From The Australian today:
Like a well-drilled army unit, the big banks rallied together to dismiss a royal commission, firing off the scary reasons why it was a bad idea.
They did the same when the Murray inquiry threatened higher capital requirements.
So if negative gearing changes were such a disaster, why have the banks been so silent?
…[Turnbull] suggesting negative gearing is critical to making an investment in property stack up suggests two things: that a tax concession funded by other taxpayers is distorting the market by driving not particularly savvy or innovative investment decisions; and that without it, no one will do their homework and take a view that property prices and rentals will go up in certain areas.
Indeed, one of the few senior bankers to weigh in to the debate, George Frazis of Westpac, the nation’s biggest lender to landlords, played down the damage of changes. Phil Chronican, ANZ’s former head of Australia, has also previously lashed negative gearing for pumping up prices.
“We don’t see any material impact on our business,” Mr Frazis said in March, adding a transitional period and/or grandfathering was however required.
Yep. In mid-June last year, Westpac requested the government reform the tax system to remove the bias away from property speculation:
The current CGT discount was introduced in 1999 and allows individuals to discount a realised capital gain by 50 per cent provided they have held the asset for 12 months. Superannuation funds are also able to claim a discount of 33.3 per cent. Prior to the introduction of the CGT discount, indexation and averaging applied to capital gains meaning that only real gains were subject to tax.
We note the concern that the current 50% discount after only 1 year is not appropriate as it does not strike the right balance between removing the impacts of inflation, while discouraging speculative ‘asset flipping’ behaviour. We believe it is appropriate that the tax arrangements for long term savings neutralise the effects of inflation on asset prices, so that only real increases in income are taxed.
However, we recommend considering an adjustment to the current arrangements for capital gains to align the tax treatment with other savings options.
This would support the goal that investment decisions are not taken on the basis of after tax outcomes and would improve overall equity between investors at differential marginal tax rates. It may also moderate the concentration of debt-funded risk-taking in property investment…
We agree with the observations in the Tax Discussion Paper that negative gearing, in itself, does not cause a tax distortion. However, it is important to note that negative gearing does have an impact as leverage allows more people to enter the (housing) market…
ANZ chief, Mike Smith, then entered the fray, claiming that “negative gearing doesn’t feel right”:
Mr Smith said the government should look at negative gearing – which allows property investors to claim interest payments against their income – as part of a broader review of the tax system.
“It is somewhat ironic that we live in country which encourages borrowing and discourages saving, that doesn’t, somehow, feel right,” he told the Trans Tasman Business Circle lunch on Wednesday.
“But I don’t think you can look at negative gearing in isolation, I think the whole tax system needs to be looked at.”
And in August last year, CBA chief, Ian Narev, called for a review of negative gearing:
“This is one of the things that needs to be looked at broadly as part of the overall tax review,” he said.
Mr Narev said negative gearing undoubtedly had an impact on the housing market by boosting demand from investors…
However, he said the concession should not be looked at in isolation.
“In the structure of the Australian property market, where you have a high degree of investor borrowing… undoubtedly negative gearing is a factor,” he said.
The banks’ comments follow those of the RBA, the Murray Financial System Inquiry, Audit Commission chair Tony Shepherd, and the Australian Treasury in calling for a review of Australia’s property tax rules (i.e. negative gearing and/or the CGT discount).
The banks are silent because they want the reform, making Turnbott’s resistance to it all the more absurd.
