Is the Coalition planning a massive first home buyer bribe?

By Leith van Onselen

From The Guardian this morning comes speculation that the Turnbull Government is considering making owner-occupied mortgages tax deductible in a bid to make housing more “affordable” by putting first home buyers (FHBs) on an equal footing with investors:

On Thursday Michael Sukkar, whose responsibilities include housing affordability, told Sky News the government wanted to give people a “realistic opportunity to save and purchase a home”.

Asked whether the government would consider adopting the US system where owner-occupiers deduct the cost of their mortgages from their tax bill, Sukkar said there was no “silver bullet” for housing affordability, including that option.

Sukkar suggested housing supply, not decreased demand, was the most important factor and reiterated government policy not to follow Labor’s lead by restricting negative gearing or reducing capital gains tax concessions.

But asked to rule out allowing owner-occupiers a new tax deduction to compete with investors, Sukkar said only: “I will examine, and I know that the treasurer will look at, all good ideas…

Asked if the owner-occupier deduction was under active consideration, a spokeswoman for Scott Morrison told Guardian Australia: “Housing affordability will be an important policy focus of the Turnbull government in this parliamentary term.”

Thankfully, economists have lined-up to lambast the idea:

The Grattan Institute’s chief executive, John Daley, told Guardian Australia the deduction would cost the budget $19bn a year and do little to improve housing affordability, compared with tackling negative gearing and capital gains tax concessions…

A University of New South Wales economist, Nigel Stapledon, told Guardian Australia the cost to the budget would be “pretty substantial”.

If you said to me in September 2015 that a Turnbull Government would consider making owner-occupied mortgages tax deductible, I would have laughed at you. But after witnessing its antics over the past 15 months defending negative gearing and the capital gains tax discount, as well as last month’s deplorable housing affordability inquiry, I certainly would not rule-out the Coalition introducing such a measure. They could try anything to support the housing bubble.

Any demand-side stimulus like this (or allowing FHBs to use their super savings to purchase a home) would be entirely self-defeating from a housing affordability perspective. Past experience has shown us unequivocally that such measures do not work.

Despite the massive decline in interest rates and the myriad of subsidies provided to home buyers over the years, the home ownership rate has decreased, particularly for younger Australians (see next chart).

ScreenHunter_14108 Jul. 20 07.53

Allowing buyers to claim a tax deduction on their owner-occupied mortgage would simply increase their capacity to pay and would soon be capitalised into higher home prices. At the same time, the Budget deficit would be expanded considerably for no benefit.

The problem of unaffordable housing requires a combination of policy measures that tackles: tax lurks (including both negative gearing and the CGT discount); supply-side constraints; infrastructure bottlenecks; money laundering into, and foreign buying of, established dwellings; loose capital rules; over-investment by super funds; and excessive levels of immigration.

Just don’t expect the Coalition to address any of the real issues. It will continue to reach for gimmicks.

[email protected] 

Unconventional Economist

Comments

  1. I’ve noticed that the bakeries are already peddling hot cross buns 3 months out from Easter, so we might as well start April Fool’s Day 71 days early.

    • They want to keep it on the table for purely ideological reasons.

      It makes no economic sense whatsoever, and introducing it will blow the budget clean out of the water – and this if you think the Torynuffs have any sense of electoral mortality is the key. They dont want the ALP coming in and implementing any forms of social-economic reform, so they blow a hole in the budget before they go. That hole in the budget (if they do it) is all about nailing economic policy to the greatest speculative bubble of all time and real estate. There is little scope for anyone winning an election by suggesting it is removed (once it is introduced) and the hole in the budget will ensure that nothing gets spent on anything else.

      They are throwing renters and those unable to get access to buy on the economic scrapheap, and they would be able to throw lots of ugly ideology – maybe something like private health insurance? maybe something like a link between houses and education? – into the mix as well.

      The Torynuffs had a glimpse of the future with the last election and the prospect of removing negative gearing and CGT. They want to put any prospective ability to remove taxation concessions affecting housing so far into the ‘politically too hard’ basket that nothing – economic exigency, loss of sovereign rating, absence of national income earning ability, reduced immigration, need to fund services – for a generation, and turn us into a nation of mega mortgage serfs.

      They may not do it, but there is an increasing sense that their next foray into housing related policy will be seriously ugly…..

      There is no longer a real estate tumor in our economic body, the real estate tumor is the economic body.

      • They are throwing renters and those unable to get access to buy on the economic scrapheap, and they would be able to throw lots of ugly ideology – maybe something like private health insurance? maybe something like a link between houses and education?

        Fuck renters, selfish parasites. They should be gearing up (or down or whatever) and leveraging into the massive bubble. It’s good for the economy, it’s good for Australia. Those ugly bastards will never learn.

        *Signed*
        Ugly Renter.

      • notsofastMEMBER

        They surprised me with this one. I thought the next step to supporting the housing bubble was clearly going to be formally including the number of investment properties has in an individuals yearly job performance appraisal for all government and private sector employees.

      • Gunna “They want to keep it on the table for purely ideological reasons.”

        I agree, Hot Cross buns taste good but are overpriced. It is much more efficient for everyone to simply eat bread

  2. Crocodile Chuck

    Christ, these people are dumb.

    This is just one more thing that will drive house prices

    ..to the Moon!

    • Disagree. I would have thought that the ‘rentvestor’ already does this. I rekon net impact is pretty low on prices, but what it means is those who owner occupy get a free bump and government is seen as doing something.

      • Neville Gearless

        Never been to an auction Calvin? When more cashed up bidders show up, the bigger the bidding war. OO’s will be able to borrow more with this deduction, there’s the new bidders.

      • I agree, but what I am saying is that there are very few pure play OOs left out there. As such the net effect of this policy will be to allow rentvestors to shift to true OO status – which is a net neutral impact since in both case they negative gear.

