stampede will be pretty small, as most people will see the ALP has having limited chances of winning…

      • wasabinatorMEMBER

        What Aussies believe is sadly a function of the pro property drivel they read everywhere, which no doubt will be instructing them to get in before it’s too late, as per the script. And they hardly need encouraging in the first place. The fact that there is a chance of this happening I’m sure will see them buying up all remaining stock.

    • Not jaded… just correct. Name a single occasion where Australians have chosen any level of sacrifice in order to ensure long term prosperity or social equity in the last decade that has stuck for a period of more than a year. There aren’t any.

    • “Cue: stampede of people buying before the deadline! ”

      Why on earth would you stampede to buy an asset which is likely to decline in price after the deadline?

      • Ask our brothers in Commonwealth – the Canadians… they’ve done the same before some changes in their region. I think that was well documented on the Greater Fool’s blog.

        People is stupid, and stupid is as stupid does.

      • Tassie TomMEMBER

        Because we’re dumb, and we’d do anything for a perceived tax break.

        You just have to look at uptake of managed investment schemes or more recently of novated lease of motor vehicle if you need more convincing.

      • If any specufestors could consider second or third order consequences this mess never would have happened.

      • Ah Tassie Tom, Novated Leases. My personal favorite. A policy of mind-numbing stupidity, both of government and punter….

      • AB,
        They stampede to buy because housing only ever goes up in this country.
        We’re different.

        But seriously, I still know people who are buying, both first home buyers and investors.
        The Macrobusiness mindset is a bit like the American underground music scene of the mid to late 80s. There may be an REM coming through, and the Pixies are liked by those who know them but we are yet to have the Nirvana ‘Smells Like Teen Spirit’ moment.

    • Okay.
      So people stampede into the property market before the deadline. Then what do they do with what they’ve bought?
      The Next Buyer from them doesn’t get the tax advantage they had. So dollar-for-dollar the Next Buyer can only pay less for what they have. Good luck with selling into a changed marketplace!
      It’s like stampeding into the holding paddock at the abattoirs to get what appears to be new grass. Easy to do, but look at where you’ve ended up!
      (NB: I have to concede that when NZ changed it’s LVR rules for Auckland from 20% to 30% deposit, that’s what the sheep did, piled in ahead of the deadline ( appropriate word, that) aided and abetted by the MSM, and only now are they realizing where they are, and prices are ‘easing’!)

      • wasabinatorMEMBER

        “Then what do they do with what they’ve bought?”

        This is something I highly doubt most Aussies even consider at all. They’re too obsessed with the rush into a sale to care about post sale scenarios. I’ve seen the psychology time and again.

        To be clear I won’t event hint it’s considered the right thing to do, but it’s something I have seen happen here time and again – they’ll focus on that thing they believe they will lose out on forever. Full-stop. Assuming people will consider post-sale consequences really paints them as being far more prudent and rational than they really are. Point in case: Triple first home buyer grants, the sales go through the roof towads towards the deadline. It stands to reason that prices should have come off afterwards but that didn’t perturb anyone.

        Plus, Aussies have believed “prices always go up” for decades and I doubt one policy decision will change that in some violent manner. For example, I’m sure most of them will continue to believe the immigration monster will continue to provide the magic pudding. There’s always some reason they can choose to support their beliefs.

      • @jelmech

        Yeah – they’ll suck something for 5 years, but won’t be thumbs – they need those to keep doing the Fonz “Eiyyyy!”

    • Tassie TomMEMBER

      This is a risk, but I think Chris Bowen answered it pretty well in the above interview. Maybe the 2017 thing is the best option for the reasons Bowen gave.

      • wasabinatorMEMBER

        Not so. Re-read my comment, and I raised the very possibility labor won’t be voted in. My point to be clear is that the average punter reads “get in before it’s 2017 as this MIGHT be changed if labor gets in” and starts piling in. The usual suspects get people piling into property out of fear and nothing else – the chance losing out on grandfathered “free moneh” (which we know isn’t free money, but the investors think it is) is just the latest fear inducing tool of their arsenal. It has worked wonders in the past.

  9. Mining BoganMEMBER

    A surprisingly good performance from Bowen. Very un-Bowen like indeed. He’s had some good coaching.

    Methinks it might be that nice Andrew Leigh behind this. He was banging on about NG back in the mid-2000s. Watch him to see where this is going to head.

    • As I watched Bowen on the Insiders on Sunday morning I turned to Mrs Bolstrood with a feeling of pride , and said ” Bowen’s been reading Macrobusiness.”
      He only lacked the graphics. If he is to win the argument he will need the graphics Leith has shown us ad infinitum, they make the case bullet proof.
      If the prols. won’t accept the reform NG case & as expected Mals marauders win the next election Labor can take comfort in dodging a bullet, ’cause whoever is in Govt. next will be eating a shit sandwich with all the trimmings.

  10. If Facebook comments from yesterday are a reasonable indicator of the national mood then most of those people who do not negatively gear into property are for it; while those who do NG seem to ignore the grand fathering and consistently refer to when NG was removed that rents increased enormously. It seems the lies, probably because of their long and repeated use, still need to be dispelled.

    • adelaide_economist

      Agree that the facts need to keep being pushed but those who negative gear are pointless as a target group. The fact they happily continue to push the ‘rents will soar’ without unlimited negative gearing argument is so obviously a nonsense but is part of Australian landlord received wisdom, along with the usual shibboleths like they are doing renters a favour by renting to them and that if they didn’t buy (almost exclusively pre-existing) properties then somehow those properties would just disappear.

    • Tassie TomMEMBER

      Probably not that much related to NG in the ASX – margin loans have never really taken off again since the GFC.

      Bank valuations will drop if house prices drop and this is a big chunk of the ASX, but this is arguably likely to happen with or without NG reform.

      One would think that in the long term, if investors are aiming to make a net rental profit, that investment properties would be a lot less risky for the banks and their potential impairments during busts would be reduced.

      • i wonder if margin loans will come back into fashion if investors can’t negative gear into existing dwellings.

      • The ALP’s no NG policy applies to shares as well.

        So the margin lending industry will effectively die along with the residental investment industry.

