Pro-cyclical Labor bins negative gearing reform

As property prices turn nuclear, hoocoodanode that Labor would backflip on negative gearing reform? It’s not like we don’t need it. Nor that the timing isn’t terrific. Indeed, given Labor took the reform to the last election as property prices crashed out of the Hayne Royal Commission, it looks decidedly and stupidly pro-cyclical abandoning the reform as prices boom.

The Australian reports that:

  • Negative gearing and capital gains tax reform no longer appear on the draft party platform.
  • The decision is not yet official but it will be made in time the national conference at the end of March.

This is the most important possible reform for the Australian economy being thrown away for political expediency. Without it, we will be endlessly channeling dead money into house price speculation rather than getting down to the real work of productive investment.

Right now, it doesn’t matter much. Fiscal stimulus is still strong, we’re enjoying huge national income gains from China’s trade war on itself and fresh lows in fixed-rate mortgages have everybody singing.

Without negative gearing reform, APRA will be forced to tighten lending standards earlier than otherwise.

But, in the not too distant future, the fiscal and commodity tailwinds will turn to headwinds and Australia will find itself reliving the lost decade of depleting incomes that began with the last commodity bust after 2011.

This will be exacerbated by the advancing China decoupling.

In turn, so long as realty speculation subsidies remain in place, monetary policy will be forced again into the breach. But, because we are out of rate cuts, instead the RBA will again expand its QE program and its Term Funding Facility to banks, seeking ever lower fixed-mortgage rates.

Next will be the embrace of negative interest rates so that it can start paying banks to lend mortgages all the way down to 50bps.

The upside is that this will help sink the Australian dollar. But competitiveness gains will be held back by ever more inflaton in land prices.

In short, the failure to reform negative gearing puts Australia on the European path of endless temporary monetary support programs becoming permanent destroyers of the system.

David Llewellyn-Smith
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Comments

  1. strange EcononicsMEMBER

    Good, so soon its 0% interest rates. Those people fixing loans at 1 % will be crying silently.
    So next month I plan to borrow 6 million interest only on no income, and buy something like the waterfront house that sold for 6 Million Saturday, a new suburb record. It sold for 3 million 3 years ago.
    So I will get a 6 million loan on no income then.
    After all property doubles every 7 years, so no worries.

    • happy valleyMEMBER

      Where are you? If in Sydney, $6m won’t buy you anything waterfront – the only water you’ll see is from your leaky hose or your pool. Didn’t you see that a semi !!! in North Bondi (with no views and on a postage stamp size block, but with a sort of a pool – so there’s your water) sold for $6.1m on Saturday ($2.2m above its initial price indication)?

    • Strange EconomicsMEMBER

      Who left “SFA” in the ALP platform? Does this really stand for Superannuation FOR All or something radical and unliberal. Removed all those other acronyms like CGT and NG cancellation.
      The platform is supposed to be a blank sheet now for a small target.
      And quickly remove it, or next thing someone will expect the opposition to oppose lowering tax rates for high wealth individuals. or something.

      • happy valleyMEMBER

        The platform is basically a blank sheet of paper and probably, it’s safer that way. It worked a treat for SFM and his equally policy LNP at the last election. Small targets always work – at least for the apathetic average voter.

  2. Given the broad scale of damage done to employment in the country I find it hard to believe there is a property boom on at the moment.What is the real story on the ground?Can anyone looking to buy now please share their experience?

    • happy valleyMEMBER

      Sydney houses red hot/ridiculous (see my example above, and many others are going way over reserve), but apartments not so – but the investors will be back in force soon and ScoMo will be flinging the international borders open soon too albeit it doesn’t really matter anyway as our money laundering regime is the most user friendly/world leading, so offshore punters can basically buy from the comfort of their lounge rooms no questions asked.

