Australian Treasury: Labor’s negative gearing policy won’t “smash” housing market

By Leith van Onselen

Over the past few years, Scott Morrison and Malcolm Turnbull have claimed repeatedly that Labor’s negative gearing policy would destroy both the housing market and economy.

For example, in February last year, Turnbull claimed Labor’s negative gearing changes would “smash the residential housing market” and warned that “every homeowner in Australia has a lot to fear from Bill Shorten”.

In a similar vein, in June last year Scott Morrison stated on ABC’s The Business that “Changing negative gearing is not an ambitious reform, it’s a bad idea. It’s going to undermine the value of people’s homes and it’s going to crash house prices”.

Today, the ABC has released a Freedom of Information request from the Australian Treasury, which undermines the Coalition’s claims about the dire impact on the housing market from Labor’s proposed reforms:

The ALP’s plan to restrict the tax deduction, along with halving the capital gains tax (CGT) discount, was a major issue during the 2016 election campaign.

Coalition figures have variously claimed the plan would attack the housing market with a “chainsaw”, “axe” or “sledgehammer”, and would bring Australia’s economy to a “shuddering halt”.

But after winning a two-year legal fight, the ABC can reveal Treasury officials in early 2016 gave very different advice to Mr Morrison.

“The ALP policies could introduce some downward pressure on property prices in the short term, particularly if the commencement of the policy coincides with a weaker housing market,” they wrote.

“In the long term, increases in taxation on rental property could have a relatively modest downward impact on property prices”…

Changes to negative gearing in the 1980s, and the introduction of the CGT discount in the 1990s, had “little discernible impact on the market”, officials noted.

“Overall, price changes are likely to be small, though the composition of ownership may shift away from domestic investors”…

Shadow Treasurer Chris Bowen said the document showed the Government had lied to the public.

“The most important thing about these documents is it goes to Scott Morrison and Malcolm Turnbull’s character,” Mr Bowen told AM.

“They knew they were just engaging in a political smear and scare campaign, they knew it wasn’t backed by the facts … during an entire election campaign.

“All these claims were a lie, and Treasury analysis showed that, and the Treasurer was aware of it”…

The full document is available here.

Let’s not forget that Malcolm Turnbull’s 2005 Tax Policy Paper described negative gearing and the CGT discount as a “sheltering tax haven” that is “skewing national investment away from wealth-creating pursuits, towards housing”, and has caused a “property bubble”.

For MB’s view on this issue, watch our latest negative gearing primer:

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Comments

  1. There is bigger scandal here, the abuse of secrecy. WTF should this report be “classified”?

    One wonders how many negatively geared properties Scott Morrison and Malcolm Turnbull own?

    Documents paid for by the taxpayer, which have no national security interest, took 2 years and many lawyer hours to get from the Treasury under a Freedom of Information request.

    All government documents unrelated to national security should be available to the public immediately and by default. We pay for it!

    Public servants serve the public, not their minister.

    • Right. The next Premier of South Australia, Nick Xenophon, wants a lot more transparency when it comes to defence procurement.

    • You’re right Eric, the big flashy sign in everyones face should be the fact that it took two years to get this information.

  2. So what will happen with the Bowen reforms? Will house prices remain the same but instead of rich pricks owning two houses, a poor family can own one of the houses?

    And can political parties make a freedom of information request instead of relying on the ABC?

    • Yes they can. So can joe citizen. Problem is they generally don’t have the money or the motivation to pursue the matter in the courts when the subject of the FOI tells them to p*ss off.

  3. ceteris paribusMEMBER

    Pants on fire? Nah, not really. Anybody who still doesn’t realise these people will say anything in their own interest should never be let out of the playpen. It is not only politicians either. Everyone constructs reality these days. Live the fantasy.

    • We KNOW ‘Mugabe’ Morrison is a lying toad.
      He still needs to be held accountable.
      Unfortunately CB, you’re ‘they are all at it, so what’s the point’ attitude goes a long way to explaining why we have these costly clowns in power and making decisions that have a detrimental impact on YOUR life day to day.

      Only yourself to blame CB

  4. Rope around all their necks , ask them why they should be let go. Then the public gives a thumb down or up. Not one would live , but the response they tell would be a laugh. 😅

  5. I think the NG reforms will have a significant negative effect on house prices….I just hope that there is a good slide in house prices BEFORE Labor become the next govt, so that no one can credibly blame their new NG and CG policies….else, NG will become enshrined in Australian culture, else house prices will crash…………etc, etc, ad nauseum…..

    Either way, we ought not let the CG discount and NG lovers control the narrative, regardless of political preference. I think this is a much bigger issue than partisan politics.

    My 2c

    • I agree I think its impact is being seriously downplayed. It adds at least 100k-200k to the average price of a house on a block of land in my humble opinion. As it allows investors to outbid home buyers by a significant margin.

      Removing it means investors rely on rental yield, something we haven’t seen in a long time.

      • @Jacob foreign buying in my part of Sydney is responsible for a price change for the place I rent from $800k to $1.6M in the space of 4 years. Foreign buying has made negative gearing extremely attractive these last few years because of the rapid price gains.

      • Everyone is tapped out. When this giant game of pass the real estate parcel blows up – and it will – it will most likely happen when Labor is in power because they are unlucky like that.