      • Neville Gearless

        There are very few renters winning at house auctions, because they are crowded out by richer investors. There are still plenty of upgraders, they are around 40-50% of the market in Sydney. They are OO’s too. (In Perth, foreigners and upgraders (OO’s) are like 90% – the investors disappear in a bear market)

    • “The problem of unaffordable housing requires a combination of policy measures that tackles: tax lurks (including both negative gearing and the CGT discount); supply-side constraints; infrastructure bottlenecks; money laundering into, and foreign buying of, established dwellings; loose capital rules; over-investment by super funds; and excessive levels of immigration.”

      Straightforward.

  3. I half hope they do this, just so that it becomes so bleeding obvious who they are trying to protect.

  4. This idea is actually genius, though they should limit it to new FHBs (potentially also current OOs in their first home) so as to prevent a US-sized hole in the budget.

    But certainly this is a very clever incentive to give young people a tangible reason to work and save. Once FHBs are given the same advantages as investors, and demand is whittled away, then perhaps this bubble can slowly start to be deflated.

    • This.

      I am an OO in first home.

      I would use the tax saving to smash my loan balance down at tax time.

      1k a month in interest so net benefit of circa $7200 per annum right off loan bottom line.

      Or into super. Or half/half.

      No spendy spendy though

      • Yes, it works for people like yourself, but at the macro level what good does it do? It will just encourage greater indebtedness, thus stealing from the future. It is nothing but more food to feed the FIRE best.

      • Yes Footsore, but the argument that FHB/first OO need to be on a level playing field with specufestors has merit, no?

        In the absence of a repeal of NG/CGT, what to do?

        We’re already stealing from future gens and lining the pockets of those already in the Ponzi

        No easy answers

        Maybe it’s a case of introduce some equilibrium then can them both?

        I don’t know…..

      • What about renters then? They would be paying extra tax to support everyone who was claiming tax deductions on their mortgages. The only fair solution would also make rent tax deductible.

      • Neville Gearless

        Of course it works out nicely for OO’s who already bought. Imagine if this American style deduction came before you bought, your price of entry would be higher, negating much of the deduction. Makes the exercise pointless.

      • Dan stop leaning and start lifting – your acquiescence is valued

        Nigel, what, like negative gearing or myriad other boondoggles like corporate tax evasion minimisation

        Let’s be clear, this is a vote winner designed to deflect anger from #Robosaga and #ExpensesGerrymander and to #WedgeLabor

      • Never thought of it that way. First thing I’d do as an OO is rack up as much debt as humanly possibly on my home loan. Bring forward all major purchases, possibly renovate, and then basically use the home loan as a personal bank account even more than I already am. Genius strategy to get the economy booming. But the usual catch is who is paying?

      • Calvin, it could be/should be limited to the original PP only.

        Notwithstanding if you bring fwd spending you are deploying cash into the economy (GST receipts, income tax etc)….

        As always, it’s the unseen…Hazlitt instructional here.

    • “This idea is actually genius, though they should limit it to new FHBs (potentially also current OOs in their first home) so as to prevent a US-sized hole in the budget.”

      Not only is this a shit idea, if they do it they better not fcuking limit it to just first home buyers (or current OO). I’ve never owned a heap of crap property in this country, but my partner has, for 1 year. Then, when she broke up with her ex she had to sell him her half (lost money). Because of this she is no longer able to get first home anything, and therefore either am I. I’m completely robbed of that tiny fcuking thing, so I’m not just less equal than investors, I’m also less equal then FHBs (even though I am a FHB).

      So screw your repugnant idea. And there is no way that I’m going to break the law and just have my name on the house and not hers to in order to claim this deduction, I’m not a immoral prick.

      • Putting aside the name calling, I’m sure there would be a way to make it work so that people like yourself are not left out.

        Perhaps makign it open to all OO mortgages really is the best idea. My partner and I are paying off a small mortgage on a 1 br apartment, we would consider taking on a bigger mortgage if this kind of tax relief was in place.

        If you’re young and willing to work, this is a really great idea. Bear in mind that some occupations already have salary packaging arrangements for mortgages, so it’s not like this is completely new idea.

        I say they should do it, Turnbull would be to FHBs what Whitlam was to Uni students.

      • Name calling? I want you to point out which name I called you. Where in the comment do I call you anything? I said you had a shit, repugnant idea and I stand by that. Learn to take a little criticism without thinking its personal. Everyone has shit ideas from time to time.
        If this does go ahead they better work it so I don’t miss out. I’ve been cheated by this country for so long though I bet they won’t.

      • The year before I started uni, engineering degrees were 1000/year. Before that, they were free. Then when I started, 4400/year. Which I got HECS for. Now, they’re more, and HECS doesn’t exist and the interest rate is higher (isn’t it?)

        Where do you draw the line

      • @super, I draw the line at policies that disadvantage, those who have done no wrong, while instituting policies that favour those over these disadvantaged. Especially when these things are basic things required to live.

        For me this policy is like giving everyone else $1 milk for 30 years, while I have to pay $2 in order to support them, even though I am in the exact some position as them.

        @BB, That’s fcuking right, I am in exactly the same disadvantaged positon that these people are, yet I don’t get the same benefit, and am expected to pay for it with my taxes. I guess Australia is just giving me a fair go hey.

        No citizen, of their country (it is their country) should be disadvantaged like this. I don’t just miss out on this I get punished by it. Missing out is one thing, but being punished by it, with higher house prices, and reduced service because my tax now needs to fund this idea, is not ok.

        The fact that you would lol at this, is not something that you should be proud of showing in public.

      • Life ain’t fair fishbulb.

        This policy isn’t a good idea, but I would be embarrassed to have such a poor argument as “I miss out on it due to a technicality, so it shouldn’t be implemented”.

        I pay taxes for all kinds of crap that I can’t or don’t make use of, as does everyone (who pays tax).

      • @BB You should be embarrassed for justifying the behaviour of these politicians with statements like life isn’t fair. This is not like being born with a disability. This is an action that doesn’t have to be made.

