Will the Coalition swallow the red or the blue property pill?

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Recall this from yeserday’s AFR:

The push inside the Turnbull government to curb the capital gains tax concession for housing investors is “hanging by a thread”, amid growing external pressure to target tax incentives to help combat the nation’s housing affordability crisis.

As the government grapples over the content of the housing affordability package it will unveil at the May 9 budget, sources confirmed the push to include a paring back of the 50 per cent CGT concession was still alive, despite opposition led by Finance Minister Mathias Cormann.

Prime Minister Malcolm Turnbull is also understood not to be keen on the idea while Assistant Treasurer Michael Sukkar is supportive of doing something and Treasurer Scott Morrison is open-minded.

…Separately, the government has also not ruled a line under allowing young homebuyers to access superannuation to help fund a deposit, something else Senator Cormann opposes on the basis it would fuel house prices.

Is it the red or the blue pill then? Let me offer our elites a little guidance.

If you swallow the red pill of CGT cuts then you will receive much praise and quite a few votes for acting in the national interest. You will also contribute to the looming property correction as the last prop to investor psychology is kicked out. That will piss off some hard core supporters but they’re not going anywhere anyway. On the upside it will also do a great deal to deflate Labor’s lead in property policy.

However, it still won’t win you the next election given it will also lead to greater economic suffering and prevent you from cutting immigration (given it will be needed to support a falling market) both of which will fortify the One Nation vote.

If you swallow the blue pill of unleashing youth super in the housing market then you will preside over the wildest blow off and bust in Australian housing history. It will only last eighteen months or so because with the RBA’s household debt line drawn in the sand it will have no choice but to hike interest rates with Labor’s property reforms to come just after.

You’ll be able to run a property scare campaign into the election but it didn’t work last time so it probably won’t this time, though you will be able to blame Labor for the property bust later.

I really can’t see either of these two options serving your purposes. One is an outright political failure. The other so ruthless and destructive that it could result in all kinds of unexpected outcomes.

Thankfully for you there is a third pill. It’s green and it is this: cut immigration to an intake of 100k per year. Pressure on property prices will ease and you can argue that Labor’s reforms are unnecessary and excessive. Every major capital in the country will be immensely grateful as failing infrastructure is cut a break. Every member of the insufferable Left will blow themselves up in a self-destructive cry of “racism” bolstering your anti-political correctness campaign. And, most importantly, One Nation voters will flood back to the Coalition.

The green pill is the only one that can win you the next election. Swallow it.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.