    • Tassie TomMEMBER

      I was wondering that too. If it was then there would be an incentive to hold your property forever. You’d think that at the least a compulsory revaluation may be necessary if you wanted part of the 50% CGT discount to apply (assuming prices continue to rise after the revaluation date, which they might not.)

      • An incentive to hold your property forever.

        Goodness – that tassie water really does help you live longer but forever.

        The pre-CGT properties were grandfathered back in the 1980s yet eventually those properties were traded.

      • My understanding is that the pre-CGT status is preserved even when the original owner dies and the property is inherited. So, Yes, it really can be Forever.

      • “My understanding is that the pre-CGT status is preserved even when the original owner dies and the property is inherited. ”

        Surely not. I always thought that death was a CGT-triggering event.

      • Death is a CGT event although there is a short window in which beneficiaries inheriting the property can sell without CGT.

      • ErmingtonPlumbing

        No CGT on the family home though ?
        And cant it be rented out for 7 years, as long as you occupied it for longer and a year before sale?

  11. Tassie TomMEMBER

    “We’re doing this because 30 years ago, houses cost around 3.2 times average income — today it’s 6.5 times average income,” Mr Shorten said.

    “Labor will help level the playing field for first home buyers competing with investors and we will put the great Australian dream back within the reach of the working and middle-class Australians who have been priced out of the housing market for too long…”

    This was my favourite part of Shorten’s speech – an admission that high property prices are bad, and that bringing property prices down is good. He didn’t actually say those words, but he got closer than anyone else has ever come.

    It must sound very scary to highly geared investors – that someone wants to bring down house prices. Expect a scare campaign on this. I only hope the ALP has the ability to defend their (correct) argument.

    • Plus the latter is based on massive increases in dual income households… Ie. It’s closer to 4x as bad as 30y ago on this metric alone! Hopefully this fact is included next time he utters it.

      Loving the message, don’t mean to detract from this giant leap forward.

  12. lukehowardMEMBER

    Wilhelm Harnisch from the Master Builders Association was just on NewsRadio. Flicked this link to him.

    • Canberra Sunday 14 Feb 2016
      Emergency Meeting of the Property Lobby
      Present: Mr REIA (Chairman), Mr PCA, Mr HIA, Mr MBA
      Mr REIA: Gentlemen, I think you all know the reason I have called this emergency meeting. It is on. Shorten and Bowen have gone rogue. The clever pricks have wedged us. Prepare for battle. We need to know that everyone is clear on the script and knows their lines. I have provided a copy to everyone just in case. Of course my boys are rock solid.
      Mr PCA: Yeah we’re good as gold. My Landbankers are shitting themselves. I’ve checked with ScoMo this morning and he is schooled up.
      Mr HIA: lol yeah ready to roll. I can’t believe my members keep allowing me to sprout this rubbish but we are locked in now.
      ……silence…….
      Mr REIA: Wilhelm??? are the Masters Builders in?
      Mr MBA: Jeez guys, this is getting difficult. You are asking me to get on national radio and advocate against encouraging investment in my members product and saving thousands of threatened constructions jobs. What do I tell my members?
      Mr REIA: FFS just stick to the script Wilhelm. What ever you do not mention “NG for new builds only” or that crap about boosting investment or saving construction jobs. We have to stick together on this. Disunity is death…..and it won’t be mine, Wilhelm.
      Mr MBA: ok I guess I’m in. Fuck I’m missing golf for this

  13. Hopefully the recognition that refinancing at a higher level is a capital gains event comes next. The cashflow is there, as is the economic benefit. Equity mate outside of PPR should not be tax free/deferred.

  14. proofreadersMEMBER

    On a relative basis to that of his parliamentary peers from all political spheres, Bowen tends to operate with less BS.

    “By grandfathering existing investors, political backlash would be minimised from the circa 1.3 million Australians holding negatively geared properties, thus making it a realistic reform option.” More importantly, political backlash from parliamentarian specufesters would be minimised and they’re the ones that really count.

    • adelaide_economist

      Agreed. As for those who are impatient with grandfathering, it’s pretty the much only feasible way to get most major policy changes through. The existing investor army will grumble but secretly be thinking to themselves how lucky (sorry, I mean how smart) they are to have escaped being caught up in it. Most of them won’t have the nous to think how it might affect their future sale price of existing properties which is a good thing – get the policy through and deal with their resentment later.

      If we’d actually had reform of negative gearing ‘way back’ in 2003 when the housing boom was already clearly getting silly we’d already have institutionalised the proposed ALP approach and I doubt anyone other than fringe dwellers would have an issue with it – it would just be seen as normal and part of the landscape. We might even have had slightly less explosive growth in house prices (and indebtedness), heaven forbid.

      • I’d like to see IO loans made ineligible for NG. Same with refinances. That way the grandfathered properties will have to be paying down their capital and therefore (hopefully) minimising their net property losses over the years ahead, even if they are not transferred.

  15. On Channel 7’s Weekend Sunrise program the presenters all 4 of them mentioned there are many myths that support Negative Gearing and i was amazed they quoted stuff that is mentioned on Macrobusiness. Said was that NG benefits primarily the rich and not the average joe, mentioned under Keating when it was removed there was a spike of rents only in sydney and melbourne and other factors were behind these increases and not removing NG. They mentioned the property groups will try and sway decision. It was refreshing to see all 4 of them debunk the myths. Made we wonder if they are subscribers to macrobusiness. I just hope the Libs now come on board but the debate has started hopefully we see some good open public discussion!

    • ErmingtonPlumbing

      “Made we wonder if they are subscribers to macrobusiness.”

      Could be,…maybe one of them is skippy!,..( Koshie would be my bet),… it must be very hard for him to endure all that inane banter they carry on with every morning with out just letting out an enormous,
      “ITS NEOLIBERALISM YOU STUPID FUKERS!”,
      “JUST GO AND LOOK IT UP!”

      Or they could just be joining the growing ranks of those who wish to subscribe to the truth and reality.

  16. Today's Empire Tomorrow's Ashes

    Glen Byers on Fran Kelly this morning executed a perfect display of lies, obfuscation and dissembling.
    I’ll have to tweet Fran an MB hatchet job on all the typical lies.

