Turnbull’s negative gearing circus rolls on

I don’t want to write about Bozo Turnbull again today but I have no choice. From Ross Gittins:

Labor claims its “reforms” to “negative gearing” would do wonders to make home ownership more affordable for our kids. But Malcolm Turnbull says vote for high-taxing Labor and the value of your home will crash, while rents soar.

Many voters have strong views for or against negative gearing. But when rival politicians fall to arguing about their policies, most of us find we don’t know enough to decide who’s right.

We need someone we can trust to act as a kind of umpire, pronouncing on who has the better case. So we’re fortunate to have John Daley and Danielle Wood, of the independent Grattan Institute, issuing a report on the topic.

For defenders of negative gearing, it’s bad news. The pair explain that there’s a good case for acting against the practice, dismissing alarmist claims it would disrupt the property market.
For opponents of negative gearing, however, the news isn’t as good as it seems. Since the resulting reduction in house prices isn’t likely to be great, acting against the practice wouldn’t do much to make home ownership more affordable.

Well done, Ross, quite right.

Meanwhile, Turnbull’s defense is sinking into the absurd, from 7.30 Report:

LEIGH SALES: Let’s move on to negative gearing. On the weekend, you said that Labor’s negative gearing and capital gains policies would take a sledgehammer to property prices. Where’s your modelling for that?

MALCOLM TURNBULL: Well it is – well, there has been modelling published earlier in the – well actually, it was given to the Labor Party last year in fact by BIS Shrapnel, but – which demonstrated …

LEIGH SALES: And is that the modelling you’re relying on when you say that?

MALCOLM TURNBULL: But let me – Leigh, let me just – this is a matter of common sense. Around a third of the buyers for residential property currently are investors. What Labor is proposing will take all or almost all of them out of the market. Now if you take – if the market – the residential property market is soft now and it is declining in many cities and in Perth, for example, it’s been declining for several years. If you take a third of the buyers out of the market, prices, values will fall. That’s common sense.
LEIGH SALES: But you’re saying – I’ll come back to the common sense point in a moment, but you’re saying it would take almost all of them out of the market. If you look at what’s happened around the world or what happens around the world in countries that have far less generous capital gains tax policies than in Australia, far less generous negative gearing policies, they have vibrant property investment markets.

MALCOLM TURNBULL: Well, that’s not – that’s not actually entirely accurate, Leigh, if I can just pick you up on a couple of things. Firstly, what Labor is proposing to do is to jack up capital gains tax by 50 per cent and that would make it the second highest in the comparable developed – among comparable developed countries. Now, let me say to you, capital gains tax is a tax on investment. If you want people to do less of something, you jack up the tax. So what Labor clearly wants is less investment. Less investment means less jobs. We want to see more investment. Now, as far as property investors are concerned, in a market like the United States where negative gearing is generally not allowed, what you see is rents being much higher, rental properties being owned by big companies and big investors. You don’t have what we have in Australia, which is mum and dad investors, people on average incomes buying a flat, buying a house. I mean, 70 per cent of the people who negative gear in Australia own one property and another 20 per cent own two. Most of these people, most of these Australians are hard-working Australians trying to get ahead. Most of them are on average earnings or less …

LEIGH SALES: Well actually, the statistics …

MALCOLM TURNBULL: … and the Labor Party wants to take them out of the market.

LEIGH SALES: The statistics are that the top 10 per cent of income earners receiving three quarters of taxable – sorry, it’s the top 10 per cent of income earners who are receiving three quarters of taxable capital gains.

MALCOLM TURNBULL: Well Leigh, that is – that’s beside the point. Of course – of course people on the highest incomes will make the highest gains because they tend to have more property. But Leigh, …

LEIGH SALES: So therefore these policies – the policies favour most people who are on the highest incomes.

MALCOLM TURNBULL: Leigh, there are well over a million Australians, most of whom are on average earnings, who have an investment property and they are negative gearing it. These are policemen …

LEIGH SALES: And how many Australians does that leave who don’t have that, what, 22, 23 million?

MALCOLM TURNBULL: I’m sorry, Leigh, I couldn’t hear that question.

LEIGH SALES: I said how many Australians does that leave who aren’t involved with negative gearing? I don’t know what the population is – another 21, 22 million?

MALCOLM TURNBULL: Well there are obviously many Australians that don’t invest in property, but does that mean that you should ban all Australians from being able to do it? And let me just go on, Leigh. Let me give you a very good business example. Labor wants to ban negative gearing on any asset except new dwellings. So that includes commercial property, that includes shares, that includes business assets. Now, why – what possible point is there in preventing you from investing in a shop and negative gearing that? That is simply a Labor tax grab. It’s got nothing to do with housing affordability.

LEIGH SALES: On housing affordability, on the weekend when you announced that you wouldn’t change negative gearing, you were there with a family with a young baby. The subtext of what you were saying was that, “OK, sure, maybe you can’t afford to buy your own house to live in, but here’s what you can aspire to: you can keep living with mum and dad and buy an investment property and maybe one day your children might be able to afford to buy a property of their own.” Is that the sort of country that you see Australia becoming?

