The Coalition’s strident defence of negative gearing, and the lies used to support the policy, is looking increasingly toxic for the Turnbull Government.
Last week, the ABC’s FOI release from the Australian Treasury showed that Labor’s policy to restrict negative gearing to new builds and halve the capital gains tax (CGT) discount would have a “relatively modest downward impact on property prices”, would shift the “composition of ownership… away from domestic investors”, would save the Budget some $3.4 to $3.9 billion per year, and that “negative gearing benefits high income families”.
Now, a new study prepared on behalf of the Reserve Bank of Australia (RBA) has shown that axing negative gearing would significantly boost Australia’s home ownership rate, and would raise societal welfare by far more than the Coalition’s policy to cut the company tax rate. Fairfax’s Peter Martin summarises:
Axing negative gearing would lift home ownership to as much as 72.2 per cent of households, cut home prices by just 1.2 per cent and lift rents “only marginally”…
Melbourne University researchers Yunho Cho, Shuyun May Li and Lawrence Uren conclude that eliminating negative gearing entirely would lead to an overall welfare gain of 1.5 per cent of GDP, making three quarters of the population better off.
The figure compares to a Treasury prediction of welfare gain of 1.2 per cent from Turnbull government’s plan to cut the company tax rate…
An ownership rate of 72 per cent would be the highest since 1991, before 1999 when the Howard government cut the headline rate of capital gains tax making negative gearing more attractive. It currently stands at 66.7 per cent…
Renters and owner-occupiers would be the biggest beneficiaries. Landlords, especially young, high earning landlords, would be the biggest losers…
Renters would benefit because although rents would climb by 2.4 per cent, the government would be in a position to compensate them and others with the extra $2 billion it would make in increased tax revenue…
Young owner-occupiers would benefit from the lower house prices “as they can move up a housing ladder more easily”.
Landlords who rely on borrowings would be “driven out of the market for investment properties”…
Thirty per cent of rental properties would be freed up and bought by Australians who would have otherwise rented. Almost every income group and every age group would increase its home ownership rate.
The full paper is available here.
This is a stunning result for Labor, which supports axing negative gearing for existing properties and opposes company tax cuts. It also makes a mockery of the Turnbull Government’s policy position of opposing Labor’s negative gearing cuts but supporting company tax cuts.
Labor’s policy would save the Budget some $2 billion to $4 billion a year, versus the $4 to $8 billion cost from the Coalition’s company tax cut policy. Labor’s policy would also raise welfare by more.
Equity would also improve significantly under Labor’s negative gearing policy, whereas equity would likely worsen under the Coalition’s company tax cut policy, with the gains flowing primarily to higher income earners.
After campaigning furiously for more than seven years to scrap negative gearing, MB is thrilled to see the stars finally aligning for reform. The Coalition has nowhere to hide on this issue.
