Australian Treasurer, Scott Morrison, who has deep ties to the Property Council of Australia, gave another poor performance in Question Time yesterday whereby he once again attacked Labor’s proposed property tax reforms because they would harm ordinary “mums and dads”:
Here’s a sample of what Morrison said:
“Those teachers, those nurses, those defence force personnel. Those opposite think that they are the problem with negative gearing… So they want to say “no, you can’t engage in it any more”…
“What this side of the house understands is that mum and dad investors – people who are out there working hard each and every day, trying to provide an opportunity for their future – we think they deserve a fair go when it comes to negative gearing. And they should be able to continue to do that… Those opposite disagree”…
They [the opposition] want to take one-in-three purchases out of the real estate market… And say to everybody in the house that they own that when you try and sell that on, you will be selling it to a smaller group of people…”
To call bullshit on Scott Morrison’s claims is an understatement.
It’s not ordinary “mums and dads” that are primarily engaged in negative gearing, but higher income earners. The RBA has shown that the ATO “taxable income” statistics that Morrison relies upon to make this claim are flawed because they are what is left after deductions like negative gearing. They also do not include those with high superannuation income, which is exempted from tax.
Here’s the RBA’s head of financial stability, Luci Elliss’ comments on the matter:
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 RBA has also produced the below chart showing that nearly 80% of investment property debt is held by the top 40% of income earners:
The ABS’ latest housing occupancy and cost data also showed that the richest 20% of households accounted for 39% of all housing investors, with the top 40% of households accounting for 61% of all housing investors (chart from Greg Jericho):
Whereas 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, whichever way you cut it, Morrison’s argument that ordinary “mums and dads” are the main beneficiaries of negative gearing is complete and utter rubbish.
Morrison’s argument that sellers would be adversely affected is also ridiculous. Most people that sell a home then purchase another one – we all need somewhere to live. So while sellers might receive a lower price, they would benefit on the flipside when they purchase another one. They would also pay less transaction costs (e.g. real estate commissions and stamp duty).
And what about would-be first home buyers locked-out of home ownership? Do they not matter?
But it wasn’t just Morrison that threw the poop, here is Prime Minister Malcolm Turnbull’s take on negative gearing yesterday in Question Time:
“What the Labor Party has proposed with regards its changes to negative gearing undermines the value of the largest asset class in Australia. It undermines the value of every Australian home… It will ensure that hard working Australians on average incomes – a nurse or a teacher, a police officer – will not be able to buy an investment property… [Labor] says they should just be happy to buy a residence. Only the wealthy than can negative gear against their investment income will be able to buy existing residential property under the Labor Party… That kind of bizarre inequitable outcome is what happens when political parties… formulate policies without carefully examining them”.
The Prime Minister is also pulling material from his nether regions . It is precisely essential workers like police and nurses that are locked-out of home ownership, thanks to excessive competition from investors courtesy of policies like negative gearing and the CGT discount. It is they that stand to benefit the most from Labor’s policy via both more affordable purchases and rentals.
And finally, if you want a view of what the Turnbull Government really thinks about housing affordability, and young Australian’s right to purchase a home, look no further than the back bench, which is now driving Coalition policy.
Here’s what Andrew Laming, a Queensland MP representing the Division of Bowman, posted on his Facebook page:
…the negative gearing solo flight is rapidly turning into an aviation catastrophe. On bang for the buck alone, this is small bikkies for the political heat it will generate.
But it’s the kind of heat that matters.
Let’s bust myth one. Changing negative gearing won’t help young people into their first home. More importantly, young people don’t think so either. The most important thing for young people is to raise a deposit. They desperately want the first home owners grant to count towards a deposit, because it gets them out of renting and onto the property escalator a year or two earlier.
Young people with a deposit really don’t care about house prices, because prices are always high in Australia. They simply go to the bank, are financed to a limit and then go shopping.
The people who do care about house prices are the sellers. Especially retirees downsizing or families trying to deleverage. For them, a $20,000 shortfall because investment buyers don’t show up at auction is a catastrophe. Purchasing an independent living unit in a retirement village or paying an aged care bond are examples of where every dollar will matter. All those Australians will be selling existing housing that will be banned from negative gearing.
That is why Labor’s plan to end negative gearing on existing properties for nearly 40% of us who are investors is the curse that will keep coming back on the economy…
The subtext of which is young people don’t matter. We don’t care about their future, or whether they have a stake in this country.
