Calling bullshit on Morrison’s negative gearing defence

By Leith van Onselen

Let’s recall Australia’s real estate treasurer, Scott Morrison’s, comments on negative gearing yesterday:

Figures to be released later this week show 2 million taxpayers in Australia have an interest in a residential investment property. 72 per cent own just one property and 90 per cent own no more than two. 1.3 million of these taxpayers negatively gear their investments, including 58,000 teachers and one in five police officers. Two thirds of those taxpayers who negatively gear their investments have a taxable income of $80,000 or less.

They are mums and dads.

Interestingly, in the UK where they do not have negative gearing, rent as a percentage of income is on average 25 per cent higher (26 per cent of income) than it is in Australia (20 per cent).

Australian residential property investment is more geared to capital gain than yield.

If mum and dad investors were not part of our private rental market, there would be fewer rental properties available, meaning higher rents, further crowding out of those on lower incomes and even greater pressure on already overstressed community and social housing resources.

Regardless of one’s opinions of the merits or otherwise of negative gearing, it is an established and structural component of Australia’s housing markets. Disrupting negative gearing would not come without a cost, especially to renters, let alone the wider economic impacts. Proponents of disruptive negative gearing changes have ignored this fact.

This would not be good news for the thirty per cent of Australian households who rent.

You cannot make the reckless ‘trust us’ assumption, as the Labor Party have done, that making significant changes to negative gearing would not have a negative impact on rents and the availability of rental stock.

So, according to Morrison, negative gearing boosts the rental stock and holds down rents. Strange, then, that the Tenants Union of Victoria wants negative gearing and the capital gains tax (CGT) discount abolished [ my emphasis]:

Tenants Union of Victoria policy officer Yaelle Caspi called for a federal plan to tackle housing affordability and it said was “disappointing” there would be no changes to negative gearing.

“In Victoria, the private rental market is increasingly under stress and increasingly more unaffordable, with very few properties at that lower end of the market for people who really need affordable housing,” she said.

“These are subsidies that favour the wealthy and do distort the market and we think that changes to negative gearing and also capital gains discount are a good place to start to help making house more affordable, particularly in the rental market.”

Says a lot doesn’t it? The lobby group representing renters wants negative gearing and the CGT discount unwound because it is making housing less affordable, including in the rental market!

Economist Saul Eslake has also politely ridiculed Morrison’s negative gearing defence:

Mr Eslake said cutting back negative gearing tax breaks was the number one solution to lifting home ownership rates amongst younger Australians.

“First of all, by reducing the competition which would-be first home buyers face from others who get their interest bill subsidised or who are in otherwise advantaged by the tax system, particularly investors”…

Mr Eslake said that was a major inconsistency in the Treasurer’s arguments in favour of retaining negative gearing unchanged.

“There’s a certain irony in the Treasurer on the one hand saying negative gearing is OK because lots of nurses, teachers and police do it, but in the very same speech bemoaning the fact that nurses and teachers in particular are unable to buy houses in the communities which they serve”…

Whereas Fairfax’s Michael Pascoe has gone for the jugular:

ScoMo is making a considerable show of “doing something” on housing, billing his AHURI speech as the second in a series, presumably culminating in budget presentation.

What this second instalment clarified is that it is government policy to keep housing prices rising, for housing investors to make most of their money out of capital gains. He did that while spelling out how increasingly expensive housing is crowding out would-be first home buyers who must then continue to rent, in turn crowding out lower income renters…

It’s also a statement of the obvious that you can’t help first homebuyers by endorsing ever-higher housing prices…

Which is why restricting negative gearing to new and off-the-plan properties would encourage more supply, while simultaneously easing price pressures on existing housing.

But then the contortions begin. ScoMo would have us believe the beloved nurses, teachers and police officers who can’t afford to rent or buy apparently are the same people who are doing most of the negative gearing.

And there’s the implied endorsement of ever-escalating prices, never mind the record levels of debt required for today’s purchases…

That’s the double-backflip-with-nip-and-tuck – grandfathered changing of negative gearing to have investors concentrate on adding supply while easing some of the competition for existing housing allegedly would come at a cost to renters.

It is patently obvious that Scott Morrison is talking out of his backside on negative gearing. Thankfully, a critical mass of Australians now see through the lies.

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Comments

  1. “There’s a certain irony in the Treasurer on the one hand saying negative gearing is OK because lots of nurses, teachers and police do it, but in the very same speech bemoaning the fact that nurses and teachers in particular are unable to buy houses in the communities which they serve”…

    These statements aren’t necessarily inconsistent. One of issues at the moment is how on earth does your deposit keep pace with the housing market. The obvious way (and in fact possibly the only way at the moment) is that you have your deposit tied up in the housing market (albeit not in the house you eventually want to buy) by way of using it to buy a property.

