Prime Minister Malcolm Turnbott has launched a fresh scare campaign against Labor’s negative gearing policy, arguing that it would crush business investment. From The Canberra Times:
The Prime Minister said Labor’s policy is actually a plan to end tax deductability on all business expenses against ordinary income, including margin loans used to buy shares, and even basic small business acquisitions such as a truck for a freighting partnership…
“This is an assault on private enterprise, it’s an assault on economic freedom,” Mr Turnbull said…
He said the effect of the policy would be to bring about “extraordinary” restrictions on investment “under the cover” of a housing affordability policy.
Deputy prime minister Barnaby Joyce went further, accusing Mr Bowen of practising “Zoolander economics” and orchestrating a “complete re-engineering of the Australian economy”.
Labor Shadow Treasurer, Chris Bowen, rubbished the Coalition’s claims, stating that Labor’s negative gearing policy would only apply to “passive” investments – like property and shares – not genuine “active” business investments:
Mr Bowen described the Prime Minister’s claim that it would stop business owners deducting expenses as “trucking lies”.
“In using the example of a truck purchased by a partnership, he asserted that Labor’s policy will impact upon business investment assets. This is wrong, he said.
“There is no change to the current rules for business investment deductions.
“This means that net losses from carrying on a business (including related interest expenses) can be offset against other income.”
I will remind readers once more that in his 2005 tax policy paper, Malcolm Turnbott 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”.
Therefore, it is highly contradictory for Turnbott to argue now that Labor’s reforms to negative gearing would crush productive business investment.
Turnbott is also curiously silent on why individuals can claim unlimited negative gearing deductions for property investments into perpetuity, but if they invest in a productive side business, they must meet all kinds of criteria in order to claim losses against their wage/salary earnings, including showing a profit in three out of five years?
Further, why has the Government capped the ability of individuals to deduct education expenses from their income, and why is it now looking at capping work-related deductions as well? How is the tax code in any way consistent between how it treats genuine business/work-related deductions and investment property?
The answer is that the tax code is not consistent, which is why Turnbott in his 2005 tax paper also stated 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”.
Enough said.
