Fear-mongering Turnbull dumps negative gearing reform

By Leith van Onselen

Remember Malcolm Turnbull’s 2005 tax policy paper, where he described negative gearing and the CGT discount as a “sheltering tax haven” that is “skewing national investment away from wealth-creating pursuits, towards housing”, and has caused a “property bubble”. And when Turnbull acknowledged that “Australia’s rules on negative gearing are very generous compared to many other countries” and that “the normal deductibility principles do not apply to negatively geared real estate such that the taxpayer is not obliged to demonstrate that the negatively geared property will generate positive cash flow at some point in the distant future”.

And remember just a few weeks back when Treasurer Scott Morrision, who despite having deep ties to the Property Council of Australia, admitted on Sunrise that there are “excesses” in negative gearing:

And remember former Treasurer, Joe Hockey’s parting address to Parliament  when he admitted that negative gearing was a failure and called for it 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…”

Well, the Turnbull Government has given the bird to all of these positions, ruling-out any reform to property tax breaks so that it can run a full-blown scare campaign against the Labor Party. From The AFR:

Senior sources have confirmed to The Australian Financial Review that while the proposal to cap negative gearing deductions at $20,000 a year had been looked at, it has been decided “we’re not going to touch it”.

For the policy to have raised the estimated $1 billion it was worth annually, it would have had to apply to existing investors with multiple properties. A source said it was “in our DNA not to apply tax increases retrospectively”…

The decision to not proceed with changes to negative gearing leaves the government with just superannuation tax concession and tax deduction trade-offs to help fund plans to deliver a small personal income tax.

Stuff policy principle. Stuff tax reform. Stuff the national interest. All the Coalition cares about is wedging Labor by running a negative scare campaign, which it believes will win it the next election.

It’s also curious to see that the Coalition is still looking at capping work deductions, but will allow unlimited deductions for negative gearing losses! How is this in any way consistent?

But logic doesn’t run deep in this government. Here’s Malcolm Turnbull’s latest attack on Labor’s policy from Question Time yesterday:

What the Opposition’s policy will do is have this very adverse effect. It will have this very adverse effect. The Opposition’s policy would mean that investors would be able to buy an apartment off the plan from Meriton or Mirvac or somebody like that, but then when they chose to sell that apartment they would not be able to sell it to an investor. Yet that is the market. So that would have the consequence of not only reducing the value of those apartments on the resale, but it would also start progressively reduce the stock of housing that was available for rental.”

So we are to believe that by targeting negative gearing at newly constructed dwellings, and thus increasing actual dwelling supply, it would somehow “reduce the stock of housing that was available for rental”?

If what Malcolm Turnbull is saying is true, then why does his Government support limiting foreign investors to purchasing newly constructed dwellings only? Here’s the chair of the foreign investment inquiry, Liberal MP Kelly O’Dwyer, explaining the benefits of this ‘new homes only’ policy:

Currently the framework seeks to channel foreign investment in residential real estate into new dwellings in order to increase the housing stock for Australians to build, buy or rent. Foreign investment is encouraged in new dwellings whether they be apartments, units or homes because in addition to creating more supply, it also creates more jobs for the building and construction sector – all of which helps to grow our economy.

Clearly, Turnbull’s opposition to Labor’s plan is full of contradictions and flies in the face of the Government’s stance on foreign investment.

All of which shows that his position has been made on the run for political purposes rather than sound policy judgements.

What happened to this Malcolm Turnbull?

“Ultimately, the prime minister has not been capable of providing the economic leadership our nation needs… We need a different style of leadership. We need a style of leadership that… respects the people’s intelligence, that explains these complex issues and then sets out a course of action that we believe we should take… We need to respect the intelligence of the Australian people. We need to restore traditional cabinet government [and] put an end to policy on the run and captain’s calls”.

Malcolm Turnbull, launching his leadership challenge, 14 September 2015.

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  1. He’s not just fearmongering, he is mightily afeared himself.

    Pathetic excuse for a leader.

      • “And other Liberals fear some colleagues are urging the Prime Minister to reject any change to negative gearing or capital gains tax simply out of financial self interest.”

        Nah, that’s unpossible.