    It’s been around for 100 years!! WHY CHANGE IT!!!
    It’ll KILL the market!! Don’t change it.
    Get rid of stamp instead!! Don’t change it.
    Ad nauseum.

    • You could smell Glen Byers’ fear and panic on ABC702 as he rolled out all the lies and myths trying to gain public sympathy. He finished off with “don’t mess with the housing market as you don’t know what could happen”.
      Thankfully Saul Eastlake was there to dispel Glen’s rent seeking nonsense and put a pragmatic view of the proposed changes.
      I love the sounds of squealing rent seekers in the morning…….

      • “Don’t mess with the housing market”

        CGT discount
        GST
        7k grant
        14k grant
        21k grant
        Stamp duty rebates
        Allowing supply to sit vacant

        Yeah. Don’t mess with the housing market.

      • ErmingtonPlumbing

        The ABC has been grating me for years now.
        Still left of center on social issues (cool me to, though some of the political correctness gives me the shits) their reporting and comentary on economic affairs has fallen almost completely in line with the rest of the main stream media, which is to say right of center.
        The 80/20% society Chomsky has always gone on about resonates here, the support of the “top” 20% is crucial for maintaining political control within a democracy, the ABC, AFR etc is targeted at them and at garnering their support.

        The other 80% need to be diverted away from the political process or at worse only allowed to participate in policy formation on issues that have no impact on the actual economic status quo,
        eg Refo’s, Gay marriage, flag change, Rooting scandles etc etc.

        The best thing to do with the 80% though is to distract them with Professional Sports, Astrology, Celebrity Cultism etc etc.
        It shits me so much when the conservative boomers in my life go on about the ABCs left wing bias.

        http://youtu.be/8–Q3N50xa8

      • adelaide_economist

        @EP

        You need only see all the ‘property porn’ stories involving ABC journalists and presenters to see that most of them are part of the demographic that has done exceptionally well out of this epic malinvestment we call the housing boom. It’s a bit weird but since many Australians have a mental disconnect between cheering on astronomical house price rises and the impact of this on a wide range of social maladies it tends to go unremarked upon.

      • For some reason their tactics are reminding me of the NRA in US … Same thinly veiled threats, same “grass roots” approach directly towards elected members of parliament who need to tow “the line”…

        Somehow these guys need to be exposed for what they are and their tactics brought into daylight straight up, well before they are put into practice…

      • It shits me so much when the conservative boomers in my life go on about the ABCs left wing bias.

        That’s because all they care about is the social issues like pooftas and the reffos.

        Closest they’ll come to caring about economics issues is whinging about dole bludgers.

    • Maybe a new boom of new builds is a good idea? In either case, as Janet has pointed out, the negative gearing bit would only apply to new builds, and anyone who bought that asset doesn’t get the benefit, so you could be stuck with a house on the otter suburbs is a perpetually dog.

      However the whole NG issue think it a marginal question at best. Personally, you either have it or don’t. I think this proposed hybrid system fundamentally flawed. I don’t think it material to the continuing housing boom… however as I have previously said, maybe NG could save our banking system when we have this inevitable housing crash? One has to socialise the costs somehow – and personally the investor is better at it than the Government purse bailing out the banks IMHO.

      All these pollies seem so far behind the curve. I totally agree on one point though – its the Mum’s and Dad’s on this one who will be wiped out. Previous analysis from quoted academics are totally wrong on this one…

      • By their very nature, Banks can only ever be underwritten by the State. There is no market investor big enough to carry the sheer weight of fiat. And all of those little investors doing their bit to prop up bank balance sheets by continuing the property Ponzi are only kicking it down the road. At some point government has to step in and say, enough’s enough, kids. Opening the immigration sluices will be one way of propping demand, and really that is the least worst option compared to perpetuating what is essentially – if you follow the logic of the Property Council and other lobbyists – just a massive crypto-socialist rent control system masquerading as a free market.

    • Quote from the Janda article, “The very reason that many housing investors fall below the $80,000 threshold is because they have used negative gearing to slash their tax bill.”

      My emphasis.

      And this is one of MB’s points too.

      • You’ll have to excuse 3d on this one. He has little to work with on this issue so he keeps coming back to the same point even though it doesn’t support his position.

        Of course you’d use incomes after tax deductions to argue for those very same tax deductions, wouldn’t you?

      • Yeah – prove it…

        The fact is you can’t, because the data these Uni types rely on won’t allow that type of deep data analysis. It only measures total outcomes – in this case, taxable income (you make the conclusion) that the rich are are hiding taxable income – with absolutely no proof – why? You don’t entertain the possibly its a mass delusion of Mum’s and Dad’s buying on speculation, which is a far more plausible outcome IMHO. Because the data does not allow that kind of interrogation…. Its data in and data out. The conclusions are simply bridges in the sky with no quantitative bias. A fundamental analysis of anything is to understand your data, its strengths and weaknesses – and whether or not you can make various implications or conclusions.

        Think about it logically, income is income, losses are losses. Even of the best outcome, you only get a partial rebate on losses. NG does not fundamentally influence the investment decision – it only makes it easier to believe that you can sustain the interim loses whilst you make big capital gains when you sell. That is the fundamental description of Ponzi Finance.

        And lets correct another misconception, wealthy people in the advent of a crash, will be able to transfer their wealth from other sources to sustain the downturn. And this is also a fundamental flaw in the numbers, given the number of investment properties now existing (at one stage out numbering residential homes bought) – cannot be sustained by the rich (there simply aren’t enough “rich” people!!! Its the Mum’s and Dads who do interest only loans, and put 5-10% deposits, like virtually every seemingly middle class investor out there (including my local agent apparently) – when prices fall 20-30% on their investment properties, its they who have to go bankrupt. There is no logical other outcome.

        And one last thing, because no one thinks third or fourth order derivatives on these threads; think about our banking system. A housing crash will require the government to step in and save the banks, pushing up national debt by 100-150% overnight. It has happened before, recently.

