The idiocy of Scott Morrison’s negative gearing defence

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By Leith van Onselen

Let’s recall Australia’s real estate treasurer, Scott Morrison’s, speech to the Australian Housing and Urban Research Institute in April, whereby he argued that negative gearing was being used primarily by ordinary “mum and dad” investors like teachers, and to restrict negative gearing would hurt lower income earners:

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…

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.

Now consider the below article from Domain today, which highlights how new teachers are among those essential workers struggling to secure housing near where they work:

The education union is concerned new teachers are struggling to secure housing near schools in metropolitan areas…

The vice president of the Victorian branch of the Australian Education Union, Justin Mullaly, said breaking into both the rental and property market were significant challenges for recent graduates, particularly in the inner city.

…teaching graduates entering the workforce in urban areas say they are struggling to pull together a house deposit.

With the median house price in Melbourne rising above $840,000, they have joined the growing number of workers facing at least five years of scrimping and saving to secure a home loan.

“To save the deposit, if someone is entering the profession in their mid-twenties, we’re talking a good five to ten years of saving to even get close to a deposit,” Mr Mullaly said.

He said teachers were looking down the barrel of taking their mortgages well into retirement.

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At the time Scott Morrison made the above comments, economist Saul Eslake noted:

“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”…

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”…

Michael Pascoe also derided Scott Morrison’s twisted logic:

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[It is] 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.

I am the first to admit that negative gearing along with its partner in crime, the capital gains tax discount, are only one factor locking younger Australians out of the housing market. Still, it is laughable for Scott Morrison to argue that removing negative gearing would harm them. One only needs to look at the below chart showing the strong negative correlation between the investor mortgage share and the first home buyer share:

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The data and logic would suggest that curtailing investor demand via reforming negative gearing and the CGT discounts would lead to more first home buyers – helping precisely those segments of the population that Scott Morrison pretends to care about.

Thankfully, a critical mass of Australians are now seeing through Morrison’s lies.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.