      • The change in media reporting on the West has changed drastically in the past 6 months. There seems to be more and more coverage on falling house prices and much less media spruik on property. Massive turn-around from the first half of last year! Not to mention all of the coverage recently about BHP / RIO reducing workforce.. and this is before the LNG projects finish construction –

  2. moderate mouse

    Yep – this is shitty alright. I was convinced the Libs were going to go with a cap – which would have hit the mega specufestors where it hurt the most (their existing ‘portfolio’) – something Labor’s proposal doesn’t do. As you point out, even SloMo was making noises on this. But now….what? FFS.

    • “As you point out, even SloMo was making noises on this. ”

      I reckon “SloMo” (I like that) has actually been trying to push reform but it’s the troglodytes on the back bench that have against everything.

      • moderate mouse

        No he is one of the troglodytes. You can’t play chief border Nazi with the zeal he did without having a serious slice of troglodyte in your DNA.

      • I agree that he definitely has some troglodyte genes but I think he actually has been trying to push tax reform in this case. He wouldn’t have hung himself out so far if he didn’t actually want to do something as he’s turned out to look stupid now that everything has been ruled out.

    • proofreadersMEMBER

      “which would have hit the mega specufestors where it hurt the most (their existing ‘portfolio’)” – and likely to be among the mega specufestors are? Federal politicians of whatever ilk.

    • “..something Labor’s proposal doesn’t do. ..”
      No. Anything that depresses IP demand (which their NG policy does) depresses prices and that does directly impact ALL IP portfolios.

      • moderate mouse

        Sure, but a cap on deductions going forward would hit uber-specufestors hardest while limiting impacts on SloMo’s cherished ‘mum and dad investors’ – which seems fair given the people with ten IPs are the ones causing the greatest distortion to the market. NG for new builds only makes you horny if you believe in the supply shortage myth – which of course, I don’t.

      • If supply if choked by zoning rules and lack of transport infrastructure (which it is), then stupid things like negative gearing or grants will cause large price rises but little increase in supply.
        The other fact is that epic immigration is swamping the tiny incremental supply anyway.
        Shortage deniers will continue to deny the shortage and the suffering continues.

  3. sydboy007MEMBER

    I truly hope the masses start to realise the boat load of inconsistencies the Govt is trotting out to try and differentiate themselves from Labor.

    Amazing what good policy does for a political party. Just look at the Greens becoming a lot more acceptable now they have some rational leadership.

    I’ve never liked wedge politics, but it’s great to see when good policy is the wedge, rather than the NOBOT we’ve had for many years.

  4. “It is in our DNA not to apply tax increases retrospectively”
    FFS Negative Gearing is welfare.
    Removing NG is removing welfare.
    Removing welfare is consistent with your DNA.

  5. David: While the plot is captivating, the lead characters are totally unbelievable, if not a little creepy
    Margaret: So what are you giving it David?
    David: Three turds, Margaret, hot and steaming

  6. Gen Y Home Buyer

    Time for the next poster in the series after hopeless Tones and Clueless Hockey it’s Gutless Mal

    • Mining BoganMEMBER

      It’s like the Spinal Tap drummer’s curse, except they all died for something memorable.

      Edit: my personal favourite was the one who died choking on someone else’s vomit.

    • Love your login name, you guys represent the 20% of the population that’s never going to forget this.

      May you kill them in the polls for generations to come.

    • How is this for rhyming slang Topless Tones, Crotchless Hockey, C.ntface Mal?

      Too juvenile?

    • BS Crapnel will develop an economic model that proves the sky is filled with polka dots if you pay them to.

      Zero credibility from that mob. The premise of their argument – building more houses will force up rents.

  7. Certainly seals the deal on this no hoper of a PM. Such a disappointment.

    A man with such promise to bring true change and restructure. Yet instead he has put his little boy pants on and cowered to party politics.

    Stuff the country, save the liberal party and Mal’s job at all costs!

    Hate to say it, but I would even rather have Tone and Smokin Joe. At least you knew they were clowns, who were consistent in their foolishness. Mal is just an outright liar and a coward.

  8. Gra ManMEMBER

    I am continually amazed at the lack of appreciation for what is going on here.
    The government of the day is deliberately misleading the people and parliament in order to financially favour one part of the population (including many politicians) over the rest.
    This is not playing politics. Its criminal deceit, fraud, treason even!