        The assumptions drawn on these threads, is just self reinforcing platitudes. Group think. Self congratulations on those deserving Mum’s and Dads who are about to have their lives destroyed. It brings out the best in people – makes be proud to be an Australian. Who said the tall poppy syndrome was dead.

      • ATO has previously advised average NG loss claimed for single NG investment property was around $8/10k (can’t recall, Mike Janda via Twitter advises it was $10k). Majority of investors have a single investment property.

      • I tell you now… Australia could possibly survive a mining crash (it will have to anyhow) – but this housing crash will rival Eire I reckon. And will be just as bad. mark my words – our elected Pollies will throw open the door to Asian immigration as a solution.

      • St JacquesMEMBER

        Serious issue you raise RT, even though the wealthy may dominate in total claims, the ordinary investors are large in number. A number of people here have raised concerns some time back on the danger of a crash following a reform leading to a reaction against reform. Maybe we should slowly phase in the change, gradually reducing what can be claimed over an extended period? I’d like to see what MB and some others have to say about this.

      • I disagree only on two points (a) the crash is coming and NG, or even cutting it won’t affect its outcome. Not even Labour are stupid in that instance to drop NG if you look closely, I believe Bowen is lying. Turn the volume off and watch him…; (b) given that this crash is inevitable, NG could be extremely useful convincing or at worst encourage investors not to go bankrupt on mass and force the government to bail out the banking system (which they will have to do anyhow – its just a matter of scale). If one could dissemble sufficiently to allow the collective to believe that if they suffer the losses in the interim and hope for some recovery down the track in the future – then ironically NG could be essential to save the Australian banking system. It would allow the individual to socialise their loss over several decades or more. They could still make a capital loss when they sell eventually, but the family balance sheet will have been repaired in the interim.

      • “It would allow the individual to socialise their loss over several decades or more.”

        Given that negative-gearing would be grandfathered for existing owners, how would Labor’s policy prevent this?

      • Good question – and a multi faceted answer I’m afraid… I don’t know, I haven’t seen the detail of the Labour proposal. BUT – I suspect that in the advent of a deflationary event, if NG was dropped for all other purchases except new builds (and trust me, no one will be chasing them) – then you will be a major investment housing deflation event too, because after seven years you get your life back. Otherwise you could spend decades paying back, with a loss at the end.

        You are dealing with mass psychology here. Remember, fear is our most primordial emotion. If you know you are about to make a massive loss, and NG, seen as a support, is severely curtailed with no future buyer of your hose being able to use it, it could be a mass trigger (whereas in reality I think it plays only a marginal affect on the overall financial proposition).

        From a personal perspective, I would sell anyways, NG or not. But I do look at things differently.

      • @ Researchtime

        This ignores that this proposed policy change would make no difference to the scenario you are describing.

        Existing investors under this proposal will retain the ability to negatively gear, so there is no question of needing to retain that component to ‘socialise’ the losses and avoid bankruptcies. If the crash is as bad as you anticipate, then nothing will save us, negative gearing on existing or new builds or no. It won’t be the discount on capital gains that becomes the problem, as much as the expectation that there is a capital gain at all.

      • Yes it does – your thinking matches the average Mum and Dad thinking. You claim NG help create this boom (I disagree – I think it global growth debt and more importantly debt cost). Given you and the average punter will do anything for a small tax benefit – take that away, especially in the advent of property crash, and trust me, NG will make a fundamental impact on the future investor decisions, and future investor psyche.

        At that point, investing in property would probably be a bloody good idea IMHO. As long as you didn’t change CG.

      • @ Researchtime
        ?? Not sure if your response was to me, and even then it is not very clear, and mostly evasive.

        I claimed nothing – I asked how you thought the proposed policy change affects the scenario you are describing wherein people still need to be able to socialise their losses (i.e. continue to deduct losses against salary) ? You still haven’t explained that. What you essentially seem to be saying is that we need to maintain the stream of greater fools to ensure capital growth expectations are maintained.

      • @3d1k
        Well, then by that logic it shouldn’t be a concern to remove negative gearing as long as the other conditions (easy and cheap credit) remain in place. So, to the extent you are concerned that property prices need to be maintained at current levels, your lobbying efforts should really be channelled to the BIS, APRA and ASIC (oh that’s right – the Bankers Association have got that covered).

      • The short of it – I think it does because it affects potential new buyers… although financial miniscule. You miss my point abut the effect of mass psychology. When you have been the in the markets for a while you realise the majority of investors are not rational beings. Its up by stairs, down on the elevator.

        Housing is no different.

      • @ Researchtime

        Thanks, but you’re not telling me anything I don’t already know. Yes, of course markets are driven in large part by investor psychology. But you specifically raise the point of NG as a means of allowing investors to socialise losses (i.e. by continuing to deduct losses on property).

        The proposed policy will not change that for existing investors, in which case I come back to my question – are you really arguing for maintaining the incentive for new investors to come into the market (i.e. the prospect of a capital gain significant enough to compensate for the operating losses ?).

        If so, and if you are expecting a crash via a reckoning from the debt dynamics which have helped spurn the same frenzied investment activity, then how do you think a capital gains discount is going to help anybody in an environment of deflation expectations ?

        If cheap and easy credit was the problem, then let its reversal be the solution. The proposed policy will not change that. Existing investors can continue to ‘socialise’ their losses.

      • To answer all those questions – which I have answered above… let me ask you one. In a property crash – would NG induce you to buy a new build?

        Exactly…

      • @ Researchtime
        Look, what you’re saying isn’t really that arcane. I get it. But you should be clearer about it.

        That is – Negative gearing and CG discounts need to be maintained to prop up capital growth expectations. Because without that, there is no investment, and no ‘wealth’ in Australia.

      • No – you missed it entirely, its all about the market… its all about perception. The “wealth” is just an illusion and people bought that illusion. I could almost promise you, not one in ten thousand sat down and worked out the NG value before they bought an investment property.

        Its all about the market… when it falls its not coming back for a long time. No matter what governments do.

      • Yes, I get it Researchtime. What you are describing is not a particularly mysterious concept. However, you now seem to be contradicting your previous rationale that NG should be maintained to sustain that market ?