MALCOLM TURNBULL: Australia is a sort of country where people should be able to exercise their economic freedom and invest where they wish. Negative gearing, the ability to offset interest expenses from an income-earning investment against your personal income, that has been part of our tax law since 1915. It’s 101 years old. It is not a tax break; it is a standard concession.

Now let me give you an example, however, of how unjust and ill-thought-out and reckless Labor’s plan is. Under Labor’s plan, a plumber who’s earning $100,000 a year would not be able to negative gear an investment property or shares, for that matter, against his income as a plumber. However, a wealthy person with investment income – dividends, rents, interest of $100,000 a year – would be able to negative gear against their investment income. So under Labor’s plan, workers, people who live, whose income comes from their personal exertion, will not be able to negative gear, but people whose income comes from investments will. Now, how is that fair?

LEIGH SALES: When we started this section, I asked you if you could give me the modelling for your assessment that it would take a sledgehammer to property prices and you said it’s a matter of common sense. So, is what you are saying to voters, “I don’t actually have hard evidence here. It’s my common sense and so you have to trust my analysis on this”?

MALCOLM TURNBULL: Well Leigh, you know, your viewers tonight understand the laws of supply and demand. If you take a third of the buyers out of a market, prices will come down.

LEIGH SALES: But what I’m asking is how do you know you’re taking out a third?

MALCOLM TURNBULL: Pardon?

LEIGH SALES: Where’s your modelling for the fact that you’re taking out a third?

MALCOLM TURNBULL: Well – well Leigh, again, it’s a fact we know …

LEIGH SALES: But you’ve said a third. That’s very specific. what are you relying on for that?

MALCOLM TURNBULL: Well, if you’ll – if you’ll let me finish, I’ll give you the answer. We know from the statistics, the banking statistics and the ATO statistics, that around a third of the people who borrow – who borrow money to invest in property are investors and most of them will be negative gearing, and, I might say, even if they were positively geared, even if the rent of the property they were buying was higher than their interest, if – under Labor’s plan, they would run the risk if for whatever reason they incurred a net rental loss – perhaps the tenant stopped paying rent or the property was vacant or it needed expensive repairs – if for whatever reason they suffered a net rental loss, they’d have to cover it out of their after-tax income. So that is a very big risk. So – so we can say very confidently that under Labor’s plan all or almost all of those investors, personal investors who are borrowing money to buy investment property, would not take that risk because – because the consequence, obviously, the expense of having to offset your net rental loss against your own income is very high. Now if you believe – if you believe, Leigh, that you can take a third of the buyers out of the market or up to a third of the buyers out of the market and not affect prices, well, then, you know, that’s – that would be a fairytale.

“Common sense” and the discredited BIS report is the basis of the policy, then, not Treasury nor a policy process with a beginning (conception), middle (research and planning) and end (execution).

Meanwhile Labor’s policy does have independent modelling support, as well as the endorsement of just about every credible economist in the country including the fifty corralled by the Australian Institute, Saul Eslake, Warwick McKibbin and Ross Garnaut (who can’t agree on anything else), as well as other prominent economic leaders in Kouk, Kochie and Kennett.

MB agrees with Bozo that property prices will fall versus baseline (whether they actually fall will depend on the wider context but in 2017 it’s a very good chance). During the mid-eighties removal period, prices fell 6% in real terms but because inflation was very high they did not fall at all in nominal terms.

Property prices will also grow less strongly into the future when negative gearing is removed but not because there will be less buyers. All negative gearing does is shift home ownership from first home buyers to investors (usually older and richer) via a public subsidy that allows the latter to pay more than the former. So once you remove negative gearing that premium comes out of prices and as affordability returns the number of buyers is roughly the same as renters become home owners.

It’s the same reason that rents won’t rise.

As for the ‘removing negative gearing favours the rich’ argument, you tell me if they’ll be pleased:

ScreenHunter_255 Apr. 25 21.25

It’s true that they have more investment income to claim against but, hey, that’s why being rich is kind of fun, it’s not a reason to make first home buyers more poor.

But I’ve used reason and basic economics to reach that conclusion so you should probably disregard it, run around screaming, and vote for the Bozo Turnbull!

Comments

  1. In another development, the member for Golden Fonseca’s says “of course” people on the highest incomes will make the highest gains because they tend to have the most registered companies in tax havens.

    Everyone else should shut their fat mouths and open term deposits with the CBA.

    Better still, buy their life insurance.

    • 40,000 votes cast
      83% do not support Turnbull’s “do nothing” position on NG
      Turnbull’s judgement has been seriously brought into question
      Why would you burn so much political capital protecting an expensive and unproductive tax shelter used by 5% of the population?

      • …and FFS Leigh can you please ask Malcolm to explain why his government advocates for foreign investment in “new-builds only” and advocates against “NG for new-builds only “.

    • SoMPLSBoyMEMBER

      And those same warm sea temps are wreaking havoc with Antarctica-the planet’s largest ice sheet to our south. See satellite images of the Nansen ice shelf breaking away.
      April 07 2016:
      “The fracture split the ice shelf along its length, resulting in two large icebergs measuring about 10 km and 20 km in length and 5 km across. Published research indicates that the bergs are likely to be around 250–270 m thick. ”

      http://www.esa.int/Our_Activities/Observing_the_Earth/Copernicus/Sentinel-1/Nansen_gives_birth_to_two_icebergs

      To the multitude in the A Gov’t who are schooled and expert only in ‘all things money’, it may seem like a dividend, but it’s a ‘return of capital’ in a sinking fund.