    • Strange EconomicsMEMBER

      Plenty to come – Forces for raising prices:
      Zero interest rates.
      The new Irresponsible Lending Laws coming soon (ILL for short).
      A subtle one – Lower tax rates for higher income earners coming soon – 20K a year extra for 200K plus earners, going straight into investment mortgages.
      Super for home investment – $ 50K to be withdrawn by every potential FHO.
      FOMO – Its going up 20 % better get in now with 10% above the price guide.
      Immigration to come back in a year
      Unlimited Money laundering permitted
      Forces against? – er? any?
      5 nil win to UP UP UP.

      Thats 500 K to 1 million on every house coming up already…

    • Cynical snake

      “Given the broad scale of damage done to employment in the country”
      The damage was primarily to people working in hospitality/entertainment, so mostly part time or casual and unlikely to be in the housing market pre or post disaster as unlikely to be earning enough.

      • Thanks HV and SE for your perspectives. Cynical Snake,that is a very valid point .The people who have lost income were unlikely to buy anyway.So people are buying in anticipation of a flood of immigrants and students next year a bit like the stock market and it now makes sense to an idiot like me!

  3. MathiasMEMBER

    Woohoo \o/

    I’ve been saying we’re heading for -17% interest rates but I’ll settle for -5% with massive money printing and migration.

    I watch a lot of economic stuff on the internet and Leith is the ONLY Economist I’ve seen who has ever put himself forward with a solution to this problem. If we continue using Migration as the solution to fixing this, then you can kiss Australias Young goodbye. They’ll be dead within 5 years. You’ll be migrating into rising cost of living and suicide rates in Australia are going to be extensive. There is no way this is going to continue for another 17 years. The Government will be murdering off Australians. At some point in the future, Australia will be migrating into its own suicide rates and murdering off half its population.

    Leith is right. His ideas are the only way out of this.

    https://gyazo.com/e0d6f85037e91977e4e8faea26e361e9?token=fc10468339d55e3dcabe792b4726b75f

    • happy valleyMEMBER

      ” … then you can kiss Australias Young goodbye”

      They are already dead, buried and cremated, as are fixed interest income reliant retirees and JS recipients. Straya is for the privileged 1% and mates.

      • 1% or the 20%MEMBER

        Actually the priveleged are 20% of Australians – with lots of property over $ 1 million The other 80% are out of luck.

        As its 20% theres no rebellion. And thats 20% of young going to benefit from the oldies, so no revolution.
        . Just ask any group you go to. Hands up whose parents have a property portfolio…
        Its not the 1% of mega rich off in the stratosphere.

        • MathiasMEMBER

          I dont like the guy but credit where credits due…

          Martin North ( chokes to even mention the guys name ) said, ” The 10%, will control the 20%, who will control the 70% “.

          Personally, I like a good bushwalk and love native wildlife. When I desire free time, I enjoy feeding the wallabys, birds and enjoying the natural world. My most favourite part of my day is watching the sun rise over the mountains each morning.

          Get used to your future ;p The future of happiness is artificial.
          https://www.youtube.com/watch?v=L5uZWa7KaYQ

          As far as Im concerned, Sydney should be bulldozed to the ground… and all the scum that goes with it.

      • MathiasMEMBER

        Even from the grave, I still have hope. Maybe its the stubborn Aussie in me.

        I have hope that some unknown force will rise out of parliament at our darkest hour. We just havent reached rock bottom yet.

        I dont know much about Left Wing or Right Wing politics but I suspect at the moment of truthe, a persons ‘ Will to survive ‘ is going to overcome any political notion we have in this Country. At some point, our fear of death, is going to turn into a pretty big motivator. Our wake up call.

        I think at some time, when things get bad enough and enough people die, we will be forced to act… whether we like to or not.

        We havent heard the bombs raining down above us yet but when we do, certain Australians might decide to take life a little more seriously. Either that or they’ll migrate to another Country and bail when the money drys up. If you look at your history, Australians did nothing and ignored almost every threat until Darwin was Bombed and many lives lost. We didnt think it was important until we saw the dead lying on the ground before our eyes.