      • No you clearly don’t get what I mean. Its perception… thats all it is. When this correction kicks off, the ramifications for the average Bunnings worker, real estate agent, gardner, builders, brick makers, truck drivers, fast food joint worker, Harvey Norman, unemployment benefits, etc, etc. You think this NG discussion important. No its not – Chris B. is lying to the lot of you and swap his position immediately.

        Get rid of NG in crashing environment??? – trust me, it will never happen. The market impact will be orders of magnitude greater than if you just left it (i.e. the cost to the economy via the loss of confidence will be orders of magnitude greater than any possible lost tax take). Governments will be too busy spending, telling you everything is alright. Here’s a prediction for you, Labour or Liberal, funds will be made to encourage investors to buy to support the housing market… low interest rates and NG will be key planks.

        Have a look at Sweden, country is about go of a cliff, a true train wreck in motion, the housing market off the scale and the bubble now large enough to take down the whole economy – and what does the Central Bank do – it lowers NEGATIVE rates even more!!!! Upsets the whole global economy.

        If a socialist country can go down that route – we are a shoo in…

    • #d Please find the income like an EBIT and get back to me about the myth you assert.

      Put up, to support yur claim please !

    • And as existing investors, nor will their entitlement to negatively gear be removed by this policy.

      The policy will effect new investors, but apply to new builds only.

      So happily, nurses and police officers and accounts receivable clerks and bus drivers and retail assistants and cleaners can continue to negatively gear an investment property.

  17. It means taking on the banks too. Needs to be kept in mind.

    Banks WILL take another leg down if this gets up, as specufestors are just part of the rentseeker food chain, but they think they are at the top.

    They are minnow !

    • The Banks will be just fine. They have one capacity to see to that, that most other businesses do not. They can uniformly widen their margins. They’ll do it together because as we all know, it’s just one big Megabank, anyhow.

      • This fact brings me great joy because it is pure action-consequence and completely fair.

        All the debt-insatiables happily signed up for 30y of the good stuff, with no cap on the price or downside hedges – At a time when prices are at record highs, debt is the cheapest it has ever been and the economic outlook isn’t looking strong!

  18. Excellent performance by Chris Bowen. Labor did a 180 degree on this. I remember not long ago (maybe a year or less), Chris Bowen saying that negative gearing was not on the table for discussions. Finally labor decided to listen to common sense and Grattan Institute and MB. Well done labor.

  19. The CG discount change is the real policy here. This is what will make money for treasury and as far as I can tell, it is not grandfathered.

    • You are in fact entirely and moreover, more correct than anyone else on this thread. Thats the one that scares me, and could push me overseas. NG is a nothing much, but CG change would fundamentally change everything about being an Australian investor (and whether you would want to be…)

      • Some very good points here and above RT. As much I still see a collapse coming, NG is a small piece, the CG is the real killer. Add in the other small elephants like Chinese builders allowed to import Chinese workers for their new projects and the limitations on sales for foreign buyers (ie the old title transfer in Beijing to another Chinese national is no longer legal – never was, but never pursued), and the influence on group euphoria will take a big hit. The fact that the discussion is in the MSM may be enough to cause either herd buying or selling, I am not sure which it will be as the animal spirits took a large hit late last year, and have made a very small return this year.

    • innocent bystander

      yup.
      and CGT is not just on property.
      the NG for new build only tho can have all sort of consequences that might be difficult to model… eg current speculators might want to get out now cause they might think there is no investor market for their 2nd hand property if the rules change.

  20. Just heard Bowen on ABC radio this morning and he was very good – composed and able to answer each question the callers gave him directly, whilst saying his position. It looks as though Labor has done their homework on this one – probably searched NG on this blog and read every page written – his answers came straight from the MB playbook

  21. I guess the ALP have about a 30% chance of winning the election. If we were talking about the sharemarket I think we’d see a 5% fall across the market as it prices in the new risk.

    • It is interesting as there new position would appeal to boomers, who no longer really need NG and the young. The removal of NG is a demographic thing, not an economic thing.

  22. Terror Australis

    Chris Bowen was smashing them out of the park in that Insiders interview. Really impressive performance.

    • Well yes, but that’s only because for once he was telling the truth. Our expectation is for corporatist Laberal party politicians to spin and lie – what we normally get.

    • But the ABC host did not ask the most important question “why did you not grandfather it when Rudd was in power”.

    • Indeed it was a very impressive performance from Bowen. Its amazing how much better politicians perform when they have the go ahead to prosecute the case for a policy they actually believe in.

  23. And here come the vested interests on the attack … this just in from The Australian http://www.theaustralian.com.au/opinion/columnists/henry-ergas/negative-gearing-plan-an-exercise-in-cirque-du-soleil-economics/news-story/b1bb4c05cf8d1e4fbbfe2c8d0cda98b2

    “on a rough rule of thumb, raising capital gains tax by 1 per cent ­requires a 2 per cent increase in rents to keep returns constant. As a result, even a 15 per cent increase in the effective tax rate implies rents must rise, in real terms, by nearly a third”.

    • Seems odd that tax changes would force rent increases to maintain constant returns but price increases have largely result in yields dropping.

  24. Why didn’t Labor discuss this when they were in power instead of ignoring it? Why do they always come up with grand promises when they are in opposition then do nothing when they get to power except make matters worse?

    http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=pressreleases/2008/107.htm&pageID=003&min=ceb&Year=&DocType=

    http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22library%2Fpartypol%2F4ZLN6%22

    I’ll believe it when I see it. I’ll be happy if they make the changes but I don’t trust Bowen to keep his word.

    • Of course he won’t there are so many property speculators out there now, that Labour would never get elected.

      • If you weren’t a property speculator (the majority of Australian’s aren’t), would you prefer to continue with the existing negative-gearing regime (that you don’t benefit from) or limit it as Labor proposes and get tax cuts or increased spending in return?

        Yes, the policy will lose some votes but I don’t think it’s at all obvious that it won’t gain at least the same number.