    • Clearly he does think in this extraordinary way, I say extraordinary because one would expect as a politician in a democracy that only 49% would be ”beside the point” !

      • I was thinking the same thing. Oh dear I need to invest in a popcorn machine not those microwave jobbies

    • Gunna. That sticker is a goer.
      That was an extraordinary statement from a Prime minster.
      That sticker correctly marketed could do Turnbull in.

      • Today's Empire Tomorrow's Ashes

        Someone email Labor and Green PR.

        Could print these cheap as on Vistaprint

  2. surflessMEMBER

    Both smh.com,au and news.com.au have attacked Turnbulls performance last night on the 730 report. When commercial news outlets whose profits depend on the real estate bubble attack the performance of the Prime minister over negative gearing, only a miracle can save Turnbull now.

    • It really was an amateur performance. I’d suggest the LNP would be starting to shit themselves now.

    • TailorTrashMEMBER

      Reminds me of Monty Python’s dead parrot sketch ………..”that parrots not dead ! ……….lovely plumage !! “

      • surflessMEMBER

        Thinking more of the cheese shop, just change the name of each cheese to a name of a policy from Turnbull

        (a customer walks in the door.)

        Customer (John Cleese): Good Morning.

        Owner (Michael Palin): Good morning, Sir. Welcome to the National Cheese Emporium!

        Customer: Ah thank you my good man.

        Owner: What can I do for you, Sir?

        C: Well, I was, uh, sitting in the public library on Thurmon Street just now, skimming through ‘Rogue Herrys’ by Hugh Walpole, and I suddenly came over all peckish.

        O: Peckish, sir?

        C: Esuriant.

        O: Eh?

        C: ‘Ee I were all ‘ungry-like!

        O: Ah, hungry!

        C: In a nutshell. And I thought to myself, ‘a little fermented curd will do the trick’, so, I curtailed my Walpoling activites, sallied forth, and infiltrated your place of purveyance to negotiate the vending of some cheesy comestibles!

        O: Come again?

        C: I want to buy some cheese.

        O: Oh, I thought you were complaining about the bouzouki player!

        C: Oh, heaven forbid: I am one who delights in all manifestations of the Terpsichorean muse!

        O: Sorry?

        C: ‘Ooo, Ah lahk a nice tune, ‘yer forced to!

        O: So he can go on playing, can he?

        C: Most certainly! Now then, some cheese please, my good man.

        O: (lustily) Certainly, sir. What would you like?

        C: Well, eh, how about a little Red Leicester.

        O: I’m, a-fraid we’re fresh out of Red Leicester, sir.

        C: Oh, never mind, how are you on Tilsit?

        O: I’m afraid we never have that at the end of the week, sir, we get it fresh on Monday.

        C: Tish tish. No matter. Well, stout yeoman, four ounces of Caerphilly, if you please.

        O: Ah! It’s beeeen on order, sir, for two weeks. Was expecting it this morning.

        C: ‘T’s Not my lucky day, is it? Aah, Bel Paese?

        O: Sorry, sir.

        C: Red Windsor?

        O: Normally, sir, yes. Today the van broke down.

        C: Ah. Stilton?

        O: Sorry.

        C: Gruyere? Emmental?

        O: No.

        C: Any Norwegian Jarlsberger, per chance?

        O: No.

        C: Liptauer?

        O: No.

        C: Lancashire?

        O: No.

        C: White Stilton?

        O: No.

        C: Danish Blue?

        O: No.

        C: Double Gloucester?

        O: (pause) No.

        C: Cheshire?

        O: No.

        C: Dorset Blue Vinney?

        O: No.

        C: Brie, Roquefort, Pont-l’Eveque, Port Salut, Savoyard, Saint-Paulin, Carre-de-L’Est, Boursin, Bresse Bleu, Perle de Champagne?

        O: No.

        C: Camembert, perhaps?

        O: Ah! We have Camembert, yessir.

        C: (suprised) You do! Excellent.

        O: Yessir. It’s ah… it’s a bit runny.

        C: Oh, I like it runny.

        O: Well,.. It’s very runny, actually, sir.

        C: No matter. Fetch hither the fromage de la Belle France! Mmmwah!

        O: I…think it’s a bit runnier than you’ll like it, sir.

        C: I don’t care how fucking runny it is. Hand it over with all speed.

        O: Oooooooooohhh……..! (pause)

        C: What now?

        O: The cat’s eaten it.

        C: (pause) Has he?

        O: She, sir.

        (pause)

        C: Gouda?

        O: No.

        C: Edam?

        O: No.

        C: Caithness?

        O: No.

        C: Smoked Austrian?

        O: No.

        C: Japanese Sage Darby?

        O: No sir.

        C: You… do have some cheese, don’t you?

        O: (brightly) Of course, sir. It’s a cheese shop, sir. We’ve got-

        C: No no… don’t tell me. I’m keen to guess.

