Turnbull/Morrison set new low for negative gearing lies

By Leith van Onselen

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).

ScreenHunter_12057 Mar. 16 16.06

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:

ScreenHunter_11879 Mar. 07 10.09

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.

[email protected]

Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith is an economist and has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

Latest posts by Unconventional Economist (see all)

Comments

  1. CommanderLemming

    I find myself wanting Labor to win. That’s how bad this is, Libs. You are defending market distorting policy that has had a huge impact on my life, compared to if I were born a few years earlier, and it’s 10 years too late to address that, I’m now comfortable and secure with a great career overseas, mostly driven back then to push for a better career than on offer locally due to the insanity of house prices and I’ll probably never move back to Australia. I hope my siblings and parents don’t mind, I only can visit once every couple of years, the folks are getting older so quickly now. The continuing defense of the rent seeking and unwillingness to help future generations avoid the same fate as mine, it is undefensible.

    • We own a house (no debt) and are still thinking of taking our young family and going elsewhere. The rentseeking has become so obscene, the destruction of the productive economy so frustrating. Watching this country just sell debt and housing to itself while the FIRE economy devours everything is just depressing.

      • Australia has been dubbed as one of the most corrupt countries in the developed world.
        The Australian Government accepts donations from anyone and the companies that donate have influence on who the party leaders are.

        Australian Politicians and Officials are also allowed to benefit on Tax-loop holes and Tax-incentives, given that these people are on the highest TAX brackets, Why wouldnt they WANT to benefit from Tax incentives THAT they DECIDE on.

      • “Why wouldnt they WANT to benefit from Tax incentives THAT they DECIDE on”
        If that were the case, why do we have among the highest top marginal tax rates in the OECD? The biggest tax break in this country (again, by any OECD comparison) is actually the $20K tax free threshold, you won’t find that anywhere else.

  2. I do not understand how people like Malcom Turnbull (and his Liberal Party colleagues) can sleep at night knowing that they are ruling by deceit and greed to favour a small number of wealthy rorters while they take money and opportunity from the poor by shutting them out of home ownership and the opportunity for a good education. These are the actions of immoral and evil government and immoral and evil Prime Ministership.

    “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?”

    • “I do not understand how people like Malcom Turnbull (and his Liberal Party colleagues) can sleep at night knowing that they are ruling by deceit and greed to favour a small number of wealthy rorters while they take money and opportunity from the poor by shutting them out of home ownership and the opportunity for a good education.”

      Obviously they’d frame it differently, but you wouldn’t join the Liberal party if you weren’t broadly comfortable with such an agenda!

      • I can’t understand how anyone joins the Young Liberals these days. Unless you’re a member of the elite and Dad pays your HECS while giving you a leg up in the property market that ridiculous party offers you nothing except the chance to be screwed over for the benefit of your Olds.

      • because they believe they worked for it and deserve it, all while ignoring the leg ups they received. Simple.

    • “and why is it now looking at capping work-related deductions as well”

      Given that they’ve run like cowards from every single reform that they’ve “considered”, I would find it very surprising if they actually are brave enough to do this.

    • > I do not understand how people like Malcom Turnbull (and his Liberal Party colleagues) can sleep at night …

      On top of a big pile of sweet sweet money… after having a nice long, hot shower with water collecter from our tears… Why do you ask?

  3. In a democracy you get the government you deserve.
    There is no law (yet) which requires anybody to vote for anyone they don’t want to.

    • Couldn’t agree more. In the words of Lindsay Tanner: “politicians respond to incentives”. For the smarter and talented, your only option is to emigrate elsewhere. Otherwise get comfortable with being yoked to the white-trash of south-east Asia.

    • BeBe, You are not quite correct. Look at the inane first speech by Victoria’s new senator yesterday. Talk about being an IPA / RWNJ nutter with no real world experience.

      At 28 he is No. 1 on the LNP ticket so will be in parliament as long as he keeps the rightwing gibberish going to be pre-selected.

      Our senate is full of them – Abetz, Bernardi, Corman, McKenzie, etc. plus the ALP right wing SDA senators.

      • I rest my case.
        They will be in Parliament as long as a sufficiency vote for them……getting what they deserve……day in, day out.

      • I think you will find 180 voted for him in the pre-selection process – 16 more than the women candidate. The general voter does not have the knowledge energy to fill out a complete senate voting form to put him at the bottom. It is more than just disinterested voters.

        The pre-selection driven by party activists is the only real vote.

        The same has happened in the USA where gerrymandering has locked most seats into one of the parties – mostly GOP. The pre-selection decides the politician, not the wider electorate.

      • Yes really.

        “The Commonwealth Electoral Act 1918, under section 245(1), states: “It shall be the duty of every elector to vote at each election”.

        Under the Electoral Act, the actual duty of the elector is to attend a polling place, have their name marked off the certified list, receive a ballot paper and take it to an individual voting booth, mark it, fold the ballot paper and place it in the ballot box.