        Government is not meant to make life more unfair than it already is but they continue to do so with ideas such as this one. And this is not just for my specific situation, if this policy happens principal repayments will be the problem not interest, so this helps almost no one.

        A lot of the stuff your taxes goes to are a waste and bad for the country, like this one, because the government is compromised. However, this doesn’t mean that those taxes that you pay for other things that you may never use, like for example the dole, are not beneficial to you.

        Using the dole as an example, it is an expense that every taxpayer benefits from even if they don’t use it. This is an obvious one, which I’m sure you know why it benefits not just the uses, so I won’t spell it out.

      • It is a bad policy because it will support or drive higher house prices (leading to even worse affordability for all except the first round of FHBs or OOs who were able to take advantage of it). It is not a bad policy because you would miss out.

      • It is a bad policy because it disadvantages some, over others. It is not fair for a myriad of reasons, mine being one of them. If even one person is punished unfairly by government action it should not happen.

        Perhaps you are the kind of person who thinks droning some innocents to get a major terrorist is good policy. Well I don’t.

      • “If even one person is punished unfairly by government action it should not happen.”

        Fairness is subjective, so such a suggestion is ludicrous, completely unworkable. We would need to have no government to accomplish that. lol (completely justified as was the original)

      • Actually, in this case fairness is entirely quantifiable because we are using money. Therefore, we just apply a little math to the situation and we can calculate who wins and who loses. Fairness, no longer subjective.

        “We would need to have no government to accomplish that.”

        Wow, you might be on to something there, imagine that, an Australian government that doesn’t interfere in the “free” markets. Do you think house prices would become fair then, or is that subjective too?

      • If it only comes down to money, then any tax I pay for services I don’t use is unfair (which is most of it). Furthermore paying a higher rate of tax than those on lower incomes is also unfair.

        Would house prices be “fair” without a government (i.e. anarchy)? …probably not, those who could buy them would do so, those who could not would have no avenue for affecting change.

      • @super, I draw the line at policies that disadvantage, those who have done no wrong, while instituting policies that favour those over these disadvantaged. Especially when these things are basic things required to live.

        What?

        Buying a house isn’t required to live. You can rent.

      • “If it only comes down to money, then any tax I pay for services I don’t use is unfair.”

        No, because for example paying for police, fire, defence (which are services you may never personally use). Still benefit you substantially.

        “Furthermore paying a higher rate of tax than those on lower incomes is also unfair.”

        Paying a higher rate of tax on income is unfair, absolutely. Providing of course you are earning this income entirely through your own work without any government support that the low income person did not receive. I think you are starting to get this.

        “Would house prices be “fair” without a government (i.e. anarchy)?” Starting from a position where everyone is equal, it would be fair because there would be no government picking winners and losers. But unfair/unlucky due to the traits different individuals are born with, or where they are born, or who to. As you said before life isn’t fair, Darwin agrees and so do I.

        But, we will always have government, which I think is good. It’s just what government should we have. One that creates equal opportunity, or, one that picks winners and losers through shitty policy like this.

        Tell me which government would you like?

      • @super If renting came with the same conditions I would agree with you. This argument would work in Germany, but, not Australia.

        What’s more in this case the renter loses out again, because they can’t negatively gear their rent can they?

      • Government spending isn’t limited at emergency services and defense… I bet I could draw a link between rising house prices from a housing policy which specifically excluded you, but in a round about way improved your life in some way (e.g. increase in spending from confidence and higher levels of wealth funding whoever your employer is). So maybe a housing policy only for FHBs would benefit you in some way.

        “Starting from a position where everyone is equal, it would be fair because there would be no government picking winners and losers.”

        So basically you’re after socialism without government to enforce it. Good luck with your utopia. Never going to happen. There will always be winners and losers from policy.

        Nature and environment pick winners and losers too (e.g. genes, interest of parents in developing their kids, etc). How do you intend to fix that?

        As I said earlier… life ain’t fair fishbulb. Understanding this and giving a flick to the victim mentality might be a good first step to moving on with your life and a more rational debate in the future. Good luck!

      • “If renting came with the same conditions I would agree with you.”

        P.S. This is like saying that if someone can’t afford caviar like the wealthy, then they can’t afford to eat, because it’s not the same conditions. Basically you are continuing this meme that everyone can have exactly the same opportunities, advantages and outcomes in life. It’s just absolute nonsense.

      • “I bet I could draw a link between rising house prices from a housing policy which specifically excluded you, but in a round about way improved your life in some way”

        I’d like to see you try, because what this means is that the negative effect from the policy would have to be exceeded or at least equalled by the positive effect after it has trickled down through the pipeline. Pretty damn hard to do that. But, what I can say without much analysis is that this policy unfairly effects many people in a large negative way, for the benefit of others.

        Defence on the other hand is also pretty damn easy to see the positive flow on effect, despite the negative effect on your income. Imagine how we would of gone in WW2 without a defence force.

        Emergency services are like insurance on your car, yeah there is a negative effect, but it pays off 10 fold if you need to use the insurance. Maybe, I still wouldn’t force you to pay for them though, but if you didn’t I would also not allow you to use them either.

        “So basically you’re after socialism without government to enforce it. Good luck with your utopia. Never going to happen. There will always be winners and losers from policy.”

        Did you read the rest of my post? I think not. Same goes for the following 2 paragraphs. I’ve already addresses these comments in my previous post. Of course It’s never going to happen, compromised and sociopathic people will always ruin it.

        “This is like saying that if someone can’t afford caviar like the wealthy, then they can’t afford to eat, because it’s not the same conditions. Basically you are continuing this meme that everyone can have exactly the same opportunities, advantages and outcomes in life. It’s just absolute nonsense.”

        No I didn’t mean that. I’m saying renters do not get the same benefits or equal opportunity like home owners do, just as current FHBs don’t get the same benefits that investors do.

        And renters are not all poor, it’s not about what they can afford it’s about being treated equally. I’m not continuing any meme, I want equality, the outcomes in life of this equality are then up to the person, rather than have the outcome picked for you.