  9. Even StevenMEMBER

    Malcolm is a coward. Yes, he should have challenged his own party room on such a badly needed reform. Yes, even if it should it have cost him his job. The Libs couldn’t afford to turf him – it would have been evidence of a dysfunctional party and would have virtually guaranteed a loss at the polls.

    Disappointing, Malcolm.

    • Yet he isn’t a struggling worker forced to swallow his pride. If he gets kicked out of politics, he will still be insanely rich. So I must contend today he is an evil traitor.

      • Maybe I need to explain:
        For me the sudden political interest in NG is an indicator that RE Investment sentiment is still strong (matter of fact very strong)!
        think of it this way: IF RE values were thought to be waning than NG would be a silly strategy, because you’d be almost guaranteed to loose money, making NG a strategy that only the very rich could use, if they were silly enough to want to loose money on their investments.
        My point is RE sentiment remains strongly positive despite all the previous price increases, Typically Sentiment is a good momentum indicator meaning that those looking for a collapse in Sydney RE are probably a fair bit ahead of the curve.
        If nothing else Malcolm is a very astute investor/businessman, so I’d be surprised if he made such a beginners mistake as too ignore medium term indicators when pursuing his longer term strategy. In the ideal business case your medium term strategy morphs seamlessly into a long term strategy, so I suspect that’s what Malcolm is looking to achieve in Australia. This is why he has such a single minded focus on Innovation, he wants Aussie Innovation to become our next RE bubble. Imagine a BBQ where your middle income friends were pumping you for the inside skinny on High tech Aussie firms, I suspect that’s Malcolm’s dream.

      • “If nothing else Malcolm is a very astute investor/businessman, so I’d be surprised if he made such a beginners mistake as too ignore medium term indicators when pursuing his longer term strategy.”

        He doesn’t have the numbers to look beyond a very short-term strategy of holding on to his position. Nothing else is relevant as the last two weeks has shown.

      • @AB No argument however IF we honestly believe MT wants to create an Innovation led recovery in Australia than there are a couple of things that need to be maintained / avoided
        – Maintain collective value of Australia’s capital stock (given existing investment portfolio allocations this means that RE prices must be maintained)
        – Avoid any Liquidity crises
        seems to me there are 3 likely sources of a home grown liquidity crises
        – Collapse in residential RE causing follow-on concerns with bank capital adequacy
        – Collapse in International investment sentiment wrt Australia’s narrative
        – A Significant downgrading (not just the loss of AAA)
        To really ignite funding in Innovation we need the smart end of town to understand that RE is last years game AND believe that Innovation is next years RE.
        At the moment an Innovation led Australia is only an old man’s pipe dream, but maybe it’s possible to at least nurture some green shoots and see what develops.

      • I don’t disagree with anything you’ve written there @CB but so far he’s done absolutely nothing to change the relative attractiveness of real-estate compared to any other investment. All talk so far.

    • I’m equally disappointed in Malcolm but at the same time hopeful that he’s just biding his time until the party / people is/are ready for the message.
      Think of Canberra as the biggest ever backyard BBQ, think of MT as the guy who turns up to tell everyone they’re royally screwed because their strategy of RE to the moon has a slight longer term sustainability problem….We’ve all been there explaining why you’re right (Aussie RE is a Ponzi scheme) but it is a complete waste of time especially when you’ve trotted out the same explanation for the last 3 years, during which time Sydney prices have absolutely exploded ….who’s right?
      In politics nobody can afford to be so spectacular wrong in the medium term even if they’re right over the longer term …political life just doesn’t work that way.

      • Ronin8317MEMBER

        Without some kind of tax reform, the LNP cannot go into the election with any income tax cuts, and they just signed up to spending 120 billion dollars on submarines. Adopting the ‘deficit doesn’t matter’ won’t work because the rating agency will downgrade Australia, then you’ll have some very, very angry mortgagee screaming for hell.
        Negative gearing is currently the most politically accepted way to show some revenue increase to appease the rating agencies. Super concession is the other. While what we really do need is welfare entitlement reform, it’s not politically possible with the boomers retiring.

    • Even a dyed in the wool cynic like me is surprised by how pathetic this has been by Turnbull. MT’s turn-around on this is just about the clearest modern example of how corrupt the party system is. He is not just going agains good policy that he has personally expressed, he is lying about the policy he is now proposing and lying about the reasons for it.

      The Laberal party is rotten to the core, they exist solely as a business and survive by pandering to the vested interest of business lobby groups.