        O: Fair enough.

        C: Uuuuuh, Wensleydale.

        O: Yes?

        C: Ah, well, I’ll have some of that!

        O: Oh! I thought you were talking to me, sir. Mister Wensleydale, that’s my name.

        (pause)

        C: Greek Feta?

        O: Uh, not as such.

        C: Uuh, Gorgonzola?

        O: No

        C: Parmesan?

        O: No

        C: Mozzarella?

        O: No

        C: Pippo Creme?

        O: No

        C: Danish Fimboe?

        O: No

        C: Czech sheep’s milk?

        O: No

        C: Venezuelan Beaver Cheese?

        O: Not -today-, sir, no.

        (pause)

        C: Aah, how about Cheddar?

        O: Well, we don’t get much call for it around here, sir.

        C: Not much ca–It’s the single most popular cheese in the world!

        O: Not ’round here, sir.

        C: (slight pause) and what IS the most popular cheese ’round hyah?

        O: ‘Illchester, sir.

        C: IS it.

        O: Oh, yes, it’s staggeringly popular in this manusquire.

        C: Is it.

        O: It’s our number one best seller, sir!

        C: I see. Uuh… ‘Illchester, eh?

        O: Right, sir.

        C: All right. Okay. ‘Have you got any?’ He asked, expecting the answer ‘no’.

        O: I’ll have a look, sir.. nnnnnnnnnnnnnnnno.

        C: It’s not much of a cheese shop, is it?

        O: Finest in the district sir!

        C: (annoyed) Explain the logic underlying that conclusion, please.

        O: Well, it’s so clean, sir!

        C: It’s certainly uncontaminated by cheese.

        O: (brightly) You haven’t asked me about Limburger, sir.

        C: Would it be worth it?

        O: Could be.

        C: Have you –SHUT THAT BLOODY BOUZOUKI OFF!

        O: Told you sir…

        C: (slowly) Have you got any Limburger?

        O: No.

        C: Figures. Predictable, really I suppose. It was an act of purest optimism to have posed the question in the first place……. Tell me:

        O: Yessir?

        C: (deliberately) Have you in fact got any cheese here at all?

        O: Yes,sir.

        C: Really?

        (pause)

        O: No. Not really, sir.

        C: You haven’t.

        O: Nosir. Not a scrap. I was deliberately wasting your time,sir.

        C: Well I’m sorry, but I’m going to have to shoot you.

        O: Right-0, sir.

        (The customer takes out a gun and shoots the shopkeeper)

        C: What a senseless waste of human life.

    • That depends on whether the story is hosted on theage.com.au domain or domain.com.au domain.

      If it was on domain.com.au it would be all praises for Turnbull.

    • We’ve had a lot of those ‘moments’ in Australia, and we are still awaiting the revolution.

      • Jumping jack flash

        Life is good, money is cheap, houses are rising in value.

        Food and other essentials are made expensive from all that fake, unearned money sloshing around the economy, but at least we still have them.

        The angry, indebted schlubs are too busy slaving away to repay their onerous debt burdens to revolt.

        The clever few have offloaded theirs to said schlub, sitting back and enjoying life while said schlub slaves away repaying it for them, so there is no need for them to revolt.

        I can see why Turnbull doesn’t want to change anything. It is a glorious system we have made for ourselves, almost pyramidic in shape….

    • The problem with common sense is… that it is a term relied upon by smug twats to try and shut out positions that differ from their own because either they lack the intellectual ability to support their own argument or their position is nigh on indefensible.

    • surflessMEMBER

      As an officer of the court, Turnbull knows using the words ‘common sense’ in front of a judge, and the judge will smack the lawyer down hard. Why the hell did he use that last night?

      • In summing up, there is no modelling…Its Mabo….Its common sense…Its the vibe. Thats it, its the vibe. I rest my case

    • No, no, no. Let us not misquote King Malcolm. He really said “throw the commoners some cents”

  3. turnbul is right: removal of NG will crush the prices, as well as keeping NG

    this discussion is beyond the point, people are wasting time on pointless talks

    There is nothing worse we can do now than to remove NG and CGT discount just before bubble burst because that is going to be used by FIRE to shift blame from their hard work on creating this epic bubble to something irrelevant.

    • +100

      That is the realpolitik of this situation. NG needs to stay at least for one more electoral term or it will be blamed for the upcoming price softness for a generation.

    • Give that man a cigar! Nailed it. I’m voting irrelevant minor party first (so the LNP won’t get the AEC money), LNP second in the lower house. In the upper house I’m numbering all the boxes and LNP are going dead last; even after all the racist mysoginist gay hating loony parties. Best case scenario is for the LNP to win but not be able to do anything, while the out of control car that only turns right (Australia) careens into the ditch.

    • + infinity
      The only thing worth doing now it to hold the course.
      If any major changes are made then they will be scapegoats for what is bound to happen.

    • Jumping jack flash

      It is an excellent point, but you guys are going to be holding your breaths for a while if you think the banks and any government is going to let this beast go bust any time soon.

      The saddest part is they will just let it resolve itself naturally – australian debt + the connected asset will be transferred to overseas buyers who hold the Earth’s money – to manufacturing nations who make the crap we buy with our debt money created by inflation caused by debt money.