        It is not the case, as some people have claimed, that it is only compulsory to attend the polling place and have your name marked off, and this has been upheld by a number of legal decisions…”

        http://www.aec.gov.au/About_AEC/Publications/voting/index.htm

      • FiftiesFibroShack

        Don’t be silly BB. When you get your name marked off you get given the ballot papers. No one checks them before you put them in the box on the way out. If they start checking – and force you to make a choice – we will have compulsory voting.

      • As your own source notes:
        ” Because of the secrecy of the ballot, it is not possible to determine whether a person has completed their ballot paper prior to placing it in the ballot box. It is therefore not possible to determine whether all electors have met their legislated duty to vote. It is, however, possible to determine that an elector has attended a polling place or mobile polling team (or applied for a postal vote, pre-poll vote or absent vote) and been issued with a ballot paper.”
        So you can vote for nobody.

      • BB,

        And you wonder why UE calls you a pedant!

        “FiftiesFibroShack, the comment was about law, not what you can get away with when no one is looking.”

        There can be no one observing while you vote (unless you require assistance), so effectively the law says you can vote for no one.

        Edit: “receive a ballot paper and take it to an individual voting booth, mark it, fold the ballot paper and place it in the ballot box.”

        So, you’re required to mark the ballot, it doesn’t tell you how you must mark it.

  4. I see the UK Chancellor acknowledges the reality of their property market in today’s Budget!

    They will be able to continue saving until they are 50 and then choose whether to withdraw the cash to fund the deposit for a house or keep it for retirement.

      • No problem! The standard 30 year mortgage will be able to be accommodated within the new extended retirement age. By then many Australasian workers will have coffee making down to a fine art…..

      • Old people wiping the bums of even older people. Go ‘straya!

        Meanwhile, all the youth with get up and go are getting up and going. See ya, wouldn’t wanna be ya!

      • Ronin8317MEMBER

        Duringthe bubble era in Japan, a loan goes for 90 years, and is taken over 3 generation. Grandpa buys the house, the grand kids pays it off..

  5. Was there ever a more pernicious lie than ‘maintaining the pool of rental stock’. The great progress towards the equality of land ownership smashed to bits by greedy landlords, returning to the past and setting the rules to ensure the landless must rent from the landed.

    • ErmingtonPlumbing

      A world where the children of the landed Rich are the only ones who can afford the tuition fee for the Guillotine building apprenticeships at Private colleges.

      The revolution still seems some way off.

      Maybe if the Greens get in we could have free, Gov funded Apprenticeship.

  6. The great Australian dream once was to own your own home… “Been there done that” said many… And so here we have the new Australian dream of property barons & baronesses galore. MorBull are reflective of this, and know no lows. Keep digging fellas.

    • Know IdeaMEMBER

      I am paraphrasing (someone) but … it is called the Australian dream because you would have to be asleep to believe it. Just who it is that is asleep I will leave for you to contemplate.

      • Fair point. Until the late 90’s, maybe early 00’s at the very latest, the dream was a possible reality… Now it’s just a bloody nightmare!

  7. Malcolm and co got absolutely smashed by labor at the end of question time yesterday. The thing about it was they were right. Basically labor was saying that the only policy anyone was discussing was their because the “government” had nothing. So all they could do was rubbish labor policy because they had none of their own to talk about. It was fairly epic. If you have time, have a listen.

  8. Well said UE. I share your anger at the distortions imposed on Australia by bad tax laws. My country is riddled with monopolies and oligarchies enjoying a competition-free ride on the backs of ordinary citizens. The FIRE sector has turned us into a nation of debt-serfs and erased the independence and free will of all.

    Calling the Prime Minister and Treasurer liars is entirely proportionate given the harms they seek to defend – nay, extend.

  9. Turnbull’s position is crystal clear
    The choice is crystal clear
    Bring on the election

  10. Count the number of weeks to the election.
    That’s how many times MacroBusiness will use this very same headline between now and then.
    LVO will begin to think he’s the weatherman in Groundhog Day.

  11. The other unintended consequence of restricting negative gearing to new housing is that the quality of rental housing will go through the roof.

    • Gold,

      My place has cracks in the walls and it tooks 4 weeks to fix a leaky roof, and we are lucky.
      And why don’t we move you ask. Because it is affordable (for Melbourne) and in a good location for the members of the household.
      My co-worker told me of a place he lived in where the landlord said “I’ll fix your roof, or I’ll fix your gas. You can’t have both.”

      • Yeah negative gearing on new stock would be awesome. You’d have new houses with updated bathrooms, kitchens and a decor like curtains would be from the 1950s.

        My place has a cockroach infestation, so we keep all our cutlery in a plastic container so they can’t get in, all food in containers, I spray stuff I got from Bunnings around the house and in between cracks in brickwork etc.. to keep them out….