        Once again, do you want a society that provides everyone with the exact same opportunity?

    • Considering how much mortgage stress must currently be concentrated on FHB and OO in the first home, this sort of limitation would be targeted better than making it across the board. As an OO in his first home I’d use the extra money to pay down the mortgage and keep our spending restrained but I know a few others who would definitely use it for “consumption”.

      So if the Turnbull Government wanted to implement an economic stimulus by stealth using the tax system, this would be a way to do it. And I could see it actually getting them a win at the next election, which they must currently be sweating over.

      I still think it’s a stupid idea though. Deficit would blow out further as the revenue side gets another Tory hammering and prices are artificially inflated further.

      • Yeah but surely this is an example of “good debt” if ever there was one. I don’t think many would argue that the system is completely broken for FHBs, but understandably LNP don’t want to touch NG/CHT for fear of triggering an economic downturn that would cost them the next election. The idea of putting FHB on the same level as investors completely changes the equation in a good way.

        If home ownership can be seen as a reward for productive work (rather than just those who speculate non-productively) then that’s ultimately a fantastic for the economy even if it increases government debt.

      • Same as me

        On the budget loss side…bigger picture…

        So, if I can claim, I reduce my not insignificant PAYG by getting a partial refund. I can reduce my taxable income by approx $13000 (probably shaving 20% off my tax).

        That money comes off the mortgage and/or into super.

        If off mortgage my mortgage is paid off quicker meaning I have more discretionary spending sooner, in the future (i.e. 15 years instead of 25). Or, it means my LVR is lower faster and I am a bigger cushion to bank and therefore the taxpayer if the SHTF and there is a system wide bank bailout by the taxpayer

        If it goes into super I pay tax on the super anyway, and, increase super/lower pension eventually…

      • Is the proposal to make this for new FHBs only (in which case it doesn’t apply to you) or all OOs? If its the latter the budgetary ramifications are huge. Effectively renters are subsidizing mortgagees. A poorer section of society is subsidizing a wealthier one and speculators are again the biggest beneficiaries as the price of houses gets pumped up even higher.

        OTOH I expect the additional pressure on house prices would cause RBA to tighten and the budgetary blow out causes wholesale funding costs to rise so maybe its all just a zero sum game.

    • “then perhaps this bubble can slowly start to be deflated.”
      Deflated?
      By pumping $19bn a year of scarce public funds into house prices
      Genius?
      This could not be more stupid

    • Expect every last one to come out of the cupboard before it crashes down. The broad population is just too stupid or conflicted to prevent it. It’s all gonna burn. Super savings. Looser foreign investment rules and enforcement. I’m sure there are others…

  5. Surely would never happen. Budget cannot afford it. Just like it cannot afford existing NG + CGT lurks.

    • LOL! I should be crying though… The Budget can’t afford useless shit like quality education or adequate funding for domestic violence support but there’s always enough money to support housing.

      • It’s a sad state of affairs alright..and I paid $60k in tax last year, so would love any chance to deduct it and perhaps put it back into paying off the principal but it’s absurd.

  6. Makes perfect sense in an idiotic way. It’s too politically hard to remove NG. So why not even the playing field….

    • Congratulations, m’lord. You have just come up with the perfect title for Malcolm’s future memoirs: “Making Sense in an Idiotic Way”

    • It actually isn’t that politically hard to remove it, its already policy for most of the oppositional parties to some extent. Its difficult from a Liberal party view because they themselves, and all the people who they fraternise with, benefit hugely from it.

      We have an issue with entrenched corruption at the Federal level.

  7. I don’t think they would be stupid enough to try it.

    However….

    It does fulfill the most important premise; any housing affordability solution must not involve the price of housing going down.

  8. Let’s be clear about what the US system actually is. In the US, you are allowed to deduct the interest payments on two properties per person, which can include your PPOR. In other words, if you are a couple, you can deduct for your own home plus a maximum of three IP’s, but not more than this. Also, the status of the PPOR with respect to Capital Gains Tax is rather convoluted. In theory, CGT does apply to the PPOR; but, there are a number of complicated exemptions, etc. so most people do end up avoiding it but may have to jump through some rather ridiculous hoops along the way. In addition, property taxes are payable on the PPOR (as opposed to land tax in Australia which is not payable).

      • In terms of their magnitude, and what they pay for (e.g. schools, etc.), property taxes in the US are equivalent, in Australian terms, to council rates plus land tax plus a proportion of income taxes.

      • darklydrawlMEMBER

        Most places in the US you pay land tax, a city tax plus any HOA fees. Whilst it varies between city and states within the US the HOA fees are much closer to our local council rates/ strata type fees. City tax pays for the rest of the local services, Land tax is usually exactly that – Tax based on the value of the land.

    • When I lived in the US, the mortgage tax deduction was almost exactly equivalent to the annual property tax. This seemed to be similar for many people. In some places, the property tax will even be larger than the interest rebate, even at high leverage.

      This is a monumentally stupid idea in Australia. Just get rid of negative gearing already.

      • One slightly crazy aspect of the US system is that, in many states, local property taxes pay for local schools. Consequently, you see neighborhoods going into a downward spiral where households without school-age children dominate, so they don’t want to pay for the schools, so the schools become crappy or close down, so families don’t want to live there, etc. You could always tell these places because real estate agents would market them as “quiet”, suitable for “mature residents”, etc. (in other words, if you have kids, look somewhere else).

    • Neville Gearless

      I think you are getting confused on 1st and 2nd mortgage, Americans can claim interest on two mortgages, on the one PPOR. Not 2 properties at all -which would be negative gearing on investment property – and that doesn’t exist in the US.
      Correct me if I’m wrong with a link to their rules, I couldn’t find any to support your explanation.

      • If what you say is true, then it makes the point even more strongly. People in Australia often talk about “adopting the US system” for this, that or the other thing when what they really mean is cherry picking one component in isolation, and trying to draw a curtain around the rest of the “system”.

