The transformation of Malcolm Turnbull into Tony Abbott has continued, with the Prime Minister ruling-out any reform to the capital gains tax (CGT) discount and placing the sovereign directly behind house prices. From Domainfax:
Facing his first opinion poll pressure since becoming Prime Minister, a newly aggressive Malcolm Turnbull has warned that house prices would fall steeply under a Labor government, harming personal wealth and smashing confidence.
Accusing Bill Shorten of indulging in a “soak the rich, politics of envy” approach, Mr Turnbull ruled out any increase in capital gains tax and declared the government would make its own “full tax proposal” when it is ready.
“We will do so after we have considered all of the considerations — all of the matters — and I can say to the honourable member opposite that increasing capital gains tax is no part of our thinking whatsoever.”
Mr Turnbull went on to tell Labor’s Chris Bowen directly that the shadow treasurer’s place in Parliament would be at risk under the opposition’s changes.
“I will leave the Member for McMahon with this sobering thought,” he said across the dispatch box. “There are nearly twice as many people in his electorate that are negatively geared as votes needed to change hands for him to lose his seat.
“In December, 34.7 per cent of all new housing loans were made to investors,” Mr Turnbull said.
“So what the Labor Party proposes to do is, from 1 July 2017, remove from the buyers for established property over one-third of the demand. And these economic geniuses want us to believe that is not going to have any effect on prices.
“We know that there would be nothing more damaging to confidence and growth than smashing housing prices. Every single Australian recognises that the bulk of most families’ assets is in their home. It is well over 65 per cent across the board, so you knock that price down; you knock that value down.”
Pathetic. In his 2005 tax paper, Turnbull labeled the CGT discount along with negative gearing a “sheltering tax haven” that is “skewing national investment away from wealth-creating pursuits, towards housing”, and has caused a “property bubble”.
Last week, Turnbull also attacked Labor’s negative gearing and CGT policy because they would not raise enough Budget revenue:
“As far as Labor’s announcement is concerned, I will make a couple of observations: one is that it raises relatively little money in the near term, over the next four years, and they acknowledge that. So it doesn’t address the big deficit…”
This criticism by Turnbull came in spite of independent analysis from the Parliamentary Budget Office (PBO), which estimated that Labor’s proposed changes to negative gearing and the CGT discount could save the Budget some $32 billion over 10 years once they come into force. In a similar vein, independent modelling from the ANU’s Centre for Social Research and Methods estimated that Labor’s policy could save the Budget $6 billion a year, with $2 billion per year coming from the proposed halving of the CGT discount.
And therein lies the stupidity of Turnbull’s position: he initially opposed Labor’s policy because it wouldn’t generate enough revenue, but then has ruled-out any changes of his own, thus raising zero revenue.
As noted in Deloitte’s “Mythbusting Tax Reform” report, released in October, Australia’s CGT discount is overly generous and has hurt the economy by driving too much investment into unproductive established housing:
It is also part of the reason why Chart 7 shows that those who earn more than $180,000 a year account for a much bigger share of net capital gains…
Our conclusion? The current CGT discount is too generous, to the extent that it undermines the very principles of this nation’s progressive personal income tax system. It’s time for a change. Reform of the concession is long overdue.
Analysis released last year by the Australian Treasury also noted that high income earners have been the main beneficiary of CGT concessions, with around half of all net capital gains income reported by those earning above $180,000.
The Australia Institute has also found that the lion’s share of concessions flow to richer, older Australians:
Turnbull clearly does not have the ticker for policy leadership and would prefer to follow Tony Abbott’s path of opposing reform for short-term political gain, and keeping the rorts flowing to his property industry mates even if this means taking the perfectly insane step of placing the sovereign directly behind house prices.