Treasury analysis supports Labor’s negative gearing policy

By Leith van Onselen

Throughout this term of Government, the Coalition has maintained the lie that ‘ordinary’ ‘middle’ Australians are the primary beneficiaries of negative gearing and that unwinding the tax break would represent a direct attack on them.

For example, here’s Scott Morrison, who used to be head of research at the Property Council of Australia, making such a claim last year:

In Australia, private rental accommodation is supported by a large pool of mum and dad investors making private rental stock available, through negative gearing. By number, almost 80% of these investors are middle income Australians earning $80,000 a year or less, owning just one property. They are school teachers, police officers, nurses and office workers saving and investing to provide for their financial security.

And here’s Morrison again attacking Labor on 2GB radio in February:

“[Shadow treasurer] Chris Bowen thinks everyone who’s on negative gearing is on a rort,” he said.

“He thinks they’re big property barons and you’ve got to go and tax them and slam.

Well, for most middle-income people it is the one chance they’ve got to build some wealth.”

Now the ABC has received a document from the Australian Treasury, under Freedom of Information, which claims most of the windfall from negative gearing and the capital gains tax (CGT) discount goes to high-income earners:

The modelling said more than half of the negative gearing tax benefits go to the top 20 per cent of incomes in Australia.

“Negative gearing benefits high-income families,” the document said.

The report stated those in the bottom 20 per cent were getting just over 5 per cent of negative gearing tax benefits…

Shadow Treasurer Chris Bowen said the documents expose the Government’s scare campaign.

“Treasurer Scott Morrison has a huge amount of explaining to do this morning,” Mr Bowen said.

“He has continued to say that negative gearing predominantly benefits low and middle income earners.

“He is not telling the truth and the Treasury had told him the contrary.

“The Treasurer was told this by the Treasury but has continued to lie about it”…

According to the modelling, the CGT discount “overwhelmingly benefits high-income families”, with the top 10 per cent accounting for nearly three-quarters of the tax savings.

The analysis also says that Labor’s reforms to negative gearing and the CGT discount could provide big benefits to the Budget:

The analysis predicted the combined effect of Labor’s negative gearing and CGT policies could add up to $6 billion a year to the budget bottom line “depending on the increase in new housing construction flowing from the new housing exemption”.

Of course, we shouldn’t be surprised by these results. The RBA’s analysis of the Household Income and Labour Dynamics (HILDA) survey showed that nearly 80% of total investment property debt is held by the top 40% of income earners (see next chart).

ScreenHunter_8353 Jul. 15 16.50

The proportion of households owning “other” property (i.e. investment or holiday homes) also rises with income, with 64% of households in the top two income quintiles holding “other” property versus just 21% of households in the bottom two income quintiles (see next chart).

ScreenHunter_12278 Mar. 24 13.13

Similarly, 34% of households in the top two income quintiles held investment property debt in 2010 versus just 7% of households in the bottom two income quintiles (see next chart).

ScreenHunter_12279 Mar. 24 13.13

Hence, it is clear as day that higher income earners are the primary users and beneficiaries of negative gearing, and that they own the vast majority of Australia’s investment properties.

The Coalition should stop lying.

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  1. ceteris paribusMEMBER

    Fair go. The Coalition can’t be expected to tell the truth. The Coalition are there for the top 20 per cent and that number does not an election victory make. They need to continue to be able to insinuate that 100% can be in the top 20%. And why ever not! This is the United States of America after all. And maths is not our forte.

    • They are just representing their constituents, and those who believe themselves to be on the way, the aspirationals. That was One of Mr . Howard’s better tricks, convincing people to vote against their own interests because one day they will be rich.

    • What gets me is the lack of “quality sell” re this point. It can’t be that hard to put together a decent ad to make this point and Mal, stand out like smelly dogs balls.

      • ErmingtonPlumbingMEMBER

        Such an Ad would generate howls of “Class-warfare/division”.
        It would be labled UnAustralian and generate fear, that a Red, Commie, Labor Government would start confiscating Homes and Investment properties!,…if elected.

  2. haroldusMEMBER

    “Well, for most middle-income people it is the one chance they’ve got to build some wealth.”

    Seriously, that mentality sucks. Note he says it’s the one chance.

    Fuck me we are fucked. I am sure there are plenty of people who want to invest in innovative Australian companies (such as they are) but are stymied by fear of mega loss via mortgage.

    • You’re right, it is frightening that a bigwig would think that way.

      There is nothing wrong with buying an item outright in the expectation that over its life it will repay its purchase price in use value. eg lawn mower, kitchen mixer, bookcase.

      Similarly there is nothing wrong with buying a house expecting to receive many years of shelter from it.

      Similarly there is nothing wrong with buying an investment house expecting to receive many years of rent from it.

      The problem arises when it is necessary to borrow to do this, and to borrow so many times one’s salary, and rely on a suspect tax deduction regime, and rely on interest rates staying low, the wife not getting pregnant, sickness, etc.

      If in fact this highly levered method is the one chance they’ve got to build some wealth, what does it say about the soundness of our monetary system, about the soundness of our tax system, about the soundness of our shelter-provision system, about our society in general?

      Where does this wealth come from? I ask. Successful societies have provided adequate shelter for generations without this being a source of their wealth. I look around and see provided shelter becoming less and less adequate in terms of size, open space and access to jobs and amenities, transport, schools and affordability. Yet this shelter system is somehow a source of wealth. What gives?

