Bowen lashes L-plate Treasurer’s property giveaways

Via The Australian:

Shifting his focus from Bill Shorten’s proposal to limit negative gearing to new dwellings and the “retiree tax”, the Treasurer yesterday cited government analysis that showed Australians would be taxed up to 36.75 per cent on their capital gains under Labor’s policy, up from 23.5 per cent now.

By comparison, US taxpayers face a 23.8 per cent tax on capital gains, the British pay 28 per cent on residential property and 20 per cent on other assets, while Can­adians are taxed at 16.5 per cent, according to the modelling.

…“Capital gains tax is effectively the marginal tax rate minus the CGT discount,” Mr Bowen said. “Is Mr Frydenberg assuming everyone who makes capital gains is on the top rate? The fact is that 70 per cent of these benefits of the CGTD go to the top 10 per cent of income earners. The question is: how can Josh justify people getting a 50 per cent tax reduction not available to PAYG payers and which was introduced when ­inflation was much higher than it is now?”

Quite right. We might add as well that capital gains tax for property should not be viewed in isolation. If we add negative gearing, which the other nations do not have, then the tax rate on property gains falls dramatically. These will still be available on new builds under Labor’s policy reforms.

The broader question is are property subsidies for the wealthy speculator class that only ever get channeled into higher property prices for existing housing stock in the national interest?

Given the bloated property bubble, the financial stability risks and peak household debt, the structural distortion away from productive investment and the marginalisation of younger generations from acquiring a roof over their heads then the answer is very obviously “no”.

Unless you’re an L-plate Treasurer.

Comments

  1. The ‘national interest’ not a priority for this clown or this government.

    It will live or die by its perception amongst VESTED interests.

    • GunnamattaMEMBER

      and in this case it goes right to the core of just how bent Australia’s taxation system is.

      There is no point in looking at cash disbursements of the welfare system when looking at how tightly targeted Australia social spend is. You can only get the picture when you bring in (along with the cash outlays of welfare – which rightly go to the most needy) the ‘concessions’ the ‘negative gear’ the ‘Investment costs’ the ‘super contributions’ and the novated leases and the ‘work related expenses’ (which may not be all that work related) which provide the bulk of the benefit for the upmarket crowd and which amount to a far greater chunk of the taxation system than the social spend. For those that are wealthy enough to carry the gear, or the initial outlay cost, Australia’s taxation system provides a superb little earner year in year out which doesnt show up all that much in the budget accounts because because it is ‘revenue foregone’; by the Commonwealth.

      This is why the Torynuffs dont want anyone touching the negative gearing – because they know that once the negative gearing is removed and the net effect on housing investment in Australia is nil, and that housing starts becoming more affordable for more people, then the next step will be to see which of these other juicy low hanging taxation lurks can be expunged as well.

      • Said otherwise: the middle / working classes get shafted. The sweat off the backs of the working classes gets distributed to the folk at the top and the folk at the bottom. The ‘middle’ will be bled until the system collapses.

        This is playing out in any developed country you care to mention.

      • Correct, Dominic. The rich get to accumulate more, and the poor are tossed the crumbs of discounted rents, leaving the rest of us to suffer the rich’s desire for increasing rents on us whilst we can afford to pay them… until it’s our turn to descend to being in the poor class as a result of job loss or retirement without home ownership.

        The best treatment for poverty is prevention, which isn’t really happening today.

      • Gunna I’m not so sure about this. The real “rich” don’t use negative gearing because really they don’t earn the majority of their money as wages. In fact the real rich even after Labor’s NG changes will still be able to gear their losses against their profitable sources of income unlike the humble wage earner. In a previous life/job I saw how some of these people earn/manage their money – wages and therefore negative gearing aren’t a big component at all. I know for a lot of the “middle class” NG is probably the only tax break that is available to them; hence it is well known and easy to take down.

  2. JacsonlinMEMBER

    Australian have negative gearing because we pay more tax than other country. We have many benefits for poor people.

      • Start off with free food at school or rebate residential electricity bills to the tune of $250 per quarter per voter.