      • Neville Gearless

        You’ve got that right, it is a portion of the US system. Abolish NG for IP’s at the same time and it is totally their system. Problem is they regret NG on OO’s (they don’t have a term for it though) a bad idea they can’t get rid of. It’s just a price inflation mechanism. Helps the owners, disadvantages the buyers.

        The real solution, the obvious one, is treat investors like small business (no NG, no 50% discount on CGT) – solves your affordability problem right there. Investors still get to claim losses, rolled forward for when their property is producing a profit.

    • Under 26 U.S.C. § 163(h) of the Internal Revenue Code, the United States allows a home mortgage interest deduction, with several limitations. First, the taxpayer must elect to itemize deductions, and the total itemized deductions must exceed the standard deduction (otherwise, itemization would not reduce tax). Second, the deduction is limited to interest on debts secured by a principal residence or a second home. Third, interest is deductible on only the first $1 million of debt used for acquiring, constructing, or substantially improving the residence, ($500,000 if filing separately) or the first $100,000 of home equity debt regardless of the purpose or use of the loan.

      • Neville Gearless

        Thanks for the research, its a second “home”, not allowed to be rented to claim deductions. No NG on IPs in the USA.

    • I lived in the USA. And yes, whilst my interest on my property was technically deductible there is also this tax called the AMT, or Alternative Minimum Tax. Basically, if you have too many deductions and earn over a threshold amount you have to pay higher tax (so your deductions don’t fully count). I was tripped by this every year but one of living in the US (that said, I worked in banking so not sure how many get hit).

      In relation to capital gains, yes, if you sell but don’t buy a house for the same or higher price then you pay tax on it. Simples. That is, kind of like rollover relief in that you defer your capital gains until you finally start to downsize or sell out of housing completely.

      That said, I liked the US tax system on the whole in comparison to Australia. A bit more difficult, I filed New York city, New York State and Federal income taxes, but I like how each jurisdiction can set their own tax rates.

  9. It’s an idea whose time has come. If they won’t get rid of negative gearing they must introduce this. Actually i can see the electorate jumping at the idea. And the loss to federal revenue while transfer of tax revenue to states would please all the states. Even though I’d much rather a different approach entirely, I hope the fools are forced to introduce it.

    • Terror Australis

      Who says the States would get any extra revenue?

      I think the ratings agencies will shit a load of bricks if this goes beyond “brain fart” status.

  10. “Allowing buyers to claim a tax deduction on their owner-occupied mortgage would simply increase their capacity to pay and would soon be capitalised into higher home prices.”

    This should be repeated ad nauseum, for this, barring any other external shocks, will be what happens should this bribe occur.

    Side note: I heard the education Minister Simon Birmingham on ABC radio a few evenings ago. He was asked about housing affordability and repeated the negative gearing lie that it can’t be touched or there won’t be any affordable houses to rent. The interviewer, Rafael Epstein, failed to pull him up on it.

  11. “Housing economics experts have warned the government against a proposal..”

    Is there actually a proposal or did someone just ask a question about it and Sukkar said nothing would be ruled out?

    Guardian’s article reads like a nothing piece, all filler, no killer.

    • Ronin8317MEMBER

      These kinds of articles are used to gauge the public reaction. Someone must be considering it, and depending on the public response, it can become policy.
      If it’s leaked on Daily Telegraph, then it is already policy.

    • That’s my take. However, maybe they arranged for the question? It’s not unlikely, especially if they’re 50bn tax cut fails. But I’m guessing this kind of measure would fail too. It’s too obvious since they are spending money going against recommendations which save it.

  12. Ronin8317MEMBER

    It’s not ‘First Home Buyer’ , it’s ‘I have a rich parent’. Any improvement in affordability will be killed off by the massive increase in prices. It will be off to the moon. A FHB PPOR loan linked to an offset account will become the most effective tax minimization strategy for most people. Sydney’s median house prices will hit 2 million before 2020.

    • A FHB PPOR loan linked to an offset account will become the most effective tax minimization strategy for most people.

      Ain’t that the awful truth.

      Serfdom awaits

  13. proofreadersMEMBER

    The Property Council of Australia would have a Hall of Fame award and a Lifetime Achievement award at the ready for ScoMo if he could deliver on this FHB policy?

    • Considering that property is a religion in Australia it will be Saint Scott Morrison. States of him will be put up around the country for the ceremonial sacrifice of the young to ensure the continuing rise of prices.

  14. So interest rates will be tax deductible for first home buyers.
    Then house prices, juiced by the extra demand, go up, making housing affordability worse.
    What will they do for the next wave of first home buyers?

    • Know IdeaMEMBER

      Whenever I think about the issue I keep coming back to the fact that it is not the interest component that is the problem, but the sheer size of the principal. If you make the interest deductible (when the interest component is relatively small by historical standards) you leverage up the principal amount (’cause that’s how gearing works), pushing up overall prices and leaving the suckers with less chance of ever being debt free.

      Bring on the debt jubilee I say, even as a shareholder in the big four.

    • Q. What will they do for the next wave of first home buyers?
      A. Increase the first home buyers grant.

  15. reusachtigeMEMBER

    “The problem of unaffordable housing requires a combination of policy measures that tackles: tax lurks (including both negative gearing and the CGT discount); supply-side constraints; infrastructure bottlenecks; money laundering into, and foreign buying of, established dwellings; loose capital rules; over-investment by super funds; and excessive levels of immigration.”
    .
    You conveniently forgot one, probably the most important on of all, and that’s “Lower teh interest rates, that will fix thing!”
    .
    LOLOLOLOLOLOLOLOLOLOL!!!

  16. Mining BoganMEMBER

    When is rent going to become tax deductable? I can’t do my job without a good night’s sleep. It’s only fair.

    Or am I still scum?

  17. assumes that everyone’s future income is secure, otherwise what do we deduct against?
    but yeah, whatever, free stuff!