  4. “Well there are obviously many Australians that don’t invest in property, but does that mean that you should ban all Australians from being able to do it?”

    No one is “banning” investment in property

    Turnbull’s stream of increasingly hyperbolic misrepresentations and deceptive statements on Labor NG reform reveal the desperation of his position

      • Same. I got to the point where I couldn’t listen to his answers. Just skipped to Leigh’s next question. She was good. Would have loved to see Sarah Ferguson have a go at him though

      • Locus of ControlMEMBER

        A few years ago SBS ran a documentary about the emergency departments of hospitals all around the world. Each week it was set in a different location – Melbourne, Cape Town, London, New York. I remember the surgical team in Melbourne, I think, dealing with the aftermath of a car accident. It was some sort of intestinal surgery. It was horrific – I watched it with my hands over my face peering through my fingers. I didn’t want to watch, but at the same time I couldn’t look away.

        Well, I watched Malcolm’s interview with Leigh last night the same way – with my hands over my face, peering out through my fingers. It was horrific. I didn’t want to watch, and particularly, listen, but I couldn’t look away/ turn it off either.

      • Sales missed a big opportunity to rebut what he is saying about losing 70% of investors or whatever order of magnitude – as the bloody thing will be grandfathered – you don’t lose that current stock of investors at all.

  5. The independent modelling isn’t firmly based on Labor’s policy so it’s garbage (for the purpose of making any firm conclusions), just like the BIS Shrapnel report. It doesn’t consider:

    – Changes in investor behavior
    – Losses carried forward and the implications for ‘budget savings’
    – How many investors will continue negatively gearing against investment income

    Leith finally has admitted above that Labor’s plan will benefit the rich (even more so than the current rules), but brushes it off flippantly. When I’ve raised this in the past it has been ignored or as was the case yesterday, the discussion obfuscated by aj. who tried to suggest receiving dividends was a business.

    The example I provided yesterday was this:

    Labor’s policy would allow someone with a portfolio of banks shares to negatively gear an established property against the dividends, whereas a blue collar worker in the manufacturing industry will be unable to negatively gear an established property against their salary.

    Turnbull (despite his many rubbish arguments against negative gearing more generally) came up with a similar example:

    “Under Labor’s plan, a plumber who’s earning $100,000 a year would not be able to negative gear an investment property or shares, for that matter, against his income as a plumber. However, a wealthy person with investment income – dividends, rents, interest of $100,000 a year – would be able to negative gear against their investment income. So under Labor’s plan, workers, people who live, whose income comes from their personal exertion, will not be able to negative gear, but people whose income comes from investments will. Now, how is that fair?”

    Is this not a significant enough loophole to call Labor out on (rather than being flippant about it or ignoring it)? Is it really worth voting for Labor’s policy which will drive further inequality benefiting the wealthy (even if it does reduce the level of negative gearing somewhat)?

      • Fear not, H&H. There’s only 66 days to go. Then MB – taken hostage by the Laberal crazies on the announcement of an election – will be returned.

      • You are engaged in obfuscation BB – you have taken an immaterial, trivial point and blown it up to be the main discussion because it suits you.

    • “Is it really worth voting for Labor’s policy which will drive further inequality benefiting the wealthy (even if it does reduce the level of negative gearing somewhat)?”

      I support the principle that losses from investment activity can be deducted only from investment income. I also think it’s a good thing if the tax system encourages people to not invest solely in loss-making investments in the hope of making (concessionally taxed) capital gains.

      What I disagree with is Labor’s 25% discount on CGT. I can’t figure out why they wouldn’t want to return to a discounted model based on inflation and holding time.

      • Fair enough. Congrats on being the first I’ve seen openly admit they support this aspect of Labor’s proposal.

        I agree with that principal more broadly, but in the case of property think an exception should be made to cut negative gearing comletely to support improving housing affordability.

      • “…in the case of property think an exception should be made to cut negative gearing comletely to support improving housing affordability.”

        I’d also support that. But I think it’s very important to give Labor strong support for what was a very brave decision (according to popular wisdom – I think it will actually be very popular) to propose any reform at all.

      • I disagree. Labor is wrong here, but i suspect they are taking one step at a time.

        Losses from established housing should be quarantined to the asset to prevent speculation in established housing being subsidised by a tax shelter.

        This is to achieve a social good and all other principles of offsetting investment income can remain.

    • With the other 90% removed the top 10% can NG til their hearts are content! Hopefully it will be on a depreciating assett.

      • It’s a point. It’s not a good point, it’s not a big point, it’s not a material point and you are using it to mislead based on its relative importance.

      • Then why the desperate hand waving? Labor’s policy is good in comparison to Mal’s (which is precisely do nothing)

    • You are cherry picking BB. The non-commercial loss provisions would prevent other business income from being sheltered by interest expense from established housing speculation/investment. Under Labor’s policy this will be extended to salary and wages.

      The point you have made:

      -Refers to trivial amounts of speculative money into established housing;
      -Will probably be the next cab off the rank (as losses are quarantined to the asset for established housing);
      -Is unlikely to even exist in a parcel of shares held for franked dividends.

