Labor to stick with negative gearing policy

By Leith van Onselen

In the wake of yesterday’s Freedom of Information (FOI) release from the Australian Treasury, which claimed 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”, Labor has confirmed that it will stick to the policy for the next federal election. From The AFR:

…shadow treasurer Chris Bowen said the analysis showed Labor’s policy was good for housing affordability because it would take pressure off prices, change the mix of homebuyers away from investors to more first homeowners, raise billions of dollars for the budget and improve financial stability.

“I mean we have household debt amongst the highest in the OECD and while I’m always careful about my public comments and never alarmist: that is a concern… and the fact of the matter is that it’s fuelled by the tax concessions in Australia and the current situation is unsustainable,” he said.

“So that is why we will go to the next election with the same policy as the last election on negative gearing and CGT.”

Mr Bowen aid the analysis showed the government’s claim the changes would “smash” or take a “sledgehammer” to home values were “outright lies” and maintained they should still be introduced despite property prices flattening and in Sydney going backwards.

“You always get the people saying this isn’t the right time. What they’re really saying is, ‘I don’t like the policy’. When you say this is not the right time for the policy, what you’re really saying is ‘I don’t want to see it implemented’,” he said.

Labor’s negative gearing and CGT reforms are no panacea for Australia’s housing affordability problem. They will help at the margin but won’t magically make Australian homes affordable.

Still, they are worthwhile for all of the reasons outlined by Bowen above, namely: placing modest downward pressure on house prices, shifting the composition of housing away from investors towards first home buyers, raising much needed revenue for the Budget, and improving equity.

That said, if Labor truly wants to make an impact on the housing affordability front, it needs to implement a fundamental package of reforms that targets both the demand and supply sides, including:

  • Normalising Australia’s immigration program by returning the permanent intake back to the level that existed before John Howard ramped-up it up in the early-2000s – i.e. below 100,000 from over 200,000 currently [reduces demand];
  • Undertaking tax reforms like unwinding negative gearing and the CGT discount [reduces speculative demand];
  • Tightening rules and enforcement on foreign ownership [reduces foreign demand];
  • Extending anti-money laundering rules to real estate gatekeepers [reduces foreign demand]; and
  • Providing the states with incentive payments to:
    • undertake land-use and planning reforms, as well as provide housing-related infrastructure [boosts supply];
    • swap stamp duties for land taxes [boosts effective supply]; and
    • reform rental tenancy laws to give greater security of tenure [reduces demand for home ownership and reduces rental turnover].

We discuss all of these issues in detail in the below MB primer videos.

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Comments

  1. if Labor truly wants to make an impact on the housing affordability front, it needs to….raise interest rates to RAT positive levels to encourage saving, reduce indebtedness and stop the sell-off of every productive, core or strategic asset to foreign interests.

    Again…the negative gearing restriction is just another distortion to correct a distortion – that ALWAYS works!!!! Why not just correct the original distortion?
    In addition – if you want this thing, the housing/immigration Ponzi, dead you have to KILL it!

    P.S. Just an aside, I am amazed at the credibility now given to Treasury on this topic. This is the same Treasury that have not got a budget number right in about 15 years.

    • They need to wait for the bust. To do it now is to commit electoral suicide and likely end up in a state of longterm political oblivion. The debt bubble is too great. Let it bust under the Libs, then ride to the rescue (in theory)….in reality, I’m fully expecting handsome rewards for banksters and major shareholders by way of bail-outs & subsequent QE. Obama’s legacy lingers heavy.

      • Therein lies the MAJOR problem. Anyone trying to ‘fix” what is wrong in the economy will be committing electoral suicide.
        Re the handsome rewards to banksters – well they will be the only ones with the experience and knowledge to get us out of it!!!!What a bind we’ve created for ourselves!
        My solution is to put them all in stocks down at the local supermarket and provide canes for whoever feels like it to give them a few! This followed by the usual HDQ!

      • ”Obama’s legacy lingers heavy.”

        Uh, the seeds for the whole of the GFC were sown by Reagan….

      • We are talking about what came after the GFC, not what some dead mongrel did 40 years ago to set it up. Obama, the symbol of hope, the man of the people and a benevolent force for change…who at a moment in history, when he might have dealt a lasting boot to the forces of fiancialisation, instead chose to betray the working & middle classes he championed, all in the name of helping his rich donors get richer. A Republican in Democrat clothing, it is becoming an all too familiar occurrence.

      • Mr Walker
        The seeds were not sown by Reagan although he may have watered and fertilized them. Tricky Dicky was the one!

    • “P.S. Just an aside, I am amazed at the credibility now given to Treasury on this topic. This is the same Treasury that have not got a budget number right in about 15 years.“

      Hahaha! Exactly my thoughts. This entire little issue has been a post Christmas cricket boredom beatup anyway. The media has drunk their fill and now ready to return to the fray, however trivial. They well know that side A comments are purely politics as are side B. And any that now enthusiastically back Treasury (when it suits) need a stint on the obituaries pages.