      • I am an investor. And given the lack of financial expertise on this thread let me give you a fundamental axiom I have noticed. The method in how you make your money is where you invest your time and perfect your methodology. But such is Greek Hubris, it will also be your undoing…

        The Mum & Dads ( I won’t worry about the wealthy – I think Chris Bowen quoted a completely fiction number in that interview) invest $100k into a house in Sydney three years ago, costing a fictional $500k. It has subsequently increased to $750k today – their profit 250%. NG will allow them to sustain loses in the interim – lets say it is a massive loss making machine, losing $5k pa (hard to believe, but possible, maybe accelerated depreciation), assume a working family with a marginal tax rate of 30% – they will get back $4.5k over that 3 year period or $1.5k pa Which in the light of capital gains is minuscule. Even if you assume a rich person owned this investment property – at 45% – its only $6.75k benefit over the three year period.

        This is the nonsense of the whole argument, the NG benefit against the capital gains in recent years is simply not comparable. It has always been about CG…

        I wish I was as smart as everyone else and bought stupid amounts of property on interest only loans years ago…

        But this is the Hubris part – if I did, and I thought myself a clever chappie, I would leverage up again, and bought another, and leveraged up again and bought another… and so on! NG may help a little, but as long as growth ensued, banks would still lend me money. But because of my leveraged position, when this down turn inevitably comes, its will be the banks collecting the rent – not me.

        Check out this guy, worth $50m, 200m homes – meaning he has only $25k of equity in each one house!!!! Bloody hell, monthly variation in house prices are greater than that. He is totally toast (http://www.dailytelegraph.com.au/realestate/nathan-birch-owns-200-properties-after-buying-18-at-the-start-of-this-year/news-story/686a64e695bf5a4f592ebe55e48c5d5c) – timber… i wonder how much his car would be worth????

      • @Researchtime – I think I agree with everything you’ve said there. I don’t blame NG for our housing bubble but I do think it’s added to it at the margin by (a) allowing people to leverage up by decreasing carrying costs, and (b) encouraging speculators to focus on the tax deduction rather than the actual merit of the investment choice.

  25. Part of the reason why property developers object could be timing of deductions on holding costs of land banking of both raw land and of properties held for anticipated rezoning to higher densities. I can see the possibiilty that many developers will suffer a cash flow hiccup as they start to have some interest deductions deferred and so have to pay some tax on profits in previous developments during na transitition phase of possibly several years. After that the timings will be stable and if the ban on negative gearing of existing propoerties is repealed they would may get an effective cash injection, or maybe just generate carry forward tax losses with insufficient taxable income to acutally use them.
    The big landbanking developers will be doing their numbers on a range of scenarios, right through the range of activities in which they engage. After that we might or might not see a change in the developers’ lobbyists positions on Labor’s proposal.
    The other possibility is that developers as a group have a significant majority which hate federal Labor with a passion and will always try to poison any Labor policy as a first reaction, even if their is no real adverse effect from the particular policy. Rember the palpable hatred of Gillard? Maybe it was just a manifestation of the combined effect of hatred of Labor and misogyny.

  26. I’ll tell you all a badly kept secret about all those on 7plus figure remuneration packages. They have many tax options! At the low end it might be as simple as novated leases, at the high end it’s Private bankers. To a man (and woman) these bankers will advise you to minimize your actual take home pay (wage) and structure the rest of the package in a tax effective manner.
    Now I’m not going to get into the whole morality issue suffice to say this is reality.
    OK NG is a very simple ways for high wage Aussies to change Wages into capital gains and thereby achieve a dramatic reduction in their tax rate. It’s simple, it’s straight forward and it’s available to all, as a result the private bankers add little value. OK lets march forward into a world where NG does not exist. It wont change thing’s much for the 7 figure guys, all that will happen is their excess wages will find some other tax effective “dodge”. So who’ll it really effect, well certainly not those on mid 5 figure wages, they simply cant afford to be in the game. My best guess is the weight of these NG changes will fall on the shoulders of those earning in the low 6 figure bracket. There are no private bankers that’ll go to bat for them, there are no specific ATO tax opinions that one can shop for, all that’s left is to pay the ATO according to whatever bracket they believe you belong.

    • Bang on CB, again – people are truly naive about the real picture here…

      Even the wealthy don’t buy houses for the NG benefits.

    • There will be other tax loopholes to exploit that are less socially destructive. The trouble with negative gearing is that low 6 digit income earners are ruining life for those on 5 digit incomes as well as our current account deficit.

      • In my experience (yes I have lost 40% on a home) – its when you lose your job, and it coincides with an economic downturn, and that beautiful home which you have lavished attention upon, borrowed against – it now worth less than you paid for it.

        And better still – no one will buy it… because in a deflationary event, the clincher is buyers anticipate the falls, and realise that if they wait a bit longer they can get it cheaper still. In the meantime you are sinking further and further into debt.

        This deflationary event for housing will only kick of in ernest in Sydney and Melbourne when the unemployment rate starts to spike.

      • There will be other tax loopholes to exploit that are less socially destructive.
        For the 7 figure guys you’re absolutely right. For the low 6 figure guys it’s not clear to me that this is necessarily true and in any case the loop hole will take time to develop and time to spread, In the mean time a lot of good honest hard working people will get royally shafted.
        All I can say is I see these ridiculous graphs showing NG as inequitable wrt salary package and there’s some expectation that that lost tax revenue will be regained if NG disappears (see above)
        As for NG elimination shifting the game away from Australian residential RE, I’m not so certain that this is true and the reason is basic accounting 101. All investors have the tax right to subtract operational losses from operational gains before they calculate tax, this is kinda fundamental Accounting 101 stuff, so wrt the 7 figure guy if he loves RE than it’s likely not a wage substitution game that he is playing. Bottom line he’ll still enjoy the benefits of NG it just wont be called NG.
        However at the low 6 figure end, you’re @#$%ed. I’m not sure I’d call this a fair tax policy.

      • @ China

        How does this proposed policy change impact those existing low-6 investors you are describing ? It doesn’t. They can continue to claim losses against income. If they want to continue investing in new properties, it will have to be for new builds.

        Now, to be sure, capital growth expectations are going to shift (they will anyway in a crash, NG or no), and that is going to impact the dynamic in people’s investment decisions. Which is the entire point. Otherwise, you are just building a monstrous State backed rent-control scheme which is piling risk upon balance sheet risk, funnelling inordinate funds into residential property.