      • JacsonlinMEMBER

        “Australia has the most tightly targeted tax transfer system in the world,” says Coates. “Over 40 percent of income of cash benefits are paid to the bottom 20 percent of income earners in Australia, compared to around 3 percent paid to the top 20 percent of income earners.”
        “In contrast, in the U.S., just 20 percent of cash benefits are paid to the bottom 20 percent,” says Coates, “whereas the top 20 percent receive around 15 percent of all cash benefits.”
        OECD (2014), Percentage of public social benefits in cash paid to the lowest and highest quintiles, total population, OECD countries, 2011

        https://www.google.com/amp/s/www.cnbc.com/amp/2017/11/29/australians-may-pay-more-taxes-than-americans-but-they-get-more-too.html

      • Did you actually read what you wrote, Jacsonline? Or what I wrote? First of all I said we pay more tax than the US, which your article confirms. But you said: we pay more tax than any other country which is not true and which your response does not rebut. Also if our cash transfers are “the most highly targeted” it means they’re going to the poorest who need them the most. Go back and look at what you wrote

      • Mining BoganMEMBER

        C’mon crumb, Jac had that answer copied and ready to paste at the first questioning of taxation levels.

        It’s your fault for not asking the right question.

    • I love this guy, do you have a BMW on novated lease per chance? If not, you definitely should. Remember you get what you pay for.

      • Jumping jack flash

        Lol for sure.

        Hey you cant necessarily blame them, when a market is distorted by as much cheap debt that is required so it looks like it is increasing forever, what do you do?

        Even the banks thought there was no risk, or more succintly, they thought that the risk could be safely ignored, at least “temporarily” ie, for 15 years or so. Even now, in my opinion, the jury is still out on whether the banks actually believe what they’re saying with regards to risk and tightening or whether this is just for show while the fallout from the RC blows over.

      • JacsonlinMEMBER

        Lol, You need blame Fed. Why they printed money all the time and again from this year.

      • A leased bmw still seems like a fairly expensive way for someone to point out the massive pen!s on their own forehead to the world at large. Surely there is a cheaper way?

      • @Arrow
        I’ve never been able to work this one out: why are 90% of BMW drivers such complete c0cks?

      • @Dominic
        I’m not taking issue with the general tenor of your comment but, if you are to be considered one with reasonable, measured responses, please confirm that you know 90% of BMW owners and tell me how you met them all. You may wish to speculate on the characteristics of the other 10%? 😉

      • Just because they don’t agree with your beliefs -doesn’t make anyone a troll.

        Indeed.

        The comically trollish behaviour is what makes him a troll.

        Surprisingly, he’s even getting a few nibbles (crumb71 above).

    • Lets be honest – it’s the middle class that get shafted. Rich have many more tax breaks than NG which is mostly used by the middle class anyway since the rich derive a lot less income from their labor. We are a country that hate any middle class welfare but if your on either end (i.e. a rich man with his trusts and wealth hidden or a poor man in a housing commission house getting dole money in a NSW south coast town) your doing well. Our welfare system is well targeted but the funds to pay for it mostly come from the middle class; they are just so much easier to tax since they earn their money in wages. Any tax change that costs more in wages hurts the middle class or “the aspirationals” sadly.

      • JacsonlinMEMBER

        Hi Mate. You are right. NG and CGT is only way to be rich for middle income tax payers specially after retirement.

  3. Forrest GumpMEMBER

    Josh Fryden-L-Plater & Reichs Commander Herr Sco-Mo are all over the place with their Bullshit story line over who uses Negative Gearing and now who loses from CGTD.

    First they sprout that its mums and Dads that are the main users of Negative Gearing with their taxable income less than $80K.

    Then they both trash that notion stating (above): those that use the CGTD (i.e. those of the above group that then sell their Negative Geared asset) are on the TOP marginal tax bracket.

    Geez fellas. Get the script straight before you even try to lie about it.. (Just a tip)

    • Anyone who makes a profit (even small % profit) on property in Australia easily gets into top marginal tax bracket. There are two reasons for this:
      1. Our poor quality housing is so expensive that even tiny 10% profit on an average shithole creates huge profit in excess of $100k pushing average wage earners into top bracket.
      2. Our top marginal tax bracket is low (45%) and starts at very low incomes 180k. Nowhere in the world income at just over two times average wage gets one into top marginal tax bracket except here. Our top bracket is designed to heavily tax upper middle class (doctors, professionals, small business owners… ) not rich (a person making equivalent of two average wages in not rich because he’s indistinguishable from poor when compared to someone making $5m or $50m). At the same time our swiss cheese style tax law enables rich to deduct so much that tax rate doesn’t even matter to them (even 100% tax on 10% or real income would be nothing)

      • You’re on the wrong forum I’m afraid. I’ve tried arguing with the people here before — they are quite adamant that someone on $180K is ‘rich.’ Any logical discussion on the issue is sidelines with constant bleats that an income of $180K is the top x% of the population and so is ‘rich.’ When I make the point that one person on $180K in net income terms like a married couple earning $85K each (far from rich), such arguments get ignored.