        I think there are two kinds of people in life. There are the Adults who have seen death and have come to realise that life is more precious then they realise. There are the Children who have never seen death and spend there days being wasteful, selfish and disregarding. I think there are many Australians who are very selfish and are yet to see death. I think the day they do, many Australians are going to change. Its too early and I believe Australia has certainly become complacent. Death is easy. Life is hard. In my political opinion, we should be focusing on ‘ Quality of Life ‘ because its a lot harder then people give it credit for.

        I figure if your going to die, you might as well die doing what you believe to be right.

        Without change, I see lots of death coming.

        There is no way this is going to last another 17 years. We will be lucky to last another 5-10.

    • MathiasMEMBER

      A country cant move into the future when its always looking back at its past.

      A while ago, I was doing some bizarre thinking. Australia is a country that pretty much lacks any kind of culture. Its basically a dead, heartless void that chews you up and spits you out. For some ( like myself ), Nature is the hope. In a country where Artificial happiness of Capitalism is being lured in your face each and everyday, I found it interesting to ask myself, ” What is Australia “. Woman like to think its about them and Boomers like to think its about them. I figured there’s more to it.

      There are those who believe Australia should be the United States. There are others who believe we should be European. Some even believe we should be like the UK.

      To cut a long story short, I found a resemblence between Australia and Irish history. Its a lot deeper then I can say in a comment but…

      Irish – ” This is my homeland – My heart is here ” – https://youtu.be/Xj_4ffx1Ngw?t=170

      and if you want the Australian Version

      Australia – ” The Ten Tenors – I still call Australia Home ” – https://www.youtube.com/watch?v=iTJF2WcRBYo
      Australia – ” Peter Allen ( He stole this song from Ireland lol ) – I still call Australia Home ” – https://www.youtube.com/watch?v=tuBlc1TL1ak

      Maybe its just my obnoxious opinion but I think Australias got more in common with Ireland then it does US, China, UK or Europe. Most Aussies I know, whether they admit it or not, I suspect, share a common thread of value to the Irish. Its interesting how extensive Irish Culture is and when you turn that towards looking up Australian Culture, it really has very little.

      When you consider that Australias Culture has been utterly decimated by this Multi-cultural crap, you can clearly begin to see that we are destroying this countrys soul, little by little. I grew up in the 80s so there was a lot of culture around but today, the only culture that exists is Nostalgia. We are always looking back into the past and saying, ” Remember that thing in the past? “. There’s nothing in the future anymore. The only culture Australia has today is that we look back to the past. A sign of a country thats receeding.

      There’s a lot of arguing over what Australianism means. There’s a lot of arguing over Blacks / Whites / Chinese / Multiculturalism, changing dates, getting rid of the ANZACs and all kinds of crap.

      I think for Australians to move forward, we need some understanding of identity and of culture. I believe its being destroyed. Lets face it, its non-existent to todays growing young. To me, I think Australia has more in common with the Nature Loving Irish then any of the Countrys we pretend to be.

      I dont know why but when you go bush, a lot of things seem simpler. You see the life/death balance clearly and suddenly, you begin to realise just how stupidly ridiculous Australians have made there own lives. Humans did this to themselves. Nature didnt do this. We’ve become very arrogant towards ourselves. When your in Nature, it makes it very easy for a person to see just how stupid we’ve become.

      Im a millennial. Growing up, I was inspired by the book ” Power of One “. A really large and thick book. They also made a movie out of it. Its a little old and dated now but it was always had meaning to me. I guess it all depends on which chapter in history you like but for me, that was something that resonated as someone growing up in my generation.

      Quote: ” The brain, Peekay, has two functions: It is the best reference library ever, which is a good thing to have. But also from it comes original thought. In school you will get all filled up with the facts. Out here, your brain will learn where to look, how to look, and how to think. Any question you ever have, the answer you will find in Nature – if you know where to look, and how to ask. And then you will have for yourself all the brains that have ever been. ”

      The thing I do know is without a sense of Australian Culture or Identity, there’s no reason for the young to get out of bed tommorrow. We think Australia can run on money alone and I fear, money wont be enough. For me, Australia has more in common with Ireland then any other country out there.