      It’s a point but a small one and a trivial one. You are being a pedant and you are over-stating a small issue to create a false impression.

      You are being misleading.

      • Answer the question BB. What percentage of speculative housing investment comes from wealthy people sheltering income from a parcel of shares or other passive investment income?

      • Do you think this policy is inconsistent with the non-commercial losses provisions that have been in place for a long time, and prevent unrelated losses from being used to offset business income?

      • “What percentage of speculative housing investment comes from wealthy people sheltering income from a parcel of shares or other passive investment income?”

        We don’t know (or at least I don’t, if you have some insight then please share). That is one of the problems I highlighted with the independent study, it doesn’t look into it (if such data is even available), but as I pointed out on Twitter there is plenty of other income (non salary/wages) that people receive which could potentially be used to offset property losses (whether that is distributed among those who want to negatively gear property is another question):

        https://twitter.com/BullionBaron/status/712808306796941312

        I don’t understand your continued reference to ‘non-commercial losses’. We are talking about offsetting property losses against investment income. Of what relevance are rules relating to business? But to that point I assume a business owner could potentially restructure income from a business to make the income eligible for offsetting property losses, for example changing their directors fees/salary to dividends (if suited/relevant to their situation).

        BTW after badgering my about answering your question you could at least answer the question you avoided multiple times yesterday:

        Do you agree with Labor’s decision to allow negative gearing to continue against income other than salary/wages?

      • I’ve already stated that ‘I most definitely do not!’ – losses for speculation/rentseeking in established housing should be quarantined to the asset to prevent them from being subsidised by tax sheltering.

        The Labor policy should:
        1. Quarantine losses to the asset for established housing;
        2. Start immediately from announcement.

        That said i support the Labor policy because it is right – just not complete.

        You will not answer the question on what percentage of housing investment is sheltered by passive investment other than wage income, but you will need to concede it is trivial – probably less than 1%!

        Non-commercial losses are used as an example of policy already in place in this area that is exactly the same at this policy, just doesn’t extend to S&W. The Labor policy is consistent with these provisions.

        You are being misleading BB by over-stating a trivial component of the policy. It’s worth mentioning sure – i’m pretty sure i did when the labor policy came out. But it is not a case against the policy.

      • There is a progressive tax system on S&W because it was (and still is for some) considered a social good.

        If you want to undermine the progressive tax system then do it openly and honestly by saying “i think people should pay less tax” – its a point as well – a much better one than this silly one you are raising on the Labor policy.

      • FINALLY.

        So you agree the Labor policy is flawed, but it’s better than the alternative. I believe the flaw is significant enough that it’s not worth considering. You are entitled to your opinion as I am mine.

        Re your obfuscation “You will not answer the question on what percentage of housing investment is sheltered by passive investment…”, if you bothered to read my post you will see I have answered to the best of my ability. Rental losses aren’t that large in the grand scheme of things (relative to dividends for example) and have fallen significantly in recent years, so there’s the potential that passive/investment income could cover all rental losses, but I doubt that it’s distributed evenly enough for that to occur. Your claim of 1% is just nonsense.

      • My issues with Labor’s policy has nothing to do with the amount of tax people pay. I want to see NG cut completely (for property) to reduce speculation in the housing market and improve affordability. I would ask you to stop making misleading comments and assumptions about my position.

      • Aj – give BB a break. He’s just contributing to more rational, informed debate.

        Personally , I didn’t see thus flaw before and I’m glad it’s been ponited out.

        It could absolutely be material in some cases. Think about it! A HNW individual with enough negatively gesred property could be NO TAX on their investment income.

        None. Zero. Zilch. Nada.

        That’s a pretty significant flaw if you ask me.

        What does that mean in terms of Labor’s policy compared to the status quo. Well at least we can all think about it with more of a complete picture.

      • I’m not pushing this policy BB. From the get go i have been for quarantining. (My comment last night “do the non-commercial loss provisions apply” was a throwaway line from a glance – asked politely i might add – in stark contrast to your reply). The point about non-commercial losses stands – small business can’t just shelter income will-nilly, why should S&W earners.

        You have a triviality here. The main issue to revenue is S&W earners undermining the progressive tax system by sheltering behind housing. Without this tax subsidy, there are billions and billions of dollars price-setting at the margin that will be pulled out of the politico housing complex.

        It will be trivial, the number of people that have sufficient passive investment income to bother sheltering it with speculative housing investment is bugger all, and those that do are about to take a bath if this policy comes in.

      • FiftiesFibroShack

        “Do you agree with Labor’s decision to allow negative gearing to continue against income other than salary/wages?”

        No. But I think the ALP plan is better than the current system, and I don’t think it’s politically realistic to expect NG to be removed completely in one move. So what to do?

      • “It will be trivial, the number of people that have sufficient passive investment income to bother sheltering it with speculative housing investment is bugger all, and those that do are about to take a bath if this policy comes in.”

        Really? I think almost all anesthetists and surgeons would be interested in benefiting from that.

      • @MelbG – the point is they are wealthy, they can do this anyway with shares, offshore investment etc etc. What they can’t do under this policy is hide their substantial S&W income behind established property tax shelters – this is a good thing.