      • I tend to agree with you Davey, I would be considered rich by those standards, but let me tell you living in Sydney it syphon’s off all your money quickly.

  4. Bowen is going to be as bad as this guy and just invoke the same neoliberal economic model both parties have been following. Bowen already has the track record as the Minister for Foreign Buyers and Immigration Ponzi.

  5. While I’m sure that the Treasurer is talking to a whole party playbook, one can’t help to think that he is more interested in talking to his electorate.

  6. Tassie TomMEMBER

    What exactly is the “Capital Gains Discount” discounted against? The baseline from which CGT is discounted is “Labour Income”.

    Let’s say that CGT was the baseline rate of tax rather than Labour income. Now instead of a 50% CGT discount we have a 100% Labour Income Tax penalty.

    Why should Labor Income, ie, income that is generated from actually getting an education, getting up early and doing productive work, be taxed at a 100% penalty compared with income that is generated by not doing anything but just letting your money earn more money.

    What’s more – Capital Gains is a form of income only available to a small proportion of the population – the proportion that has free capital to begin with. According to ABS data the mean of the fourth wealthiest quintile (ie, households who are richer than 70% of Australian households but poorer than 30% of Australian households) own $294,000 of financial assets ($190K of which is superannuation) and $719K of property assets, of which $592K is PPOR (no CGT anyway) and only $126K is other property assets, for total household net worth of $927K.

    As you can see, the above household would have limited scope to make any significant capital gains outside of highly geared financial instruments (which is more or less what an investment property usually is, and which can magnify your losses as well as your profits). And this household is richer than 70% of us.

    If anything Labour Income should be taxed at a DISCOUNT to Capital Gains income, ie, there should be a CGT SURCHARGE. After all:
    1) Earning income by doing productive work should be encouraged compared with making money by unproductively shuffling money around, and
    2) Most capital gains are paid for by the public one way or another, and hence the public should reap the reward for their outlay. For example:
    – a new road or rail paid for by the public may increase the value of the parcels of land that benefit from it
    – permissions or licenses (such as a prawn trawling license) ultimately owned by the public and sold to individuals may increase in value due to artificial scarcity which the public pays for by being locked out of sharing the bounty (trawling from prawns) themselves, or
    – low interest rates and lax lending conditions increase house prices which benefits people who own two or more houses or the children of people who are waiting for their home-owning parents to die, but at the expense of people who don’t own a house, people who have bought a house at the new high price and are struggling to pay it off, and also don’t forget depositors who are hamstrung by the low interest returns on their bank deposits.
    3) Most “ill-gotten gains” are in the form of Capital Gains (for example, Eddie Obeid’s family member buying a farm at Broke for $4 million, corruptly obtaining a coal mining license, and selling it off for $80 million). Corruption should still be illegal, but at least a CGT SURCHARGE would capture more of the ill-obtained bounty for the public should it occur.

    • I agree Capital Gains should be taxed higher than productive labour, it’s insane my share investments get taxed lower than my waking my arse up each morning go to work (work). I’ll never understand it.

    • I don’t want to take any side of the debate here but I presume CGT is lower because you’ve bought an asset with money that has already been taxed (income tax). In a normal world capital gains would / should not be taxed at all.

      As we live in the inflationary world granted us by the debt-based money system, asset inflation gives the Govt an opportunity to take another slice of citizens’ wealth for itself (and distribute it to favoured parties).

      Inflation is the most insidious tax of all as it cannot be seen (or, at least, it is non-explicit): inflation, which is levied on everyone, impacts the poor the most and delivers great riches to the wealthiest.