  3. I cannot understand why the ALP is not running TV ads using this information. Considering the Coalition is running this ad from tonight.
    From a tactical viewpoint, It amazes me the ALP is not going all or nothing in this campaign. If they announce the creation of a Federal ICAC if elected it will be game over for the coalition. True, there might be some ALP individuals caught up in a future Federal ICAC dragnet, but is it really worth staying in opposition on the account of these individuals?

    • Will Bill be remembered as a Politician or a Statesman?

      The Opposition are as aware as the Government that if ANYTHING heralds change to the Australia property market the Australia economy is toast. It is all there is left!
      Shorten is now trying to walk that fine line between maintaining what was an eminently sensible ‘new’ policy in attack (when the polls gave him now show of getting in) and trying to keep some sort of rage going without actually emphasising the policy, now that it looks like he has a shot at being PM.
      He has the Trump Dilemma! Even Donald didn’t think he’d get as far as he has. His job, as he saw it, was to rattle the cage of the status quo and get some political brain cells working. Actually winning wasn’t part of the plan because he might have to do what he said he would do.
      As others have regularly written, Shorten getting in and addressing the property issue, will see Labor blamed for what will be a necessary correction to the property market for many election cycles to come.

    • GunnamattaMEMBER

      I saw that advertisement yesterday (I dont usually watch TV) and couldnt help but think that if political discourse has boiled down to that level of intellect then it is Australia which has issues. Not just one side of politics or another but the entire nation.

      a ten watt advertising executive somewhere sold a major political party an ‘idea’ revolving around a people getting their economic narrative from a man sitting down at a building site (who sounds a bit like a Pom for crying out loud) …..

      …..working man – as evidenced by overalls and power tools, presumably construction – having a rant about about ALP ‘going to war’ with banks (that’d be those those guys relying on the budget being balanced to bail them out when merde hits the fan, but big on tax avoidance in the meantime) miners (‘that’d be those guys doing their marketing in Singapore to avoid paying tax) and ‘people like me’ (I think he means property speculators (negatively gearing to avoid tax).

      No, whoever came up with that didnt think it through. Shorten may well be a slime and the ALP may well be cretinous Whigs. But that is an advert promoting slack jawed work site masturbation of the type anyone who has ever worked on a building site absolutely loathes, and anyone paying for the product he ostensibly is involved in creating wonders why could not possibly be credible to anyone could it?

      • TailorTrashMEMBER

        When I saw this ad last night I thought surely not, could this campaign get any worse ? This pseudo ocker is a cross between the swaggering threat of Bill Kelty ( the full symphony speech ), the minder and a pretend chippy from a reality show . This looks like it’s put together by someone with a marketing certificate from TAFE and no experience whatsoever or maybe they have a degree in marketing from one of our dumbed down universities . I’m sure that message of getting ahead with an IP will resonate well with all those young Australians who can’t afford a home.

      • Yes I couldn’t help noticing the English accent too. Strange that central casting couldn’t supply a genuine ocker. Was Scott Cam unavailable? Did Hoges say no, or thought a bit geriatric these days to pull it off?

    • Why are they running such a lackluster campaign?

      I think they don’t want to win. When you look at the ads and you look at Shorten ….. you just get the sense that they’re throwing the election.

      Why? Beats me.

      Sad for Australia though.

    • In regard to negative gearing changes, Labor has one shot left in the chamber before they become irrelevant for a decade.

      If they announce prior to the Election that they will bring forward the date of negative gearing changes to this year rather than July 2017, that would just blow up the Liberal Party and RE leaners like there is no tomorrow. If Labor do this in the name of keeping a lid on prices and preventing one more year of a runaway RE market they will not lose a single vote. Investors, a minority of the Electorate, were never going to vote for them anyway.

      Since Labor mentioned the NG changes I have watched as existing homes sell like hot cakes. This I assume is the result of investors (locals and foreign) doubling down and getting as much stock as they can just in case Labor gets elected and the ATO rules change. If they win and NG deduction rules change, I imagine local buyers will drop out somewhat but they will just be replaced by dodgy foreign capital escaping China.
      Labor has nothing to lose by announcing the bringing forward of the date of changes to NG.

      If Labor really want to see the Libs & rent seekers get enraged:
      Mention introduction of the 2nd tranche of Anti-Money Laundering legislation ASAP.

    • What’s there to comment on that hasn’t already been said? The MB article is misleading in suggesting it was a report prepared by Treasury when in fact it was prepared by Ben Phillips at the ANU whose views on NG are well known. I assume that the research in question was that done earlier in the year – – which has been commented on many times on these pages. Specifically the report is highly deficient when it comes to how much money will be raised because by it’s own admission:

      “The analysis here is considered over the ‘long run’ and does not attempt to model
      behavioural changes such as investors changing their investment portfolios, carrying
      losses forward or altering their taxation affairs and behaviour to minimise the impacts of
      these policies”

      • More than a hint of desperation Jason. You’re clutching at straws.
        Treasury routinely gets external experts to do modelling – so what? Secondly, those are pretty much standard limitations for all economic modelling. Ceteris paribus….

  4. How is this not on the front page of all of the national and state mainstream print media and a lead story on all the so called news/current affairs/project etc. free to air TV networks federal and state?

    Oh, I forgot they are controlled by the “haves” and this is not the kind on information the “have nots” should be exposed to!

    If Australians are soooooooo stupid as to re-elect this bunch of do self interested, do nothing, nay sayers then we all deserve what we get!

    Mind you the vast majority of us will get a hell of a lot less than the LNP and their mates.

    Malony Turnbott will just sit back, drink champagne, eat cake and laugh his universe sized ego off!