    It’s the same logic as to why people who currently own houses shouldn’t care if the house price fall. In this case, at least if I have some exposure to the housing market (yes, maybe not the exact market I want to live in but something) I am less worried about house prices going up.

      • Leave Jason alone. He is making a valid point.

        Of course scomo wasn’t making that point – scomo was being a slimy deceptive politician.

    • Nothing says “healthy property market” like FHB’s speculating on IO IPs to ‘get a foot on the ladder’…nothing to see here people…
      Maybe I’m just a simple guy, but it sure would be nice to just buy a single house once, where I want to live – ideally near my place of employment. I’d pay it back over a reasonable time and not cripple myself with an outrageous debt. Raise a family, retire and then downsize.
      Is that such a crazy thing to dream about?

  2. “Thankfully, a critical mass of Australians now see through the lies”

    Sir, I think I hear the sound of chicks being counted, but all I see are a bunch of unhatched eggs.

    Not enough people see through the lies. and even if they did, the government will implement the stupid-fucking-policy anyway. It’s just what they do.

    • PS. As I have said before – the outlines of the policy that have been made public look like a “divert super contributions (NOT BALANCES) into a FHSA-type account.

      If they do it, I plan to take the manipulation opportunities that this opens up for all they are worth.

      • I’d need to see the details – does this account revert entirely to super if not used for a house (or scheme cancelled?) Or does my dollar for dollar matching get retained outside of super? Can I salary sacrifice into it? On some levels it could be a good tax dodge if I was planning on buying anyways and have a sizeable deposit already.

      • Indeed. I have some other ideas which I will not publish because I am 99.72% sure that Treasury reads these posts and so I don’t want the opportunities closed off

      • I’m not so sure about that. They’re being very particular with their language, and half the trick is to get policies to budget day without spooking the horses and having one Minister or another publicly rule them out. But the emphasis today was that they want to address the ‘deposit problem’ quickly. I reckon they are being careful to avoid the impression that it’s just going to be a straight cash handout from super balances to avacado smashers who haven’t bothered to put a deposit together because everyone can smell a FHV boost a mile away. That’s why they’re being careful to emphasize the ‘matching dollar for dollar aspect’. Cause that makes it sounds like this is prospective against contributions. Measured. Maybe even legitimate. For a FHB in particular, who wants to believe it, the barest fig-leaf of legitimacy will be enough. And they’re the only ones the Government ultimately has to convince. But they need it to work quickly. So when the detail comes out, don’t be surprised if the policy is essentially to establish FH savers account that FHBs can deposit their existing deposit into, then redraw an amount of matching super balance contributions against up to a capped amount. They can spin that. It’s not a handout, the FHB has done their bit and ‘chipped in’. And the super is ‘their money anyway’. This is how they get from A to B quickly. The 25-34s have a deposit, it’s just inadequate to enter the market in many cases. But they also have material super balances and that’s the only thing that’s going to have a quick impact.

    • ScientistMEMBER

      The mood of the electorate on the negative gearing is shifting…it’s interesting to take note of the comments made online in response to Fairfax articles these days …overwhelmingly in favour of cuts to NG and CGT discount.

    • Tassie TomMEMBER

      “Thankfully, a critical mass of Australians now see through the lies.”

      Maybe, maybe not, but thankfully the vast majority of Australians by now realises that Scott Morrison doesn’t know his arse from his face when it comes to the treasury portfolio.

      • Come on TT, he’s a real estate agent. He’s doing his best at what he knows best. Besides, the PM will keep him in check. After all, it’s not as if Malcolm is a banker or something……..oh wait.

  3. HadronCollisionMEMBER

    I think Pascoe was soft. All of them are soft.

    They could be a lot more forceful.

  4. Time for renters to go on a mass labour strike to protest the inequity in Australian housing until the Govt eliminates neg gearing on existing property and reduces the CGT discount. Why should speculative earnings be tax less than our salaries? That might make it clearer to the govt what they need to incentivise; doctors, nurses, teachers, police or property investors? A few days of Australia’s rental base striking and the country shuts down.

    • Tassie TomMEMBER

      The renters won’t go on a mass labour strike – there are too many of them in competition to organise a cartel.

      JUST LIKE the landlords won’t go on a mass rental increase binge if negative gearing is abolished, as there are too many of them in competition to organise a cartel. Have you ever heard of a cartel with 2 million members? OPEC can’t even get their shit together with 12.