      • Tassie TomMEMBER

        Apologies in advance for the directness of my reply – your arguments are good ones Dominic and ones that form the unquestioning dogmatic beliefs of most of the Australian public. But we’ve been lied to.

        How many households have genuinely saved $40,000 per year in today’s money for 25 years? (Capital paid off the home loan counts as savings, interest paid on the home loan does not.) I’d say there’s not very many. How many households have a net wealth of $1,000,000 or more? About 25% of us.

        Why is this? Primarily inheritance, and secondarily capital gains (primarily using intergenerational wealth as the source of your capital which has made the gain).

        So the argument that “this money has already paid income tax once” is an absolute bulls**t argument spruiked by the rich to confuse the rest of us. (edit) And even if the argument holds true, then why do we tax deposit interest at one’s marginal tax rate?

        As for inflation, I think that low inflation benefits the rich most, and high inflation is good for 98% of us. Why? High inflation = high interest rates = high wages growth. Sure, wages growth may fall behind inflation some years, and it may charge ahead of inflation other years.

        No matter what lies the banks put into their formulas to try to justify lending as much money as they possibly can hence 1) earning the most interest that they possibly can and 2) inflating asset prices as much as they possibly can, the banks have never been allowed to assume that your earnings will increase in the future.

        Therefore even if people are absolutely strung out by having borrowed too much, if inflation is, say, 7%pa and wages growth is 7%pa, then in 3 or 4 years they will find that they can actually make the payments, and in 10 years their repayments have halved relative to their wages.

        High interest rates also effectively put a cap on asset values relative to wages.

        Today’s low interest-rate, low-inflation, low-wages growth and high asset price environment is an absolute disaster for about 80% of us, and an absolute boon for the wealthiest 2%.

      • So CGs are earned with post tax money so should be taxed at discount?
        How about wages? Everything required to make labour income is also paid by post tax money: food, shelter, transport, clothing, …

      • @doctorx
        I’m not sure I understand what you are saying. I’ll re-phrase what I have said above: once the Govt has taken its slice from your income, what you do with your money thereafter is (should be) for you and you to decide, surely? Sadly, the Govt gets 2 more bites of the cherry: both through inflation. Inflation ensures capital gains (which are taxed) and inflation itself is a tax. If you are lucky enough to have assets that generate CG then you end up faring better than the poorer segment of society that don’t — they generally only have an income (from whatever source) and this is subject to the predations of inflation.

      • @TT
        Don’t worry about the direct response — a lively debate is a healthy thing. I can’t unfortunately provide a comprehensive response to your comment as it is too lengthy and complex.

        My point was simply that, absent a debt-based money system, CGT would simply not exist as it would not provide a reliable source of tax for the Govt. So much of the iniquities that we rail against here on this blog dial back the same source. Unfortunately for us (and fortunately for the pollies and the elites) very few understand the monetary system and how it serves the bigwigs so we will continue to be screwed by them until the system caves in of its own accord.

        One of the greatest industrialists of our time, Henry T Ford, was moved to say:

        “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

        (And this was long before banking became seriously corrupt).

      • @dominic
        Government is not taxing twice money invested into assets but only taxes extra money earned using the already taxed money. So same can be case for money spend on food or transport because that, previously taxed money is used to earn new wage money.

    • Agreed. At worst, the tax on labour (hopefully productive labour) should be equal to that on capital gains *AND CORPORATE TAX*.

    • That’s easy to answer tassie Tom. Capital gains are earned over many years but are taxed only in one financial year at time of sale. It may of taken 20 years to earn that 200k in profit but I will be hit even with the discount due to that money bumping me up to the highest tax bracket. The discount allows you to spread the gain somewhat over 2 years. Honestly the way I think it should be calculated is you divide by years you half the asset , and it to the income you paid each of those years and the tax you would have paid for each of those years is now owing. Rather than one house sale bumping you to the 49% tax bracket. People forget capital gains are earned by taking risk; they aren’t free.

    • Jumping jack flash

      +1

      Government investment in manufacturing, ie, government owned and operated factories, to produce useful stuff to sell to the world to earn real money, not fake debt money. Think of the effect of a publicly run auto industry. Electronics and world-leading digital technology. Space programmes. All owned and operated by the government. The mind boggles.

      Get the pollies actually doing the jobs they are paid to do! Manage a few companies instead of getting p!ssed and shagging staffers, flying overseas to cheat on their wives, stealing taxpayer money, and arguing amongst themselves about each other in the aftermath.

