Morrison confesses he’s managing a bubble not economy

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:

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.

[email protected]

Unconventional Economist
Latest posts by Unconventional Economist (see all)


  1. Perhaps its the doomsayers ‘managing’ the bubble?

    Let Scummo and his ilk blow the thing up.

    Give us a million balconies, all facing the Sun (Negatively geared of course)

    • Strange Economics

      The SMH got it right on Saturday. Turnbull is running the govt as investor in chief, not for economics. Maximise the investments and tax deductions and follow his advice, push property up, and 10% of the population will get rich. Society will get poorer. Still lots of ammo left to raise prices, they’ve stopped annoying foreign buyers, lowering interest rates, etc…Time to double down quickly on Neg gearing, before they scrape home at the election and everyone joins in…

    • Seriously, you couldn’t make this shit up in a twilight-zone episode directed by Orwell himself.

      Here’s our PM (the member for Fonseca’s Golden Sacks) in a new ad:

      “In the ad, Mr Turnbull spruiked the return of the Australian Building and Construction Commission as a way of lowering the cost of construction.

      As Mr Turnbull sees it, cracking down on union corruption is one way of improving housing affordability.”

      Its the unionists! they’re to blame for housing unaffordability!

      • But housing’s not unaffordable! At least, not for the likes of Turnbull and Morrison, or indeed any politician – so why would they want prices to fall?

      • When you invoked the Twilight Zone and Orwell I figured, nah the bloke’s probably exaggerating.

        But no, if anything you’re under-selling just how utterly insane and fantastical the narrative has become.

        Global Warming? It’s those damn unionists!
        GFC? Pretty sure it was those construction unions there.
        Cost of healthcare is too high? That damn nurses union.
        Tertiary education gone to shit? It’s those damn teachers!

      • adelaide_economistMEMBER

        Yep saw that ad and found it equally ridiculous.

        It might get some traction though because we talk about ‘house’ prices when it’s really the embedded land value that has been catapulting into the stratosphere for the last 15 or so years. I suspect most people associate higher house prices with the actual ‘house’ bit.

  2. Forrest GumpMEMBER

    Dickhead Morrison says the removal of negative gearing is a “A big housing tax “.

    He’s wrong. Its existence is a tax for everyone wanting purchase a home to live in

  3. Morrison should be spinning like this:

    2% won’t make much difference to affordability for new home owners (it reduces their deposit requirement on a 500k home by $2k and the cost of their mortgage by $10 a week) whereas for someone who bought a 500k place last week, a 2% fall destroys their equity by 10%.

    • And the response to that would be that the buyer is forced to actually borrow and pay more while the owner has lost nothing until they sell their house.

      • Sure. But that’s the thing about spin, you only have to present one side of the story.

      • I’m not sure that Morrison has the cognitive capacity to successfully use such a (relatively) complex argument.

      • If he pays me I could write it down for him to memorise. It worked for Abbott.

      • “It worked* for Abbott.”

        * – For some definition of worked. Definitely enough to win an election though.

  4. DodgydamoMEMBER

    It looks to me to be a mechanism to shift funds from super to house prices… if only for the wealthy initially. I have for some time expected transfer of funds from super to housing to be the last phase of the bubble, but I have waited too long to get excited just yet…

  5. The Patrician

    Morrison says “labor NG changes would crash the economy”
    The economy did not crash in 1985 when Keating entirely removed NG.
    What evidence does Morrison rely on to support this astounding claim?
    Turnbull says “labor NG changes would take all the investors out of the market”
    Not one single investor would buy another dwelling!
    Investors kept buying dwellings in 1985
    What evidence does Turnbull rely on to support this astounding claim?

    • I would say “It’s Different this Time”, but in the bad sense; in that, I think removing NG will actually be a significant contributor to prices coming down this time….relative prices, the economy – it’s health and makeup – it different.

      I want NG gone for housing (as it drives speculative, inflationary tendancies over productive and utilitarian), but I fear that if Labor win the election and implement the NG policy, the house of cards that is due to come down ANYWAY will be blamed on NG changes……and then the Libs will come back in, re-implement NG, and then it will be etched into our national psyche and policies for another few decades as something that “must be…we tried removing it in 2016/17 and that was a disaster…”.

      That’s one of the reasons I actually want the Libs to win: so NG changes can be done when the house of cards has come down already, and NG doesn’t get blamed….

      My 2c

    • “What evidence does Morrison rely on to support this astounding claim?”

      Of course none, but half the populace will believe him. I wish i was a Labor pollie right now. They should be tearing strips off these LNP muppets.

  6. There is a psychological analogy that explains the bottleneck we have with the decision on NG or to reduce house prices [lets not escape the oxymoron that we have free hand proponents admitting that the whole market is rigged by a combination of RBA rate and policy such as NG for now – and we can deal with this separately].

    Ask any global leader if they should do something to save 1 billion people alive today by taking a step such as taxing sugar or invading a country or take a lesser action to save the lives of 6 billion people not yet born – ie by investing in CSIRO R&D. Most leaders will find it easier to implement the former initiative – as people are so much more focused on the now with their discount rates.