        This is still a trivial number of people that would use property to shelter passive investment income – it’s a bad investment unless you are sheltering a marginal tax rate. (Of course quarantining losses to the asset is still much better policy)

        If you want to talk about actually removing interest expense as a deduction – well that’s a whole new discussion and i’m probably going to agree with you. There is no rule of nature that says interest should be deductible, in fact, because we have made it deductible most large organisations go through complex analysis to determine what levels of debt v equity they hold in each jurisdiction…

      • “But I think the ALP plan is better than the current system, and I don’t think it’s politically realistic to expect NG to be removed completely in one move”

        +many.

        Yes, Labor’s plan could be improved but only one party is actually proposing anything here while the other one is running an Abbott-level scare campaign.

        My ideal proposal would limit deductions to income from the same asset class and only discount CGT by averaging and inflation.

      • Ok. Lets get down to brass tacks here BB.

        The total cost to revenue from negative gearing tax sheltering against S&W is estimated at approx $2 billion a year. So the question we have to understand is how much sheltering of passive income against established property (can be negative geared) goes on outside this number – gives us our ratio of S&W negative gearing to passive income negative gearing.

        On a quick search i can’t find that data, but agree it would be interesting to know. More reasons why the losses should be quarantined to the asset.

      • https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-statistics/Taxation-statistics-2013-14/?page=4#Table_3_Individuals___selected_income_items

        ATO stats show that S&W income was 584 bn in S&W Income declared compared to 22 bn in franked dividends and 13 bn in interest – which gives some idea of the ratios we are talking about here. It would difficult to believe we would be into non-material amounts as far as revenue loss on established property gearing to offset passive income goes…

      • That is the table I linked to this morning. The amount/ratio of S&W to passive income is irrelevant. You only need to compare passive income to rental losses (or really only new rental losses given Labor is grandfathering those investors who are already negatively gearing against S&W).

    • Ronin8317MEMBER

      Beyond being a tax lurk, the biggest problem with negative gearing is how it enable people who cannot afford it to borrow beyond their mean. If the rich wants to put their money into a loss making asset, then go ahead, they can afford the loss. The problem occur when the ‘mum and pop’ buys into the hype and buy up properties as well : it makes ‘entry level’ housing out of reach for most first home buyers, and the demand for loans blew up our current account. As a country, borrowing money from overseas so we can sell houses to each another is simply madness.
      The ALP’s policy is not ideal, but it’s a starting point, and better than the LNP ‘common sense alternative’.

      • SoMPLSBoyMEMBER

        Well phrased Ronin!
        MT’s uncoordinated ‘hip hop’ dance is designed to draw attention away from the ‘real’ objective–maintaining the absurd prices maintains absurd loan packages which maintains absurd banking revenue.
        As mining / energy related co’s continue to lose altitude, their tell tale billowing smoke reflects serious ‘engine’ problems and hence, the frenetic effort to keep the same from happening in the FIRE. MT will do what he’s told-the dialogue about NG and what’s ‘fair and equitable’ and the tax code’s legacy to 1915 are simply distractions. MT is not the leader although he enjoys pretending.

  6. At some point, Negative Gearing of property disappears all by itself. Either by (1) mortgage rates are so low that the interest expense, plus other costs are no longer more than the rental income or (2) LVR’s drops to a level where the possible borrowing does not generate enough interest expense to deduct. ( make it 50% LVR on anything but a single dwelling owned by any individuals’ ATO number)
    I’d suggest BOTH of those are in play at the moment, and once NG has gone away all by itself, then cement that occurrence by removing what ‘isn’t there’ – Negative Gearing itself.
    The Capital Gains Tax is a related issue that needs addressing on a time basis; the longer a property is held, the less it is CG’d to equate to the length of time the average owner-occupied dwelling is held. Say 100% in the first year down to 0% after 10 years – very easy to calculate!

    • “Say 100% in the first year down to 0% after 10 years – very easy to calculate!”

      Why not just discount for inflation (which is theoretically the point of the discount)? It’s not like computers struggle with calculations.

      • Simplifying the tax system and spending some money on E-Tax to update it and make it more approachable would go a long way to making the “How do I implement this policy” a hell of a lot easier.

        Improving E-Tax should be an easy thing to do. Simplifying the tax system I doubt will ever happen.

      • @AB.

        Indeed. I can’t understand why more economists aren’t advocating for this. Grattan pays lip service too it and they dismisses it as “too hard” and it will be too generous in a low growth environment.

        The “too hard” complaint is laughable given the complexity their NG/CGT changes would introduce into the system.

      • “I can’t understand why more economists aren’t advocating for this.”

        Neither can I @Jason – it seems clearly like the obvious and fairest solution.

    • drsmithyMEMBER

      It is hard to see why there should be a CGT discount at all for anything except moving PPoR (and a handful of corner-case equivalents like nursing home bonds).

  7. Forrest GumpMEMBER

    Turnwitt’s argument defies any logic. He proposes that if

    “for whatever reason they (investors) incurred a net rental loss …. they’d have to cover it out of their after-tax income. So that is a very big risk. So – so we can say very confidently that under Labor’s plan all or almost all of those investors, personal investors who are borrowing money to buy investment property, would not take that risk.