      But I wasn’t aware that’s what old Pauline wanted to do. Last I checked she had no clue about anything.

      • There’s a lot the media don’t publish, but i have heard her say it on TV.
        Government owned manufacturing and very high tariffs ends in disaster as shown in other countries, mainly due to the human nature of rorting public money.
        One [email protected]’ aim is for economics to be more favorable for local manufacturing startups.

  7. Additionally, Australia doesn’t have estate taxes, so we have no way of getting any of those discount-taxed gains back in the hands of the state later, either. This is quite unlike the US, where estate taxes of 40% are levied on estates valued over $11MM (Trump changed it… used to be $5MM before 2018 … and before that, Obama changed it… used to be $2MM), so that at least the wealthiest who aren’t incorporated get soaked a bit on their mansions and yachts. And also quite unlike the UK, that alleged bastion of landed gentry vs serfs, where it just takes an estate worth 500,000 UKP to trigger 40% estate taxes, although the first 325,000 of that are tax exempt.

    • Tassie TomMEMBER

      Great comment – especially your first sentence.

      I’d personally prefer a broad based annual tax on capital than an inheritance tax for several reasons. But I totally agree with the principle that the burden of taxation needs to move from today being almost entirely shouldered by labour income toward being broadened to include investment income (including capital gains) and capital itself in addition to labour income. Labour income could then be taxed more lightly as other more fair and equitable sources of taxation are sharing the burden.

      • I don’t disagree, but think that a death tax would be more palatable as it’s done in many other countries around the world. (Not that either would be palatable to the rich — a word I use to describe those with more than $500K of assets, not just the Ginas and Gerrys of the country, just it would be less unpalatable.)

      • Interesting list, but what it’s leaving out are the deductibles. (IE, what is the asset level floor at which the taxes begin to apply… there’s a big difference between the UK’s 325000 UKP and the US $11MM, in terms of the number and wealth of people affected.)

    • Estate Taxes sounds like another law that could also easily be subverted by a Family Trust. So we’ll have Family Trusts used to subvert:
      – Divorce laws. Divorced partner gets nothing if personal assets are transferred into a family trust before they get married.
      – Director Liability laws. Similar to Divorce laws. Directors pay nothing if they have no assets listed in their name.
      – Tax laws. Lower tax rate in trusts
      – Estate laws. Pay no taxes because the expensive house is not in your name when you are deceased.

      I would otherwise agree. Just need to close the rich man’s loopholes first.

      • Yup. I actually had started another paragraph about closing that loophole (and a couple others) but decided it would muddy the issue. And besides, Labor has family trusts in its sights already, don’t they? 🙂

      • Tassie TomMEMBER

        That’s why I’d prefer a 1%pa broad-based wealth tax. Trusts pay 1%pa of their wealth. Companies pay 1% of their wealth. Super funds pay 1%pa of their wealth. Farmers. PPOR. Foreign investment. The lot. Any concerns about taxing those with little means can be sorted out with adjustment to universal basic income.

        Then there’ll be no need to “close loopholes” – to tax succession within discretionary trusts with a corporate trustee, no need to tax gifts made prior to one’s death, no need for grandchildren to inherit the intergenerational wealth so that one lot of death tax is “skipped”. No need for a family farm or family company to need to be sold upon the patriarch’s death to raise the funds to pay the estate tax.

  8. SchillersMEMBER

    Capital Gains Tax should never be viewed in isolation. Once multiple years of Negative Gearing tax breaks are factored in, the actual tax paid is often modest compared to the gain made, especially considering most of the gain is unearned income. Freudenberg (and the Australian) is cherry picking a stat that deliberately ignores the fact that compared to most OECD nations property and wealth is taxed very, very lightly in this country. We have no annual tax on wealth, no estate duties or taxes on assets at death, hardly any taxes at all on the family home, no CGT on the huge profits usually realised when it’s sold, etc. etc. Unlike the USA our council/county rates are peanuts compared to many parts of the US. Own a $1m home in many states and counties in America and you can be paying USD$15-19,000 in property taxes, per annum. ETC.

    • Those poor mugs whose employers do the right thing and aren’t wealthy enough to employ a skillful accountant.