    So the same goes for housing – would you rather bring houses prices today down so that a generation suffer, or keep them higher and higher so that every generation into the future suffers? It just goes to show that our politicians as well as the people who vote them in can only focus on near term outcomes when they make decisions. If houses comes down in value do people die? No, no they don’t. Well, not to the naked eye. It seems that financial poverty is psychologically held as a proxy of death by many people – most probably because wealth is an uncertain world is the only buffer from helplessness.

    Once again, policy wonks should really look at the underlying psychology of what is going on and call it out. Should house prices go up, should they go down? What an absurd way to run the leadership selection process of any country. Humanity really has a long way to go.

    • This is why I have no faith in humanity averting serious environmental catastrophe. We simply can’t changes for the sake of long term prosperity. We will always go for the feel good sugar hit short term solution.

      • just remember, it’s only an environmental catastrophe for many mammals etc.
        other forms of life are going to really kick ass out of it and would sense environmental opportunity. kind of like humanity giving these types an assist aka mahrez to vardy in the box. Nomore white rhino? Great says the bacteria being killed by the bacteria that is supported by white rhino colonies.

        is there an ethical or metaphysical ‘unknown’ angle that we need to concern ourselves with? who knows? yet, as they say, the first step is understanding – i’ve never really had that, so not in a position to comment on what you would do when and if you did have it

    • It’s the same reason why we humans seem to be unable to learn from past events. Take economic bubbles for instance. Structurally, they are all the same, driven by the same forces, all end up with the same results, yet we continue to create them and we keep going through the boom/bust cycles and every time we surprise ourselves as if it’s the first time… It’s an amazing paradox. Don’t know what the answer is..Perhaps we’re wired to be this way.

  7. Denis413MEMBER

    At the very least the losses should be quarantined. This would be consistent with other areas of Tax law (i.e. PSI tests).

  8. fitzroyMEMBER

    But UE, he is managing a bubble isn’t he????

    Wouldn’t it be better if negative gearers and foreign kleptocrats picked up the losses and not new first home buyers. There would be more padding for the banks.

    • The Patrician

      “But UE, he is managing a bubble isn’t he????”
      Bingo! A bubble economy.
      Glenn’s giant malinvestment bubble economy

      • he’s jumped off at the right time. now some ex BIS guy can take over and drive the nails into the coffin.

        the rot probably started with Keating to be honest. Lots of people won’t like it, yet he was the first one to go full neolibtard on financial deregulation.

  9. The whole Western world is managing the same bubble!
    The odds that for whatever reason one sub-bubble won’t go, then popping all the rest, get shorter every day.

    “Leaving the European Union would hit house prices significantly, says Chancellor George Osborne”

  10. What kind of economic system/model requires the family home to be ‘worth’ plenty for it to garner people’s confidence? What would Karl Marx have to say!? Either way, we’re farked.

  11. Scomo is just showing he’s on the same page as Turnbull. Now that they’ve gone down the “tell a big lie often enough” road, they really have no choice at this late stage but to continue on the same path. They’re just hoping that enough people with vested interests in rising prices will vote them back into power and, well, screw everyone else, including generations to come who will be priced out of home ownership.

    • think it’s pretty clear that they are going to try scare the shit out of existing home owners and try win the election that way.
      shorten hasn’t really done a great job in discussing how he is going to grandfather the NG. His policy should never have been labelled ‘scrap NG’; yet ‘optimise NG’ which is really what he will be doing. He’s lost full control of the message there. Poor form. How hard is it to develop strong messages. He should have simply repeated ‘we are optimising NG’ 500 times until it became reality in people’s minds.
      at the end of the day, these people get paid top dollar running around controlling the joint. If they fark it up, then hopefully they all get cleaned out. Nobody likes losers, especially donors who play well for their influence and control of markets.

    • yep you are spot on. They got tied into this lie mostly because so many of their colleagues have a vested interest with owning so many houses between them, combined with needing to do the opposite of what labour has proposed. To a large degree they have been wedged into this by labor coming out with the policy first. This sort of thing happened to howard with MP rorts as well but i recall his position in the libs was secure enough that he could match the labor policy and suddenly it turned into a non issue. He did that very well. Turdboat has been wedged by labor and his own party members personal financial interest and does not have the authority to fight them.

    • “Surprisingly, the repayment performance of the fraudulent borrowers is better than both banks’ average home loan, as is their equity or security coverage.”

      • Fraud is Fraud no matter square it….

        Skippy…. it was understood hundreds of years ago [insert dead guy quote] if not the very beginning – that credit is a matter of trust and quality…. screw with that and the whole system becomes ill or goes poof…. and not even hard money can avail such machinations…

      • Fraud/Corruption has a high ROI – the fact that such a blind eye is turned in the tech surveillance age tells us many things about where and what we are.

        No more and no less.

    • Yes, I’d agree with that. And that’s not something I ever thought I’d say. Turnbull must really rue the day that he picked Morrison.

      • I’m sure that he only picked Morrison for Treasurer so that their fortunes were tied together. It would seem to have been the only politically astute thing that he has done since becoming PM. It is a shame that everyone else is suffering the consequences.