        The loss of ng will affect consumer confidence. I can see investors being hesitant and when combined with banks tightening and the loss of ng, it will cause a drop in prices. At that point the snow ball will start to start to roll down hill and the crash will start.

        Labor will be the schmucks in charge when it happens and get blamed for it.

    • Just halve the value of the AUD and keep house prices “the same” in nominal terms but obviously slash house prices in real terms.

      I have talked to high income blokes, even they do not look at house prices in real terms! The bogans are even less likely to calculate house prices in real terms.

      Some voters do not even know who their own prime minister is:

      https://youtu.be/xnSv9MqaBx0

    • The Labor negative gearing reforms will have a larger downward effect on house price now than the negligible reduction when they were initially raised by Bowen, because the market seems to have reached a peak,
      However these reforms, is just fiddling around, the fuel for house rise/falls and hence negative gearing/capital gains speculation, is the massive immigration intake.
      Cut immigration substantially and you won’t need any negative gearing/capital gains changes..

      • @Bubbley,
        Domain Group has the median Melbourne house price for the September quarter at $880,902 a rise of 1.3% the lowest result in 3 years.
        I’d like to add/clarify my above comment about Labor’s proposed negative gearing changes.
        They should have downward impact on prices because new investors can’t buy into the second hand housing market and second, the halving of capital gains profits in a market that is beginning to stall will scare investors away.
        How much downward pressure is exerted on prices … who knows … house prices could have imploded by the next election.
        However, limiting negative gearing to new housing only is worthy and really should be put in immediately.

  6. SchillersMEMBER

    The reforms to NG as proposed by the ALP will have little effect on house prices and are nothing more than smoke and mirrors. Their “reforms” grandfather income tax deductions for all existing IPs that are currently negatively geared. Over a million of them. In fact this policy could arguably result in less housing stock coming onto the market as existing negatively geared investors hang on to their negatively geared investments. Why would’t you? Any 2nd hand/ established housing currently owned by negatively geared investors that are put onto the market in the future will be bought by small and medium builder/developers, thus keeping a lid on any reductions in land prices (all other factors remaining the same).

    The key to long term affordable housing is reducing demand for land within 20k of the CBD (Melb/Syd).

    This will NEVER happen with current policy settings of which the mass migration ponzi is just one.

    • What about the fact that negative gearing will remain legal on brand new plots of land?

      Foreigners buying houses here illegally also has an impact. If the ALP wants, it could ban all foreigners from owning any residential land here – and that would cut demand.

      • SchillersMEMBER

        Most brand new plots are at or near the urban fringe. Increased demand from investors (due to future NG deductions only allowed on new builds) will likely increase the cost of these new house and land “packages”. More investors competing with first home buyers over the pathetic trickle of stock allowed to come onto the market in highly regulated, government determined “precinct structure plans”. It’s a racket that (more than any other single factor) has increased the cost of land throughout the metropolis.

        A complete ban on Foreign buying would result in much less new apartment stock. With the immgration/population ponzi still flying this would likely increase prices, not mitigate them.

  7. In hindsight – maybe the Government has already missed the window to do Negative Gearing reform.

    If they had done it over the last 5 years, and it had a 10% impact on the market – it would hardly have been felt as market prices have increased 50% in most urban markets.

    If negative gearing reforms were done, and house prices still went up 40% over 5 years – no one would have seen it as a bad thing (i.e. you can’t be upset about house price increases never realised).

    However trying to introduce these reforms at a time where the market is having a bit of a cool off is political suicide.

    The Labor party would actually be better off keeping their powder dry on the issue this election, and reintroducing it next time prices rapidly increase (if they ever do again).

    • Prices won’t be increasing rapidly again for a long,long time. The average annual income to house price ratio needs to return to something resembling normality first. However this can never happen while the market is flooded with massive immigration.
      The Labor Party should do what it’s supposed to do, look out for working Australians, by cutting the massive immigration program.

    • According to your ABC link, housing is “the bedrock of Australia’s household wealth, financial system and economy”. There’s this concerted media attempt to push a belief in ‘heads I win, tails you lose’ – you’re stuck with massively inflated prices, otherwise the whole economy will crash.

  8. So now less chance the idiots will implement any reform after the publication of this report. They will dig in even more now. And who cares what a lowly treasury official says. Morrison has a direct line to got and is treasurer by divine right.

  9. Suprise, suprise! Morrison is just another pathetic politician who has demonstrated he is quite capable of twisting the facts when it suits. Who would have believed this could happen?

  10. Doesn’t surprise me. This lying sack of sht goverment will say and do whatever it takes to fulfill their narcissistic agenda regardless of the cost to the nation.

  11. The Horrible Scott Morrison MP

    The advice from Treasury clearly confirms what I’ve been saying all along. When combined with weakness in the housing market, Labour’s proposed tax increases would have a disastrous impact on the housing market and the economy. When will you all learn that high house prices are great for the economy, and any attempt to pull them down means you’ll end up being unemployed and living in a p1ss-stained cardboard box outside Flinders Street Station – and we’ll then legislate to make you an outlaw and have you shot on sight. Bet that negative gearing doesn’t look so bad now.