  18. Even StevenMEMBER

    My golly gosh… the number of people posting who are actually tempted by this repugnant proposal, is astonishing.

    The increased ‘affordability’ will be quickly capitalised into prices.
    Existing property owners (particularly investors with multiple properties) will be the chief beneficiary.
    The use of offset accounts will provide a tax quagmire the likes of which we’ve never seen… (want to buy a new washing machine? Draw it from the offset account and it becomes tax deductible great)

    • + many.

      Instead of removing the current distortions the above idea introduces another one, with all of the associated tax workarounds.

      I thought that this mob were about removing unnecessary regulations and the free market. The above, if it is being seriously considered, could not be further from that ideal.

    • Its an utter disaster of epic proportions and these ideas are one of the many reasons why I hate this country.

    • reusachtigeMEMBER

      Anything that helps young people experience the joy of home ownership is a great thing! Seriously, you are un-Australian if you think otherwise.

    • Putting aside for a second that it will keep this ponzi of sorts enough air to stay afloat, it is poor policy on a macro level. A house generates very little utility or addition to capital stock. It is there to provide shelter. That’s what it does. What real value is added if unimproved shelter continues to appreciate at these insane levels? It is paper wealth that can just as easily be destroyed in a severe economic downturn. If the same money is used on infrastructure the real wealth lasts far longer. Companies and individuals can leverage off infrastructure to produce real wealth. Hell dropping this kind of cash on high tech R&D is more worthwhile. This proposal is one giant turd!

  19. Stupid is as Stupid does!
    For this particular stupidity competition Aussies stand out as world leading, practically without peers, and you know what young Aussie couples just lap up this BS. Their parents willingly dig deep into the bank of Mum and Dad just to make it happen. It’s an inbreed insanity that’s impossible for any outsider to understand, generation after generation has made this bet and it always pays off handsomely…it’s your turn so step up boldly…you’ve nothing to fear but fear itself….look even the Gov’t knows this is a great idea and they’re sweetening the pot with FHBG….as I said Stupid is as Stupid does.
    For me it’s back to the real world where assets are priced by net free cashflow and liabilities are easy to identify by their net costs…of course that kinda definition of an asset is useless when it comes to understanding Aussie RE.

    • “It’s an inbreed insanity that’s impossible for any outsider to understand, generation after generation has made this bet and it always pays off handsomely”
      Well phrased CB!
      Got me thinking more deeply about the very real similarities to a full blown ‘cult’. I’ve never been in one but knew some folk (obliquely) years back who did and after some quick ‘net’ work, put together the ‘common’ attributes the psych people have identified:

      Attributes of a cult
      1) Excessive zealotry and unfailing commitment-(check)
      2) Questioning or doubt discouraged or punished-(check)
      3) Mind altering practices like meditation ( or in Straya’s case endless propaganda via print/ visual media)
      4) ‘Leadership’ dictates how ‘members’ should think, feel & act. Pollies have close to $1.0bil in property amongst themselves
      5) Hold and ‘elitist’ and ‘exalted’ status for leadership and its members. ( yep)
      6) Holds an ‘us’ v ‘them’ (property owners v no property owner) deliberately to create conflict with at large society (no doubt)
      7) ‘Leadership’ is not accountable to ANY authority- (yep)
      8) Leadership teaches that exalted status ‘ends’ justify any means necessary. (I reckon!)
      9) Leadership uses shame / guilt and peer pressure to persuade/manipulate behaviour (clearly)
      10) Subservience to group/cult requires modification of personal goals/and/or cut ties with friends/family after joining group (probably)
      11) Group is preoccupied with bringing in new members- (check)
      12) Group is preoccupied with making money (LOL)
      13) Members are required to devote huge allocations of time to the group and its interests (hee hee)
      14) Members are expected to socialize with only other members of the group.( ugh another bbq)
      15) The zealots of the group maintain there can be no life outside of the group. If ‘leaving’ is considered, there will be negative consequences.(Lol)

      Workmate just bought over by Nunawading-$1.2mil. A 1960’s bv and single rusty shed garage.
      As we ‘toured’ the starter castle, I kept thinking I could buy every component-doors, sinks, hinges, fawcets, carpet, roof tiles and Hill Hoist from the Salvage Yard in Castlemaine VIC for about $30,000 tops. Put it all on a flatbed and then assembled for another $20,000 tops.

      Is ‘all’ I’ll ever see no matter what policies the ‘leaders’ initiate and what the cult demands.

      • So true, I’d never thought of Aussie housing as a cult thingy, but it makes perfect sense. Housing is so obviously the new Australian religion, it’s so clear that plebs worship at the feet of the industries demi-gods, we see it every day. Heck it even makes for top rating TV especially among the sort after 20something demographic…an advertisers paradise….and the closing of the loop on this self-fulling housing prophesy…a prophesy handed down from elders (hmmm we’ve even got some good old fashioned ancestor worship going on), sure looks like a cult to me.
        What is it that they say: If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.

      • Fantastic analogy -rofl ScMo as Charles “Domain” Manson, with Doc Andy and the Kouk as high priests

    • “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.”

      Problem comes when Heston Blumenthal gets a hold of it and it tastes like a damn citrus cocktail with honey infused foam gizzards and chocolate coloured kiwi fruit flavoured skin

  20. To be honest if they were stupid enough to introduce it then it would be my “if you can’t be em, join” moment. A massively expensive PPOR and several investment properties acquired on whatever any legitimate or shadow bank would lend. A bit of interest (yet deductible) pain in year one but then the CGT discount kicks in (with none on PPOR!).

    It would be pouring an absolute can of petrol on demand. Would take a huge global shock not to profit.

    • Get a massive loan thats I/O and then reap the tax cuts until you self the place for how ever many % its gone up by in a year or two.

      Then get that money out of the country ASAP.

  21. There’s a difference between a new and inexperience junior Minister refusing to rule something out (for fear of a gotcha) and an actual policy.

