Instead of letting the modelling wither on the vine, as it should, the Turnbull Government has instead followed the partisan Australian newspaper in condemning Labor for ignoring the report’s ridiculous findings before it announced its negative gearing and capital gains tax policy. From The Guardian:
The resources minister, Josh Frydenberg, told Sky News Bowen should just admit he was briefed on the consequences of changing the long-held tax policy.
“It turns out this office was briefed on it. Seriously, this is the dog ate my homework excuse,” he said.
The prime minister, Malcolm Turnbull, told reporters Bowen has “serious questions to answer”.
“Mr Bowen had that advice, it had been apparently commissioned by an accounting firm in Melbourne for the purpose of giving to the Labor party to inform their policy process. The question for Mr Bowen is: did he share that advice with the shadow cabinet? Did he tell Mr Shorten about it? Did they know they had economic modelling from a leading consulting firm which said that going down the road they were obviously contemplating at the time would be disastrous,” the prime minister said.
Bowen said he had met Tony Bongiorno, who heads the firm, before Labor released its policy, but noted the report commissioned by the firm modelled a number of impacts to negative gearing that are outside of Labor’s policy.
“The first time I was aware that he had actually paid for this report… was when I read it this morning. But this is not a report into Labor’s policy,” he told ABC Radio. “It models something completely different”…
Turnbull said the report was intended to “inform” Labor’s policy before its policy direction was finalised.
“Chris Bowen’s policies are absolutely calculated to put us into reverse,” the prime minister said.
Morrison went one step further, saying Bowen chose to ignore findings relevant to Labor’s policy.
“It did model the removal of negative gearing for existing properties. It absolutely did that. The evidence and the work that was done in that report showed to the shadow treasurer the great risk of going down that path,” Morrison told reporters.
As I noted yesterday, why on earth should Labor have heeded the report’s advice, whose findings were quite frankly ridiculous and lacking in either rigour and logic, as exposed by various notable economists? Is this what policy-making is about – ceding to any vested interest (this time one representing rich doctors and dentists) that objects to your position?
Thankfully, Grattan Institute CEO, John Daley, provides some sanity, penning the following in The Conversation congratulating Labor for ignoring the BIS’ modelling drivel and debunking its findings once more:
The ALP should be applauded for proceeding nevertheless. The report was clearly going to be inconvenient. But it was also not worth the paper on which it was printed.
The report implied that a $2 billion increase in tax would reduce economic activity by $19 billion a year. The report’s model also suggested that every additional house or apartment would increase the size of the Australian economy by $2.6 million.
None of this is remotely plausible, and consequently, it is difficult to believe anything else that the modelling or the report has to say.
Nonetheless, this report is still being discussed a month later – so it clearly needs some more critical analysis…
Most likely, the price of housing will fall somewhat, investor returns will reduce a little, and rents will barely move. This is why.
Changes to negative gearing and capital gains tax will increase taxes for investors and lower their returns. Normally this would lead to lower asset prices.
But the outlook for home-buyers is different. The benefits for a home-buyer (of living in the home) won’t change. The price of the home will be a little lower due to the changes in negative gearing and capital gains tax. Therefore the return on assets (the benefits divided by the price) will be a little higher for home-buyers.
Combining the effects of the changes for investors and home-owners leads to an average after tax return on housing that is about the same as today. There will be more home-owners and correspondingly fewer investors – but higher rates of home ownership are the political goal.
I highly recommend that you read the Grattan Institute’s initial debunking of the BIS modelling along with its latest effort, as together they completely demolish the report’s claims, along with those of the Coalition.
In their bid to land a political blow on Labor, the Turnbull Government look more and more like desperate and dishonest fools.