      • @green I’m not for or against NG, I think it’s an absolutely stupid tag on tax policy that can be completely eliminated (and voluntarily surrendered by all) IF as a society Australians have the guts to truly reform their Tax system.
        You see these faux reforms like NG tinkering waste the crises (housing affordability..in this case) and the real “value” of a crises is its ability to sway deep seated public opinion. So we’ve created a crises and therewith we’ve created an opportunity for our politicians to spend their political capital or implementing real change, or simply tinkering with feux change.

        For me our capital city housing affordability crises is really just a reflection of the lack of long term opportunity outside the capitals. I’d challenge you to go to any rural/regional Australian high school and ask the year 12 class, if all their dreams come true, where do they see themselves living in 5 to 10 years. Now modify the question and see where they’ll be if their dreams fail to materialize. I’ve done this exercise, success = Sydney/Melb maybe Brissy while Failure = Home town with a shitty job and some sort of welfare support.
        Imho Australian tax / housing policy needs to be focused on reversing this trend and creating unbelievable opportunity outside the capital cities (indeed the mining boom did this but not for long) Reverse the trend and you’ll enable Aussie businesses and individuals to exploit the our real advantage which is plenty of available land.
        So for me NG is a distraction, the real path to housing affordability is decentralization, trouble is there’s zero political will to make this happen.

    • One of the tried and tested models for corporate Australia is to shift the head office of your division to Asia and become a non-resident. Very tax effective.

    • Then we fix those too.

      “There are other problems” is not an excuse for not fixing some of them.

  27. Wonder how many journos will declare before an interview if they own a home and if they NG. Think Bowen should do his homework and take on journos who do not declare this upfront. The great thing about this policy is everyone in Parliament has a massive conflict of interest with NG property. He can simply point this out that they are talking their own book ( for instance turnbulls wife NG their Canberra penthouse). It is a policy that is very hard to argue against. In addition he can quote Hockey back at Morrison. This is smart politics.

  28. So in ten years time we will be in the same boat. Negative gearing on new builds tick, and then it can only be negatively geared for 5 years or wherever the balance of entering v.s. exiting is equal.

  29. Locus of ControlMEMBER

    The ALP is making the right noises, but would they renege if elected? Whenever politicians make promises preceding an election I’m always reminded of this little parable.

    Grandson to his grandfather: Granddad, do all fairy tales begin with “once upon a time”?

    Granddad’s response: No my child, many fairy tales begin with “if elected, I promise”.

    I’ll believe it when I see it. I’m too young to be this cynical 🙁

    • Right now, I dont believe Labor would get elected. The Libs are still on a Malcom high and the public dont seem to be impressed by Shorten.

  30. How good is that headline photo??!! That kid looks like a ripper and will be a real winner if they actually get on with some genuine policy reform! Go fella go!!

  31. The CGT discount is definitely being grandfathered and is likely to lead to a lengthening of holding periods. Investors holding 50% CGT properties will want to hold on longer because a replacement investment property won’t carry the same benefit. Total CGT collections are therefore more likely to decrease than increase, at least in the foreseeable future. It’s a fact that CGT and stamp duty collections both ramp up during property upturns, so arguably a lower CGT discount will result in a loss of existing tax revenues as flipping is replaced by longer holding periods. In true ALP style, this offsetting effect (including on State Govt revenues) will not have been contemplated in their forecast savings.

    • “In true ALP style, this offsetting effect (including on State Govt revenues) will not have been contemplated in their forecast savings.”

      In true partisan style, you’ve ignored the fact that the costings come from the PBO, not Labor themselves.

      http://www.abc.net.au/news/2016-02-13/bill-shorten-negative-gearing-capital-gains-tax-plans/7165462

      Under costings released from the Parliamentary Budget Office, the measures could save the budget $32.1 billion over 10 years once they come into force.

      • AB: No, I’m actually a swinging voter. How confident are you that the projections communicated by the ALP include behavioural impacts – or are you prepared to accept the projected savings as presented on face value?

      • Or, getting back to the actual point, do you think there aren’t any behavioural impacts – and, if so, why?

      • AB: After digging around a bit (as suspected), these costings were released by the PBO with “low reliability” due to the difficulty in predicting consumer behaviour. This is the second lowest of a six scale reliability/confidence ranking.

      • “How confident are you that the projections communicated by the ALP include behavioural impacts – or are you prepared to accept the projected savings as presented on face value?”

        I’m confident that PBO figures can be used as rough relative measures when comparing different budget saving options. I certainly don’t have confidence that the absolute numbers will be accurate, but I think that relative numbers can be useful in comparing different options.

        I actually don’t care what the figures are anyway – I think the policy changes stack up on their own merits and any budget savings would be a bonus. Though I’d prefer to see all losses quarantined to the asset class that generated them and the re-introduction of CGT indexing rather than a flat rate.

        Edit: @Stitches, I’m not surprised by the low reliability of the estimates. And remember that my original comment was in response to “In true ALP style” – I don’t believe that the LNP would be any different.

  32. Are there unintended consequences in the ALP’s proposed changes to negative gearing (NG) and the Capital Gains Tax discount?

    Is there the risk that quarantining NG deductions to new constructions only will further drive upward price pressures in that part of the housing market where most first home buyers acquire homes?

    Instead, consider capping the NG rate of deduction to 30 cents of each dollar of claimable loss, equal to the corporate tax rate. This would trim one-third of the NG leverage power of those in the highest personal income tax bracket of 45% and would take much of the speculative heat out of the property market.

    The ALP’s proposed halving of the CGT discount from 50% to 25% is just plucked out of the air. The 50% CGT discount rule is just as dumb and arbitrary. Labor, and the Coalition, would do better to simply reinstate the CGT rules that Treasurer Paul Keating enacted, i.e. realistic adjustments for inflation and cumulative years of division of the capital gain (CG), to place the capital gain on par with annualised tax on incomes.

    Those who argue for no adjustments to the income tax rates when applied to CG simply miss the fundamental difference between CG and recurrent incomes as two different classes of financial gain. That is, the periods (numbers of tax years) over which each class of financial gain is taxed yields vast differences in their tax outcomes.

