Yesterday in question time we were treated to another battery of lies from messrs Malcolm Turnbull and Scott Morrison, who have ramped-up their scare campaign against Labor’s proposed changes to negative gearing and the capital gains tax (CGT) discount.
First, here’s Malcolm Turnbull’s disgraceful performance:
Below are the money quotes from the above video:
“What Labor proposes is that there can be no investment in any asset other than new residential housing. And they think this will drive jobs. On the outskirts of our cities who are the new home buyers? They are first home buyers. That is where Labor will be pushing all of the investment. So if you are a young couple wanting to buy a house and land package… you will be competing with all the investors”…
“One of the major concerns is ensuring there is an ample amount of affordable rental properties… What the Labor Party is proposing is that people who own residential property that is tenanted… They will only be able to sell it to home buyers. So, over time the pool of rental stock will naturally decline. And so there will be fewer properties available to rent and rents will inevitably go up”.
“So rents will go up, home values will go down, that’s what a Labor Budget would look like…”
Not to be outdone, the Treasurer for the Property Council of Australia, Scott Morrison, produced the following gruel:
Here are the money quotes:
“The architect of the attack on middle Australians [Labor] with their proposal on negative gearing and to increase CGT by 50% – they have rushed out there with no thought of the consequences”.
“Aparently it is news to them that if only 2 out of 3 buyers turn up at an auction, you are not going to get the same price… Well it’s not news to those on this side of the house. It’s common sense. And those on the other side are ignoring the most basic principles of the market… because they don’t understand that the minute you put the key in the door of a new house under their proposal, it turns into an old house and it’s like driving a new car off the lot… It depreciates in value because you are dealing with a completely different market”.
“They don’t understand that that affects yields… And as a result, rents will have to go up. They don’t understand that…”
“Apparently the way you address housing affordability is by stopping people investing in shares, in shops, in factories, in partnerships, and vehicles, and all these things”…
Geez this is getting tiresome.
Are we seriously expected to believe that channeling negative gearing into newly constructed dwellings would magically mean that “rents will inevitably go up”?
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.
In this regard, Turnbull’s argument that “over time the pool of rental stock will naturally decline. And so there will be fewer properties available to rent…” is laughable because it completely ignores the fact that the pool of tenants will similarly decline as they become owner-occupiers.
More importantly, because Labor’s policy would channel negative gearing towards new builds, dwelling construction would increase, as will the supply of rental accommodation. And this extra supply would obviously lower rents, other things equal. It’s economics 101.
If Turnbull and Morrison truly believe their own lies, then why does the Government champion foreign investment in newly constructed homes, but preclude it from established dwellings?
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”.
Yet again, the Government’s lies about the impact of Labor’s policy on rents contradicts its stance on foreign investment.
Turnbull’s faux concern about first home buyers being crowded-out by investors is also laughable given this is exactly what has occurred under the Government’s existing negative gearing policy (see below chart).
It is precisely first home buyers that have lost as investors have piled into established dwellings, crowding them out and forcing them to be tenants. Labor’s policy would reverse this trend.
Turnbull and Morrison’s claims that Labor’s policy would choke productive investment is equally ridiculous.
Labor Shadow Treasurer, Chris Bowen, has already explained that its negative gearing policy would only apply to “passive” investments – like property and shares – not genuine “active” business investments.
Need I also remind readers yet again that in his 2005 tax policy paper, Malcolm Turnbull 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 the Coalition to argue now that Labor’s reforms to negative gearing would suddenly smash productive business investment, when this is already happening under the current rules. If you want proof, check-out the below chart:
Since the GFC, outstanding business loans have increased by only 10% in nominal terms whereas outstanding property investment loans have ballooned by nearly 80%. If there is one segment that is losing-out from the current tax structure it is productive business lending, particularly lending to small enterprises, which is being crowded-out by housing lending.
The Coalition is also conveniently silent on why current tax rules allow individuals to 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, but is happy to leave negative gearing into property untouched? How is the tax code in any way consistent between how it treats genuine business/work-related deductions and investment property?
The answer, yet again, is that the tax code is not consistent, which is why Turnbull 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 is enough. Quit the scaremongering and show us some policies of your own. Start acting like the Government, not the opposition.
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