    That said, if the policy was interest component of your mortgage is deducible, an imputed rent on your own home is assessable and the capital gain on your house is assessable (or possibly rolled over), then it is not an absolutely horrible idea.

    • Sounds horribly complicated. Great for accountants. Easier to just remove negative gearing and add CGT and pension assets testing to family home.

      • For what it’s worth, a further extract from The Guardian article:

        A University of New South Wales economist, Nigel Stapledon, told Guardian Australia the cost to the budget would be “pretty substantial”.

        Stapledon also questioned the rationale of further advantaging owner-occupiers whom he said benefited from not paying capital gains tax and not paying rent or tax on imputed rental income.

  22. As the banks immediately add the expected tax benefit to serviceability calculations, increasing available credit limits for FHB like no grant could (provided LMI is an option).

    Looks like ‘full retard’ is on the cards.

  23. I read that completely differently to you guys. It just looks to me like politicians trying not to commit to anything. They’re being very evasive and thats probably because they havent finished blowing their thought bubbles yet.

    I struggle to imagine how they could even try it unless its an 11th hour hail mary during election season. The amount of interest I pay isnt a small number, and my house isnt priced anywhere near Sydney prices. That much tax suddenly disappearing from the system would be extreme.

    • Yeah, that’d be an extra 50 grand in my pocket from the gubmint each year. For a long time too, because I’d stop trying to pay down my mortgage and put the extra elsewhere. The monumental stupidity on display from our ‘leaders’ is breathtaking. I suspect this will disappear without trace very soon once they’ve actually gotten their calculators out.

      I could even refinance my house on the huge increase in ‘value’ that this would cause and save even more tax. On second thought, this is a great idea that will save Australia. Bring it on!

      • “I suspect this will disappear without trace very soon once they’ve actually gotten their calculators out.”

        There isn’t much evidence of numerical or financial literacy among the Laberal party.
        The only numbers they seem keen on is the counting of votes and the numerology of opinion polls.

      • Ah yes, I forgot about Sussan Ley’s numerologist. Well if she says these are good numbers then who are we to argue?

  24. I just reset my Guardian password so I could leave a comment on that article. First time I’ve bothered to do that for a while.

    This idea is atrocious.

  25. A housing affordability plan that would cost $19bn a year and add $50,000 to the price of a house.
    And this clown is the Assistant Treasurer

  26. reusachtigeMEMBER

    This will be awesome! Us smart investors are gonna gear up to the max when this comes in then make a motza as the perpetual boom in house prices rolls on. BRING IT ON!

  27. So, this will cost the budget $19bn hey? The NPV of that transfer (to owner occupiers) will increase the value of their housing stock by between 10-15%. Great for those who have already entered the market, a disaster for those who are yet to enter.

    If that $19bn is granted to first home buyers only (sounds great, doesnt it?) they price increases will be even higher. It is a disaster of a policy. Let’s not kid ourselves though, these outcomes will be exactly by design.

    Affordability is NOT the target, but rather ensuring that ever increasing amounts of your lifetime earnings are dumped into assets that are owned by those with a conflicted interest.

    (edit: stop pretending that politicians are doing this because they’re stupid and dont have the policy skills to fix the problem. They know exactly what they’re doing)

    • Correct. It is completely rational. In the same way The Final Solution was completely, ruthlessly, rational. Fuckers.

  28. When your entire party platform is to only ever cut taxes I guess this is inevitable. As someone said above, absolutely kite flying here.

    So do it!
    Keep that debt pedal firmly on the floor!
    Should be good to shove another 7 years worth of energy into the property bomb.
    When this thing finally goes up it will be raining down fragments of the Australian property market for the next 50 years.

  29. ErmingtonPlumbingMEMBER

    Wow, so the overseas holiday, Imported Audi and home entertainment, all purchased on redraw, will soon be tax deductible,…..cool.

    Go Straya!

  30. Actually there is a good argument for taxing owner occupied housing the same as investor housing. So this could be done, but only if capital gains tax is levied on owner occupied homes as well.

    • There is a great argument for exemption free value capture (land tax) across the board. Not just the householder, everyone except the Crown. But, I doubt it will happen. Housing is THE game in Australia. You can throw reason and facts at it but it is invulnerable. As Prieboy put it, “Just because you fight a giant doesn’t mean you get to win.”

      https://youtu.be/yX5GOZkBgXU

    • Neville Gearless

      CPT tax on OO’s doesnt make sense, because housing is not sold for profit by them. They sell to move. IP’s though are a business, so of course it should be treated like one, which means CGT but removing NG.

      • It makes perfect sense. OO’s might be motivated by a need or desire to move, but they still make money on the sale. Or they might be motivated by the capital gain. They sell to cash in and move somewhere cheaper. And then there are people who inherit houses. They pay no CGT and certainly are not motivated by moving, because they don’t live in the house.

      • Neville Gearless

        CGT on OO’s would kill their ability to upgrade. Since they are a primary mover of home reno’s, see that market tanking. OO’s are the main driver of residential construction, they do it without NG. Investors OTOH do nothing, apart from off the plan high rises, which don’t satisfy much in the way of market demand.
        The urge to make tax breaks equal between investors and OO’s is pointless, it doesn’t make investors productive, but kills production from OO’s. Worst of all worlds.

      • Upgrades would be unaffected, since cost of upgrades would be added to the cost base of the asset.

  31. I didn’t interpret the Government’s comments as either endorsing or rejecting the proposal. Fake news?

  32. Terror Australis

    So Turnbulls massive company tax cuts are consigned to the trash bin? Is this the “great big new idea” of 2017?

    • Probably. The Senate would probably pass it, company tax cut is slightly less dead than the TPP.

      • Terror Australis

        It’s sufficiently populist that Nick X and his guys might pass it with the appropriate amount of SA sweeteners.

  33. If house prices rise because of this, then the cost to the budget will rise accordingly. And what would this policy do to RBA independence? As if the government would be happy for rates to go up. If rates’s doubled, then suddenly it’s a 40bn cost to the budget.