    CG is often accrued over many years, but is taxed in one year upon the asset disposal, and is thus exposed to the lowest income tax rates only once-off.

    Recurrent income is always taxed annually in the year it is earned and thus enjoys the tax-free threshold and the lowest available tax rates each year.

    Thus any CGT rule change must accommodate not only the impact of inflation, but also the availability each year to the CG earner of the lowest annual income tax rates applicable to the financial year’s income tax scales, starting with zero tax rate for the lowest income interval.

    People saving and investing should not be punished for foregoing personal spending by investing in the longer term. Failure to include full time-period adjustments to the CGT formula will drive capital investment offshore and will give incentive to investors to invest short term, e.g. buy and sell ASX-listed shares on an annual basis to avoid propelling the longer term CGs into higher marginal tax rates – an easy work-around. But small business investors, e.g. family-owned farms, restaurants, building and trades-services companies can’t “flip” their business assets annually!

    • “Labor, and the Coalition, would do better to simply reinstate the CGT rules that Treasurer Paul Keating enacted, i.e. realistic adjustments for inflation and cumulative years of division of the capital gain (CG), to place the capital gain on par with annualised tax on incomes.”

      I completely agree and I’m not sure why Labor hasn’t proposed that. To radical a change perhaps (even though it would be returning to an earlier position)?

      • The change the ALP is proposing is more “radical” than the Keating method. Holding a $500K property for 10 years with annual CPI of 2.75% and annual property price growth of 5% would result in taxable income of $159K under the Keating method, $157K under the current “Howard” method and $236K under the proposed ALP method. At 25%, the effective CGT discount will be less than the CPI deflator in many if not most situations (meaning that nominal rather than real gains are being taxed to an extent). I also favour the Keating method because it is more intelligent with fewer distortions, not because it raises more tax overall.

    • “Is there the risk that quarantining NG deductions to new constructions only will further drive upward price pressures in that part of the housing market where most first home buyers acquire homes?”

      Do most first home buyers actually buy new homes? I’ve never seen any figures but that seems very unlikely to me on first glance.

    • Also known as “how to put another rocket under asset values”.

      Treasury wouldn’t be such a big fan unless somehow deflation + capital growth.

  33. It is still unclear to me what the purpose of the policy is? Is it raising revenue, encouraging new home builds, increasing housing affordability and a bit of each?

    Regardless it seems like a high risk and inefficient way to do either. Despite the ongoing crusade of MB against NG, I guarantee you that no one really knows that the impact of this will actually be on property prices, share prices, interest rates, housing affordability, tax revenues etc.

    On the upside, the ALP have no hope of being elected anyway.

    • ” the ALP have no hope of being elected anyway.”

      I beg to differ. This is what a lot of people have been waiting for. The fact the vested interests are all up in arms only suggests to me that prices off existing property will drop as a result.

      Bare in mind when Abbot came to power, it wasn’t about the Libs winning, rather Labor loosing after all the Gillard/Rudd mess. I believe there is a lot of buyers remorse out there as a result of the subsequent mess of politics that Abbott & Hockey made. the fact the leadership has gone to Turnbull, doesn’t really change the fact that little has been done to change the existing policies (getting rid of Knights & Dames? who cares)

      Labor’s new policies represent real change and will bring back the previously disillusioned labor voters, Gen X & Y who have been priced out of the market, their parents who (whilst probably ordinarily liberal voters) will recognise the existing govt isn’t enabling their children to buy a reasonably priced property. I think that’ll be enough to get them over the line.

  34. The cute kid on the photo for this article has a better chance of electoral victory than Shorten, even if Bill spent every minute from here to his final rebuke with his face prominently splashed across the Daily Telegraph kissing the photogenic offspring of non-property investing Target-catalogue plus-size models in low-cut blouses. The guy is just one big facial twitch foreshadowing a stroke.

    The relief rally in residential property come the post-election Spring will shine like 1.3 million suns then sink slowly into the horizon, throwing a long and oppressive shadow over the ALP.

    Bowen will soon tire of the relentless lobby group attacks and pollsters pissing on that carefully manicured Sir Walter Raleigh, and this policy will be suffocated faster than a redneck’s screaming shot-gun baby.

  35. From the Urban Development Institute of Australia (UDIA):

    “One of the key measures was the ring fencing of negative gearing to new properties only and the partial removal of CGT discount. The policy put forward by Bill Shorten has all the hallmarks of poor public policy. It fails to recognise that negative gearing and CGT system work hand in hand. Negative gearing is not a tax benefit, it is a tax deferral. Throughout the ownership cycle an investor receives yield support through negative gearing and this support is clawed back through the CGT system when the property is sold. By removing negative gearing from established properties and investment retaining the CGT is tantamount to a new property tax. Our fear is that this will lead to capital flight from the property investment sector to other asset classes.”

  36. All this is way too late. Cats out of the bag. Should have done something about it while interest rates were high. This may have an effect on house prices and leave the RBA with little room to move.
    1/ Howard – threw fuel on the fire with CG tax concessions, superannuation breaks for property. Fail
    2/ Rudd – promised to do something about it but did nothing. Fail
    3/ Glenn Stevens – failed to regulate, failed to alert about the dangers, should have banned interest only loans,no deposit loans, liar loans, regulate non bank lending.Fail
    4/ Hockey – talked tough early on, did nothing Fail
    5/ Morrison – tells lies trying to defend it, says it’s good for teachers, policemen, nurses when it’s clearly for the rich.
    Tell me this. Fail
    Why should someone on an income of 2million dollars be allowed to reduce his income to the point that he is on welfare through NG?
    Why not make it retrospective?
    Why should they be allowed to get away with it
    They will just gear up to the max until the new laws come into play
    Fail

  37. Steve Ciobo’s attempt to defend negative gearing on property tonight on Q&A was an absolute train-wreck, entirely smacking of complete desperation.

    I will give Labor one thing, they have finally forced proponents of negative gearing to reveal the awful truth, their greatest fear – that without it, our ‘wealth’ evaporates.

    The tide is out on these shysters – they are revealed with hands at the levers of a massive property Ponzi scheme.