      That argument (of Morrison’s) is bullshit.

      Maybe if all the landlords formed a union – the ALU, so that they could collectively bargain against tenants?

      • Only half right. The landlords have an organiser that is capable of influencing such an action.

        . Recall the “rents through the roof” campaign from those fuckers at domainfax a few years ago.

        It worked.

    • Stephen ,
      Better still ,every renter in the country take all their money out of the banks. Problem solved.
      Bank Run 2017
      Take the Power Back ✊✊✊

  5. Tassie TomMEMBER

    “2 million taxpayers in Australia have an interest in a residential investment property. 1.3 million of these taxpayers negatively gear their investments.”

    So out of all people in the property investment business, over 2 in 3 are losing money. Not a good business to be in – unless you’re hoping for a capital gain. Too bad for those 1.3 million Australians and their families if they start making capital losses.

    “Two thirds of those taxpayers who negatively gear their investments have a taxable income of $80,000 or less.”

    So they’re in the 34.5% tax bracket – so despite being compensated for their losses through the tax system, 65.5 cents in every dollar that they lose is never seen again. Smart business? (Maybe they’re in the 54.5% tax bracket as they’re also losing 20 cents in a dollar of family tax benefits. They’re “mums and dads” after all. This would make losing money more worthwhile, but it’s still losing money.)

    “Including 58,000 teachers and one in five police officers. Two thirds of those taxpayers who negatively gear their investments have a taxable income of $80,000 or less. They are mums and dads.”

    WTF?! Is every police officer and teacher married with children? Are there no gay ones, or single ones, or police and teachers with fertility problems? Or police and teachers who choose not to have children or who partnered up “too late”? And what if you earn $81,000 – are you not allowed to be a mum or a dad any more?

    Sorry for the rant, but our Federal Treasurer is an absolute dickhead.

  6. WHY OH WHY ARE POLITICIANS SO DESPERATE TO PROTECT HOUSE PRICE GAINS? and imagine the riot if some of them are being granted rates exemptions…

    • My suspicious mind can’t decide whether some are simply buying time to divest themselves of their NG properties while prices are still good, or are trying to kick the can further down the track to squeeze out a little more profit.
      Either way, duck for shelter when they start selling!

  7. “a critical mass of Australians now see through the lies” – maybe. I watched about one minute of an interview between Labor’s Chris Bowen and ABC presenter Trioli this morning and she was banging on about rents through the roof myth if NG is abolished. MSM is still trotting out rubbish arguments.

    • Rents through the roof would only mean one thing: A blow to wider consumer spending. Double-edged sword.

      • Tassie TomMEMBER

        @ Hareeba – Sorry to be a party pooper, but I’ve got to call that one out.

        Tony Jones is also a pompous self-entitled know it all who I find very hard to like, but nobody comments on his arse or his pouch. Just because Trioli’s an under-researched and over-spoken pain in the backside doesn’t mean we get to publish our opinions on her physical attributes.

    • Bowen should just refer any questioner to Joe Hockey’s statement
      “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”
      Couldn’t have said it better myself Joe.

  8. Here’s an idea Scott
    How about you stop approving the sales of thousands of exisiting Australian dwellings to foreign nationals?

  9. This guy (Morrison) just brings this to absurd by painting into black and white. If you can’t argue the idea as a whole, take an extreme case and safely criticize it. The public view is also shifted to this extreme case, and discussion is successfully marginalised. Comments above clearly show the success of the move.
    Why abolish the policy if it can be just capped per family to affect only top 10% abusing it?
    I reckon he has this own interest in the current status quo.

  10. Jumping jack flash

    Certainly unsurprising.
    I am filled to the brim with unsurprise.

    Did anyone actually expect them to do anything that could give the slightest hint of making existing house prices fall?
    For that matter, does anyone actually think they will do anything to make the house prices increase any less quickly?

    Not I.

    “Disrupting negative gearing would not come without a cost, especially to renters, let alone the wider economic impacts. Proponents of disruptive negative gearing changes have ignored this fact.”

    Just say it you spineless jellyfish!
    Its the debt!

    Can’t have a trillion dollar debt bubble that’s secured against house prices, and then have those house prices fall.
    You can’t even have the slightest hint of changing any conditions that could happen to make them fall.

    Can you imagine?

    Absolute carnage.
    Our banks would be torn from limb to limb by the international banks they get their debt from.
    It’d be 2008 all over again. Probably worse.

  11. They know how many XYZ teachers and cops who have negative geared properties but cant tell for shit how many existing properties are owned or sold to foreigners illegally?