  10. Now they can team up with the industry groups to scare Australians into not voting for Labor. It’s going to be much higher than the mining tax scare campaign.

    As much as I’d prefer otherwise, if the mining tax ads worked, this is guaranteed to as well.

  11. Bring Abbott back. Turnbull appears to be nothing more than a hand puppet for the hard Right and their favourite lobby groups protecting the same old vested interests.

  12. Maybe the pressure from the Abbott forced Turnbull to this position so that he could retain power.

    There is a positive in this – it is now a clearly defined election issue, hopefully Libs will win, Abbott goes to the Vatican where he belongs,the PCA’s house of cards will collapse anyway, NG won’t be blamed, leaving the way open for proper reform of which NG is only but a part.

  13. No sympathy for the populace for swallowing the scare campaigns.

    The LNP’s agenda to destroy the middle class and turn Australia into a neo-feudal state is clear as day.

    Reduce labour’s share of income by increasing unemployment and regressive taxation.
    Destroy safety net and empower law enforcement to spy and lock up anyone who goes off the reservation.
    Consolidate the wealth of the capital-and-land owning class through tax havens and destruction of small businesses and small farms.

    Clear as day.

  14. JojoyubbyMEMBER

    Don’t you guys think this is the only hope to cure Australia’s Realestate addiction? Let it pop without messing with the policy. Otherwise, in another 20 years, the same old story will just be repeated. “The labour NG reform… Bah bah bah”

  15. ceteris paribus

    You can always rely on the Liberals to lower the standards of decency. It is mildly comforting in an odd way.

  16. How odd that Malcolm would risk his primeministership by refusing modest reform to an expensive tax shelter used by 5% of the population.
    Call an election Malcolm.
    Bring it on

  17. I for one thinks this is great. 5 (or 6, Abbott the Return) prime ministers in 3 years is something not even a Central American, 1950´s banana republic could achieve. Record debt and record government.

  18. Tassie TomMEMBER

    UE – your comparison between foreign investment and NG for new constructs is brilliant – a real emperor’s new clothes statement.

    • +1 Can someone please send this obvious contradiction in as simple language as possible to Michael Brissenden/LeighSales/ ChrisBowen/JohnDaley/TonyJones/ PhilCoorey

  19. AtaraxianMEMBER

    Two ways to win elections and/or stay in power in a democracy. Make voters afraid or make ’em hopeful of a better future. ‘Fear’ generally works more effectively than ‘hope’ – unless the seller of ‘hope’ is particularly charismatic (e.g Obama in his election campaign). Turnbull got into the PM’s job by using ‘hope’. Unfortunately for him, embedded in the DNA of his party is ‘fear’ & he hasn’t had the personal skills to genetically modify its DNA-driven nature. Hence, like any politician, being desirous of power he’s switching back to ‘fear’. It keeps his party ‘happy’ & still gives him the probability keeping his PM job by winning the next election. The welfare of the nation doesn’t really come into it.

  20. “All the Coalition cares about is wedging Labor by running a negative scare campaign, which it believes will win it the next election.”

    The sad thing is that it will probably work.

      • Pretty even thus far. I think when it comes to crunch time, those who aren’t negatively gearing will believe that they too can one day be part of the cool good looking club who have an “investment portfolio” and won’t vote to do away with it. Hope you are right though.

      • I think there are more people who’d like to buy a home or worry about their kids being able to buy a home or are just generally worried about our real-estate dependent economy than their are Reusas or wanna-be Reusas.

        Who knows though but at least we can be glad that Labor is actually pressuring the government on this. And the government seems to be responding by falling apart completely which can only encourage Labor.

  21. Why doesn’t Labor now adopt the $10k/$20k cap, in addition to their other proposed changes? Throw another $1 billion in savings on the pile. Surely curbing negative-gearing excesses by the rich should be bread-and-butter for Labor?

    • Labor have so much connection to the FIRE sector as well as personal investment in NG property I was surprised anyone was able to convince them to do as much as they have. It’s a brilliant move, they have the Libs embarrasingly reversing their on previous stance and they have built in protection for existing investors i.e. boomers and politicians. They are taking control of the debate and setting the topics, and probably picking up a lot more support for anyone young and not completly stupid (or rich).

      • If not Labor, then the Greens. It’s good policy – someone should take it to the election.