    So Turnwitt is happy to stump up wealthy investors gambling habits using taxpayers funds (from the poorest sectors of the community) to ensure the wealthy can have a safety net for investment?

    Sounds like social security for the rich.

    How can you vote for this nutter?

    • The most misleading part is part is pretending that speculation/rent-seeking off established housing is a business.

    • These “losers” are only reducing the tax they themselves pay. I am sure that you are more than happy to tax them with they “win”.

      • We don’t – that’s the point about the CGT reform. It’s a tax shelter and a timing difference (thanks to the differential between CGT and personal income tax. This argument is flawed as well.

  8. Smooth talking Mal seems to have been caught flat footed after some mild scrutiny !!

    He definitely seemed rattled during the interview. God help him during the election campaign and the debates.

    • It just reminds me of the Ute-gate affair. He is actually a really bad typical politician. His advantage would have been to be honest and put his not insubstantial mental powers into earning respect for being honest. People would have lapped up the bad politician stuff because they are sick of slimy politicians.

      Instead he’s tried to be a slimy politician, is really bad at it, and is now toast.

  9. Mining BoganMEMBER

    St Mal blinks a lot when he lies. The way he waves his glasses around when he speaks must be an attempt to divert attention from his blinky head.

    • Also, that time he said he didn’t hear the question. I bet he heard it alright. Just had a deer in the headlights movement. At least Abottolypse nods his head like a psychopath when he has no answers ready.

    • Today's Empire Tomorrow's Ashes

      If only his name was Bill. Imagine the fun cartoonists could have

  10. moderate mouse

    Sounds a lot like Malcolm Turnbull is managing a bubble, not an economy. Mouse will be voting ALP.

    • Vote LNP (only in the lower house) so it blows up under them. Any reforms that the ALP would bring in will be reversed when it blows up because of widespread recency bias.

  11. It’s fairly basic. Investments in productive capacity – the things that actually add economic utility, and we can sell abroad to repay the debt used to produce these things many times over is what should attract incentives. Housing as shelter, a basic need, and something whose rabid price appreciation (on unimproved homes) adds very little economic utility should not. An investment needs to make sense on the return fundamentals, not because of some type of tax distortion. The market without neg gearing will produce enough new homes for those needing them, provided developers are not allowed to strangle land supply.

  12. By the way, the link in the article to “independent modelling support” doesn’t seem to work.

    The ALP haven’t actually released the PBO modelling on their policy so I will be curious to see what you suggest is independent support.

  13. That’s a disappointing (dare I say it even lazy) article from the usually excellent Gittins. He’s happy to go the MB approach and uncritically cut and paste everything that Grattan says.

    But he couldn’t even get that right – he claims that the money raised from the NG changes will settle to $1.6b pa “as behaviour changes”. But the actual report says it falls from $2b to $1.6b as the non-deductible interest starts to get written off against other investment income.

    Grattan itself admits (albeit sneakily in the footnotes) that the $2b number assumes that the affected investor earns no other investment income (ie it is an utterly meaningless number) and then later admits “These estimates do not take into account the effects of investors changing their behaviour in response to the policy change.”

    So in summary – the Grattan/ALP policy won’t affect affordability, won’t really raise any money but will add a huge amount of administration cost and uncertainty into the market. At best it might result in this mythical reallocation of resources and ownership mix but without outlining how exactly that would happen, that is merely an aspirational outcome.

    • Not correct. You are assuming that the vast majority of S&W negative gears have other passive income that they are happy to offset the loss against. The ATO in its 2013 stats puts S&W income at 500bn and franked dividends at 20bn and interest at 15bn.

      There is not a huge pool of passive income out there that will soak up any S&W income that can no longer be geared against.

      That said, a much better policy is to quarantine the loss to the asset, so the rent seeker/speculator can only offset future income from that house.

      • “There is not a huge pool of passive income out there that will soak up any S&W income that can no longer be geared against.”

        There doesn’t need to be. It only needs to be enough to cover the rental losses.

        Let me put it this way (and I am just using rough numbers to get the idea across):

        Now $535B S&W+PI (Passive Income) <- Claim property loss against this
        $10B in rental losses

        Plenty of cover to claim those losses.

        Future $35B PI <- Claim property loss against this
        $10B in rental losses

        Still plenty of cover to claim those losses.

        & that is without taking into consideration that the rental losses that need to be claimed are only the new ones accrued with Labor grandfathering existing investors.

      • I think you’ve confused yourself aj – BB is correct. You only need enough passive income to cover what is currently $11b of gross rental losses.

        As for quarantining against a specific asset, that would be grossly unfair and would push everyone away from risky investments. Let alone the huge additional administration costs that would arise.

      • No, the reason property works is you can gear heavily with very little supporting capital and the interest expense is low (relative to past capital gains). Also it is (relatively) immune from margin calls at least in history to date – other asset classes don’t work like this for most.

        95% of Australia lacks the capital to gear outside of property and even if they did their risk exposure would be through the roof – refer all the margin collapses. It’s not a material amount.

        Also quarantining is the best approach to recognise established housing as a social asset not a place for asset speculation.