    • The developer of a controversial golf resort scheme in Ipswich has been using “black market” intermediaries to bring millions of dollars in cash real estate deposits into Australia from Vietnam.
      The money was paid into company accounts Richard Turner used to loan himself hundreds of thousands of dollars for personal expenses.
      South Park Its gone!

  2. GunnamattaMEMBER

    Well said…..The question which arises for me is what is the ALP planning to do about Australian housing?

    OK, I get their negative gearing/CGT policy is a great start, but they have said nowt about the demand side of the equation and given every indication they are still wedded to the population Ponzi…..

    …shadow treasurer Chris Bowen said the analysis showed Labor’s policy was good for housing affordability because it would take pressure off prices, change the mix of homebuyers away from investors to more first homeowners, raise billions of dollars for the budget and improve financial stability.

    Note how he says nothing about making houses, or the land they are on, cheaper. I don’t think ALP policy is geared to this end, and that brings about the question of what ALP policy intention actually is – particularly if they are still bringing in 150k plus people each year.

    I think their policy at the moment is firstly about financial system stability (and good on them for that) but I don’t see them really interested at all in the large number of Australians in effective mortgage serfdom, or that (effective mortgage serfdom) being their offer to younger Australians.

    • I dunno…Is everyone just plain stupid or are they just, now, plain petrified that if they touch this in any way the whole building is going to collapse? (which it will)

      • Real affordable housing is code talk for a 50 % price drop. Following this is a recession (as housing is half the economy now) so no first home owners will be buying as they will be unemployed. Electoral death indeed. (and personal financial suicide as politicians average 3 properties each)

      • Mal
        “and personal financial suicide as politicians average 3 properties each” and that’s a problem how? 🙂 Just our viewpoint not theirs!
        So it gets back to my question – is everybody absolutely totally stupid or is it all just selfish self-interest and the nation be damned?

    • “given every indication they are still wedded to the population Ponzi”

      IMO Labor conflicted via Trade Union donations. Trade Unions profiting from the population ponzi by additional construction work leading to increased membership and union fees.

    • Mate what do you think Labor will do for housing, change negative gearing (and publicly appear to look like they are doing something about housing affordability) while the [email protected] will quadriple the immigration intake behind the scenes whilst cutting funding for police and prisons. I don’t trust labor, liberal or greens they are all scum.

  3. labor doesnt give a rats. this is a political bread crumb toss at most, and very possibly could be sneakily offset by ramping up immigration at the same time; classic bait n switch status quo maintenance.

    • Exactly true. To be honest as much as I hate the liberals i would rather see another liberal hung parliament with ON and others than see fake labor and greens get in with their fake feel good policies.

      • Nah, my kids don’t have opportunity with prices as they are now. It’s given to the kids of neighbours who’ve been in this pricey area (Sydney) longer than me. To me, the neighbours kids having opportunity isn’t that much better than foreigners having opportunity, because both mean my kids don’t. Fix NG.

    • That is true as their policy position is based around the same neoliberal economic ‘free market’ crap that the LNP dunderheads spew. If Labor were serious they could offer the nation a totally different policy perspective.

      • It’s only free market fundamentalism when it suits. Both parties at the state level ensure that nothing even slightly resembling a free market can be allowed to exist when it comes to the supply of land for residential uses.

  4. My god, just simplify it and stop going for the politically difficult policies.

    Make one simply change to the tax code (that does not require parliaments approval) and that is:

    1) Refinancing equity out of an existing property to purchase or pay off debt/renovate an existing property will trigger a capital gains event.

    Now this works beautifully because it comes with a few hidden exceptions due to the way the tax code is setup now.

    1) Everyone is allowed to use their house as an ATM to buy an investment property. If it is an existing property a capital gains event will trigger but because it is their Principle Place of Residency it is capital gains exempt.

    2) If the Investment property they purchased increases in price and they want to access the equity they can do it to buy OTP and not trigger a capital gains event. However if they want to buy an existing property they will have to pay capital gains tax on any gains between purchase and the new financing.

    This will stop the specufestors in their tracks as it stops their leverage. It doesn’t take away the sanctity that is the principle place of residency and the tax dodge that it is. You can still access the equity to pay for holidays/operations or buy OTP and not cop the Capital Gains Tax.

    It is all about reducing investor demand. To help stop people using Offset Accounts to circumnavigate the above, any money taken out of an offset account to do as above will trigger the same capital gains event. Or better yet, all offset accounts must be principle and interest.

  5. Labor are not winning the election. In betting they’re $1.80. In reality, they have next to no chance.

    Australia does not trust them. So much, they’re willing to let LNP screw us.

    • You’ve got a point. Turnbull’s failings were clear enough before this quite recent election and yet he won.

  6. All foreigners should be banned from negative gearing. Heck, foreigners should be banned from owning any residential land here.