        Our laundry is separate to the house, it still has an outdoor toilet (as well as an indoor 1), the garage is falling apart, the owner is too tight fisted to replace the stove top burners and I have to spend 3 hours every second weekend doing the lawn it’s so large.

        Why do I stay? Because I have a dog, need the garage to work on my car, love the location (inner West Sydney) and the rent is relatively cheap. But by god I wish the landlord was on the back foot rather than us tenants. It sucks how much power a landlord wields.

        Lazy tight arse boomer he is.

  12. I feel sorry for Morrison, he seems lost.
    After all, he got shafted many times for policies he introduced and got sidelined in many occasions. His position is becoming less important every day, poor Scotty.
    The only “job” he has now is to do what his leader does: lying.
    We deserve better than these clowns to lead our country.
    Their jokes are no longer funny.
    They are disgusting.

    • http://www.abc.net.au/tv/qanda/txt/s4335768.htm

      “YANIS VAROUFAKIS: I agree that Australians are literate and, of course, they are the best judges of the efficacy and wisdom of economic policies, not the experts. Where Australia has been let down, in my estimation observing over the last two, three decades, is by its politicians. Australians in Australia show amazing skills and dexterity. Australians abroad, wherever you go abroad, whether it is in the arts, in the movie industry, in the sciences, you find astonishing Australians that have contributed massively to world culture and science. Australian Governments have always been punching below their weight relatively to the rest of Australia. The last Prime Minister that was impressive was Paul Keating. Malcolm Turnbull has a great opportunity, he has the right instinct but can he carry the Liberal Party with him?”

      As BentoBento stated, in a democracy you get the government you deserve. Do we deserve to collective suffer and drive the country into the ground though?

  13. Very happy to have just secured another 12 month tenancy.

    The Landlord was in turmoil about what to do, we have been asking for over a month. He wants to get out, failed to sell last year. Now he knows that he could end up with an untenanted house on the market, with little chance of a sale, so has had to bite the bullet.

    It’s a relief as we have been pushed from pillar to post due to unscrupulous little landlords.

    Apparently though, renters don’t matter, and aren’t Mums and Dads!

    The next 12 months should be interesting.

    Never been a better time to secure a rental

    • billygoatMEMBER

      @JayBone Asking rents remain ludicrous in Sydney & throughout NSW. Little landlords & littler renters!
      I would not wish the misery of an outsized mortgage on my worst enemy. In my work I see first hand the effect housing is having on mental/spiritual health, relationships, family etc. First port of call is the bottle – for a short while don’t have to think about it – more professional men and Tradies with decent income under financial duress turning to ICE – it is not a problem strictly for the down & out – middle class. Aussie battlers(including mum & dad investors) love it until it brings them undone. I would bet majority of health insurance covers stays at private health clinics for drug & alcohol addiction brought on by incomprehensible rise in cost of living in Australia despite an apparent boom & wealth effect. hence crazy mandatory private health cover in this country where healthy, self employed, single, childless, renters are penalized at every opportunity. OOps I forgot no tax breaks either – we just suck it up! Black Dog institute will be hard pressed to cope with the misery coming down the like for renters, mortgage holders and anyone else residing in this country – hence the push for voluntary Euthanasia and distraction gay/transgender etc. Its all so transparent. Just realised I am ranting again – at least its not in capitals.

  14. I repeatedly have to scratch my head at the comments made by Morrison and Turnbull. Where do they get these blatantly incorrect ideas from? Cognitive dissonance only begins to shed light on the Orwellian double-speak spouted by these two.

    I’m suspecting the intellectual featherweights at the IPA, or some sleezy old man at the latest coalition ‘fundraiser’.

    I would be very surprised if anyone in Treasury or DPMC is pushing these ideas (That’s aside from the fact that they’re economists – they’re also majority GenY&X).

    Australia needs to send these parasitic lobbyists packing. Back to the 1650’s where they belong.

  15. Speaking of lies, Leith continues to peddle this one:

    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.

    As is clear from here: https://www.ato.gov.au/business/non-commercial-losses/eligibility/ – the 3 in 5 is one of 4 tests that you can meet but don’t have to if you pass one of the others. One of those is the very blunt $20,000 of assessable (ie gross) income which most property investors would meet easily.

    The other lie is Turnbull’s one from 2005 – “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”.

    This is false: a property investor does need to show be able that they can reasonably expect to earn more income (excl capital gains) than their expenses over time otherwise they aren’t entitled to the deduction in the first place.

    • Jason, that’s correct, but you forgot to mention the much more generous CGT discounts (including full exemptions) that are available for investment in a “productive” businesses. The argument often made on MB about tax incentives being skewed toward property and away from “businesses” is plain wrong, but I guess if you want to believe in something you will. Turnbull’s quote in this article hasn’t been provided with the full context either. His principal argument was that top marginal income rates need to be reduced to align with the corporate tax rate and remove incentives for people to shelter from punishing income tax rates.