Morrison confesses he’s managing a bubble not economy

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By Leith van Onselen

Over the weekend, Treasurer Scott Morrison delivered yet another spurious attack on Labor’s changes to negative gearing and the capital gains tax discount, warning that it would “crash” the economy. From The Guardian:

“If you want to crash confidence in the economy, go and play around with the value of the family home, which is what Labor’s proposal, their housing tax proposal, does,” Morrison said on Sunday.

“The problem is that household consumption is driving our economy. In the December quarter national accounts, 0.4% out of the 0.6% growth, that was related to household consumption.”

“A big housing tax will undermine consumer confidence, undermine people’s own home values, and have all sorts of disruptive impacts on the economy,” he said…

The Grattan Institute released a paper last month showing if the capital gains tax discount was reduced from 50% to 25%, and if negatively geared investors were no longer allowed to deduct losses on their investments from labour income, house prices would grow 2% more slowly than they otherwise would.

But Morrison said on Sunday a 2% reduction in house prices was not immaterial.

“I hear people say even at the modest level, that it might only be, say, 2,” he said.

“Well, 2% on the value of someone’s home. I mean, that can be anywhere between $10,000 and $20,000. That’s someone’s entire interest payments, and more. I don’t think they’ll take too kindly for that to be wiped off the value of their home.”

A predictable response from someone that used to be head of research at the Property Council of Australia, and whom inherently believes that ever-rising house prices are positive.

What happened to the Scott Morrison that admitted in March on Sunrise that there are “excesses” in negative gearing:

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And why is okay to curb “excesses” in superannuation but not property investment – a point argued last week by Saul Eslake:

…The budget seems to be saying to people with taxable incomes of less than $80,000 – if you want to pay less tax, get yourself a negatively-geared property investment.

Negative gearing still the elephant in the room

The budget is also arguably saying the same thing to people with taxable incomes of over $250,000, people who have already contributed $500,000 to superannuation over the course of their lifetimes, or people who already have at least $1.6 million in their superannuation accounts. The message is if you put any more into superannuation, we are going to tax you more, but if you put it into a negatively-geared property investment, we won’t touch you, because (in the words of the Treasurer’s budget Speech), “that would increase the tax burden on Australians just trying to invest and provide a future for their families”…

The budget’s proposed changes to superannuation arrangements make sense. But I can’t see why people – even wealthy people – who are “just trying to invest” through superannuation should be singled out for less generous tax treatment, while people who are doing exactly the same thing through negatively geared property (or other) investments remain unscathed.

The Treasurer reportedly toyed with the idea of limiting “excesses and abuses” of negative gearing, with caps on claims. This would have more or less exactly paralleled what the budget seeks to do with regard to superannuation.

The decision not to go down that path was reportedly “a political – and not an economic – move”.

But it has, and will have, economic consequences…

Is it really consistent with building a “stronger, more diverse, new economy” – as Scott Morrison’s budget speech proclaims – to encourage still more Australians to bet, with borrowed money, that property prices will continue to rise at a faster rate than their incomes?

Actually Saul, Morrison’s position makes sense when viewed in the context that the Government knows that it is managing a bubble, not an economy – a point all but acknowledged by Morrison above. And this requires channelling even more of the nation’s resources into maintaining the ponzi, regardless of the longer-term costs economically, socially, and inter-generationally.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.