  34. It’s all well and good till you lose your job or wages are forced down.
    Job security out here in WA is fragile at best.

  35. rob barrattMEMBER

    Gosh
    I can’t wait to buy my first new home when I grow up, now that I can offset all that horrible tax thing against the mortgage. Daddy says his Real Estate business will boom, I’m not sure why because houses will be so much cheaper won’t they? He says they’ll have to close a few hospitals to balance the thing called the budget. But he says “who gives a f (didn’t understand that word) – we’ll be rich” . Anyway, he says we’ll be moving to another country once we have enough money to get out of this one. He says it’s completely f(that word again)ed…

  36. 45% of mortgages fail with 3% more on rates.

    Thus policy would just about guarantee that.
    Ratings down grade would be swift.

    Tax returns won’t be put towards paying down debt. No way. Just surging balance of trade debt further impacting ratings.

  37. Two wrongs don’t make it right, What NG/CGT did is what OO rebate & CGT will do to house prices.

    Lock this in, LNP will implement this as $hit starts to hit fan later this year to give it another leg up till next election. Also with property obsessed Australia this will keep them tranquil for few more years and vote LNP in for another term to reward their stellar recession-less governance.

  38. A big flaw in this idea is that there is no basis in tax law for the deduction unless the imputed rent is also taxable.
    If the interest is deductible as a general deduction under S 8-1 (a) (same as rental property):
    “(1) You can deduct from your assessable income any loss or outgoing to the extent that:
    (a) it is incurred in gaining or producing your assessable income; ”

    The imputed rent would have to be taxable as done in Switzerland and the Netherlands. This would nullify any benefit.
    Unless Turnbull is planning on overhauling tax law, something he said he couldn’t do in order to remove NG.
    So I don’t think it will happen.

  39. Back to 2009 when Kevin Rudd use tax payer’s money as FHB grant to hike the housing price…whatever tax incentive will de fact go to property investors as it will push up the price…

  40. … check out Sukkar’s maiden speech – there are some absolute gems in here that run completely counter to the idea of making mortgages tax deductible.

    “From these experiences the concepts of individual responsibility, thrift, self-reliance and reward for effort became innately part of my own values”

    “Importantly, this strength in our local community is not achieved through government mandate, regulation or handouts”

    “I chose to join the Liberal Party because it stands for what innately makes sense to me: individual responsibility, reward for effort … ”

    “As an economic liberal my instincts are for open markets, free competition and small government”

    “More often than not, governments create more problems than they aspire to fix”

    “Another ongoing challenge for modern Liberals is our never ending pursuit to end the culture of dependence”

    .. and probably loads more, I only skimmed it.

    http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2F585f8e84-c281-4991-9ab8-437f9b9ff0f8%2F0110%22

  41. This is surely just a brain fart. Or more likely the Property Spruikers are on fire. So if they bring this in I can claim a deduction for my mortgage as OO. But if I borrow to start up a new business I have to comply with Non Commercial Losses Rules & Regulations (restrictions) if I dare to dream & start this new business & maybe even employ someone? Completely moronic brainless twits. Even Turnbull is not this stupid, surely?

  42. Soon every 18yo will get a threatening letter urging them to buy a house within the next 12 months of face jail/fine/both.

    • 18yo? That is just not good enough. No slot for your child in the daycare if he is not a mortgage-owner!

      • Oh, that’s right, forgot about the kindy visa for rich foreign tots to buy up to six houses around their kindergarten.

      • This country passed full-retard about 7 stops back. We’re now headed for some fucked-up property price bubble singularity, never before witnessed, where one sunny morning the PM is faced by a HAL voice (market) saying, ‘what are you doing Malcolm?’ as the biggest fuckwit ever to have walked this continent desperately tries to reset the debauched ponzi by juicing it with new, young blood.

        To add to this, the state of the world – the brooding, frothing, seething build-up we’re seeing – Its like one giant, straining and precariously clenched overstuffed arsehole orbiting over Straya.
        Poised.

  43. The reasons why this will most likely happen are as follows:

    – The Liberals want to pass lower taxes through to both business and individuals.
    – It will be undigestable to pass through tax cuts to everyone, at a time where the budget is in big deficit.
    – However, if you make OO mortgages tax deductable – you have to purchase a property (whether it be a piece of rubbish apartment or anything) in order to receive a huge tax break (i.e. you would have to be a loser not to take up such a deal).
    – You would then get 10-15% of the renting class into considering home purchasing
    – You avoid any decline in property prices as a result of reduced investment from China / downturn
    – You make a change that is irreversible – once you have given this candy to the electorate, you can’t take it back. This puts the budget in such a position over the long term that there is no choice but to abolish Medicare (a long held Liberal party wet dream) and the aged pension.
    – The banks would cheer this on (as much as they would cheer on a tax cut).. because they would stand to make billions more from the increased lending. The property lobby, the equity mate lobby, Harvey Norman, they all win. This would deliver more wealth to these clowns then any small tax cut – I assure you.

    But the questions are :

    1. If you redraw off your house – and take some Equity Mate to buy a car, or a holiday – does the higher home loan balance still be able to be written off? This is a HUGE question for this policy, because people could basically keep their mortgage levels elevated to maximise the tax deduction and use the redraw to holidays, cars, etc. This could be the plan, as it would boost economic spending, but are they really that foolish ?

    2. This would signal that we would have to have permanently low interest rates?……. or would this policy only be considered if interest rates hiked in a Trump fuelled world? Maybe if our interest rates climbed 3-4% (and then the whole country ground to a halt under the debt levels) – they would enact this policy as a fall back measure to get spending happening again.

    3. How would this work for co-ownership? Potentially a “Single Income” household with no kids would have much bigger deduction then a family (as they would have to split the interest deduction across two income streams)…. this would actually create a perverse incentive for people not to have children…… ?

    • Calm down. It’ll never happen. The AAA rating will be gone in a flash with further downgrades following soon after.

      The bubble is doomed. The end is closer than people think.