      • Yeah, I’m sure he did as well @footsore but it’s become pretty apparent that Morrison is so stupid that he would have self-destructed on his own anyway.

    • The Patrician

      “..negative gearing should be skewed towards new housing so that there is an incentive to add to the housing stock rather than an incentive to speculate on existing property”
      – Joe Hockey, final speech to Parliament 2015
      These words should be plastered 3ft high on large billboards in every marginal seat in the country.

  12. Jumping jack flash

    I wonder how long before they just tell the truth?
    It’s not like anyone can or will do anything. What are they afraid of, the guillotine? Australians are too well fed and entertained to care. As a people, we’re not very passionate at the best of times. “She’ll be right, mate,” and all that.

    “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.”

    He should just come out and say household debt is driving growth. It is pretty much obvious now. Households use debt to consume, and consumption is driving growth, join the dots, viola.

    Also, for about the past decade, every time there is some kind of economic hiccup they lower interest rates. It doesn”t matter what it is, anything is an excuse to lower them. It doesn’t take a genius to figure out what’s going on. In a traditional, well-functioning economy, where growth is linked to production productivity improvements leading to cheaper costs, and increased profits and sales, which feeds back into investment and capital expenditure, interest rates should have no effect on anything.

    And yet, here we are. Imagine if interest rates were raised to a low 9% – half of what they were under Keating when he nipped the bubble in the bud the first time, before it took off. Anything like that now and it’d be a disaster of epic proportions and our “4 pillars” would be crashing down around our ears.

    • They will never tell the truth. They are following the Jean Claude Junker play book to a tee. “When it gets bad enough you have to lie.” If this stinking sh*t pile explodes we can look forward to listening to these dipshits and the mindless drone like economist prattle on about how it could not have been forseen.

      • Jumping jack flash

        If only it was allowed to implode.

        However, it is not the case. What should happen and what will happen are completely different.
        What should happen is based upon our own moral compass and leanings and is not based on fact. It is easy to imagine fantastic scenarios that suit our ideology. What will happen is conceptually a lot harder for anyone to determine, but realistically, there will be no spectacular collapse. There are too many options left, too many powerful players, and too much at stake for it to go down.

        Even Greece with all its dire problems is still a sovereign nation and still part of the EU.
        Ireland too was a basket case, but nothing really that bad happened to either of them, and I’m sure not everyone living there who wished for collapse and wanted to buy a house, at the heights of their bubbles, has been able to buy one now.

      • “…I’m sure not everyone living there who wished for collapse and wanted to buy a house, at the heights of their bubbles, has been able to buy one now.”

        Not everyone I’m sure, but I have three friends who bought after the crash at 40-50% less than they would have paid before it. Two in Dublin and one in Cork.

  13. adelaide_economistMEMBER

    Cool, we have a Treasurer who doesn’t seem able to distinguish between a deceleration in growth (“house prices would grow 2% more slowly than they otherwise would.”) and an absolute decline (“But Morrison said on Sunday a 2% reduction in house prices was not immaterial”).

    Or does he and he’s just being… mischievous… by misrepresenting the findings in the way most likely to induce a fear response by millions of homeowners?

  14. kiwikarynMEMBER

    “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.”

    Aside from any effect on house prices, has anyone considered what the effect will be of removing $2 billion a year from consumers’ pockets? There will be no more big fat tax refund cheques being sent out. Presumably those tax cheques were cashed and spent by people in the economy, thus fuelling consumer spending, and GDP. Removing negative gearing will be like the opposite of helicopter money.

    • “…has anyone considered what the effect will be of removing $2 billion a year from consumers’ pockets?”

      Does the $2 billion cease to exist? Or could it possibly be spent elsewhere (or used as reverse helicopter money to help reduce the deficit)? If it was spent elsewhere, could it be spent in a way that is more likely to stimulate the economy than if it was used to subsidise investors hoping to convert on-going losses in to concessionally taxed capital gains?

  15. Who to believe? Turnbull and Morrison or the RBA?

    Reserve Bank officials have become unwitting players in the 2016 federal election after a freedom of information request revealed that they believe any policy which discourages negative gearing may be good for Australia’s financial stability.

    The revelation contradicts the dire warnings of the Turnbull government that any changes to negative gearing would destroy confidence in the economy and send house prices plummeting.

    “Any change which discourages negative gearing may be a good thing from an FS perspective,” the RBA document says, with FS standing for financial stability.

    “The concessional rate of taxation of capital gains might encourage leverage speculation, particularly in combination with negative gearing provisions.”

    • The Patrician

      Turnbull rejects NG reform
      He lies about the effects of reform
      What does Glenn Stevens do?
      He rewards Turnbull for his lies and inaction
      Glenn cuts rates…. in an election campaign
      It is a financial stability disaster
      Stevens should be condemned

  16. GeordieMEMBER

    Remember when we cried as kids and our parents said “I’ll give you something to cry about”?

    We thought they were going to hit us but instead they destroyed the housing market.

    – Some wag on Facebook.