Just when you though Prime Minister Malcolm Turnbull’s negative gearing scare mongering could not get worse, we get this via the Herald-Sun:
“Labor’s policy on negative gearing, let’s be quite clear, what that will do is in practical terms, remove about one third of the demand for established residential properties,’’ he [Turnbull] said.
“It will reduce the number of properties that are available for rent, it will reduce the value of properties and it will inevitably lead to an increase in rents.’’
Are we seriously expected to believe that channeling negative gearing into newly constructed dwellings would magically “lead to an increase in rents”?
Sure, there would be less “investment” (read transfer of ownership) in existing dwellings, but those homes would not magically disappear from the supply-demand equation. Rather, those homes would be purchased by an owner-occupier, thus reducing demand for rental properties by the same proportion as the fall in rental supply.
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Moreover, by channeling negative gearing towards new builds, dwelling construction will increase, as will the supply of rental accommodation. And this extra supply would obviously lower rents. It’s not rocket science.
If Turnbull truly believes this rubbish, then why does the Government champion foreign investment in newly constructed homes, but preclude it from established dwellings?
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.
In case you missed it, the McKell Institute survey of 50 economists has also trashed Turnbull’s negative gearing lies. The results are presented below:
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Between 29 February and 2 March 2016, The McKell Institute surveyed 51 of Australia’s leading and most respected economists to gauge their opinions on negative gearing policy.
Respondents were asked to nominate whether they strongly agreed, agreed, were uncertain, disagreed, strongly disagreed, or had no opinion about six statements presented in the survey.
Economists surveyed were from a range of leading Australian universities and financial institutions. The statements presented to economists surveyed reflected current debates regarding proposed negative gearing reforms.
Bernie Fraser, former Governor of the Reserve Bank of Australia, was one economist surveyed, and provided additional commentary regarding the subject matter of the survey: ” From a national interest – rather than political interest – perspective, tax measures (and policy measures generally) should be assessed in terms of their contributions to four goals, namely resource allocation, economic growth, price stability, and what is too often forgotten these days: fairness.
The current negative gearing (and related capital gains) tax arrangements score poorly on all four tests – they divert savings and resources away from potentially more productive investments into (sometimes speculative) property investments to take advantage of the tax concessions ; this does nothing to improve economic growth (or the budget bottom line ) ; they can accentuate short term fluctuations in house prices and sustain long term increases in house prices which far outstrip increases in the earnings of most Australians ; this last mentioned consequence , plus the fact that the benefits of the concessions flow disproportionately to people on higher incomes, make the current measures manifestly unfair” –
Bernie Fraser, former Governor of The Reserve Bank of Australia. The comments of Mr. Fraser broadly reflect the sentiments of the majority of leading Australian economists surveyed.
Stop fear mongering, Prime Minister, and develop some policy of your own. Give us the Prime Minister that you promised during your leadership challenge:
“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.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