      • Leroy Huggins

        You can have mass immigration or a local culture, but not both.
        Hopefully still time for Australia to make the right choice.

  4. Ronin8317MEMBER

    The lesson from Bill Shorten’s defeat is this : the Opposition Party should not run on a platform of reform in Australia.

    • Indeed. The LNP have won three elections in a row by promising not to do anything other than cutting taxes.

    • TheLambKingMEMBER

      Yep, and then they follow the LNP playbook – so they can call it a ‘non-core promise’ and change it to actually do some reform. That assumes they can get some air time to actually explain it in the media.

    • That’s exactly what the voters want. In fact I would argue the problems most people have with the Liberal party is that they are also changing too much (e.g. overdevelopment, more immigration, less work rights/protections, etc). Doing nothing would mean:

      – Don’t let more people in.
      – Don’t change workplace laws.
      – Don’t approve and build more developments especially corrupt ones like what’s happening in NSW of late.
      – Don’t tamper with the value of my home.
      – And more DON’T’s.

      Doing nothing isn’t a bad thing; if they were really doing nothing I would argue most people on this forum would be much happier than they are. Watching an Australian 80’s movie on the tele thinking those old laws, that old level of population, that old city – would make any Aussie nostalgic and made the young people in the room ask questions about life back then and how good it seemed to be.

      Fundamentally most people, especially on things that don’t need to change, would rather that they didn’t. Most change, as has been proven time and time again for the last 20 years or so, has been a negative for the average person.

      • drsmithyMEMBER

        All of your DON’Ts have been going on for twenty years now. They are the norm, not the change. The (most obvious) change happened in the first and second Howard Governments and, based on election results, was quite enthusiastically supported by the electorate.

        • Huh? None of those DON’T’s have been happening. Our immigration rate is sky high (i.e. they keep letting people in – a DO action). It takes people to approve them after all and a process to do so. We keep building over green space and building up – obviously building is DOING something. Otherwise NIMBY’s would stop protesting – they would have nothing to protest about! Workplace laws keep changing slowly since workchoices failed – i.e. the electorate wanted them to do nothing on that too but they only backed down on the obvious tarnished brand not the laws themselves.

          Not tampering with the value of my home – if they did that they wouldn’t of tried to prop it up either. Let’s be honest – if it wasn’t for government intervention the housing market would of crashed in 2009 (GFC). But the government DID something and look where we are today. I have no problem with NG and CGT exemptions IF they didn’t prop it up every time it was in trouble.

          The real reason houses go up is because people feel they can get those IO loans, buy 3 or 4 investments and become millionaires because the government is their PUT option. Because there is no risk they leverage up which is a rational response if you think the government will keep backing/covering your risk. So far they’ve been right, and the more analytical types have been the suckers. I talk to some of these people; they say “houses never go down” so why not? It isn’t NG/CGT that keeps them in the market; its the fact that they feel its a one-way bet.

          So I disagree Smithy. The government is doing a lot to keep what you see as the status quo going. Just get the government to stop doing stuff and the housing market would correct itself if that’s what you want, and our lifestyle would be so much better just like the days of old.

          • drsmithyMEMBER

            Sorry, I meant all of those things “changed” twenty-ish years ago. They’re not “changing” any more, they’re the status quo.

            Immigration skyrocketed under Howard.
            Howard initially juiced house prices with CGT changes.
            Howard smashed workers rights.

            Etc, etc.

            And Howard won a lot of elections.

            So my point is that the Liberals aren’t “changing” stuff any more, they’re maintaining the status quo that from their perspective came about from “changes” that were wildly popular.

  5. kierans777MEMBER

    > This is the most important possible reform for the Australian economy being thrown away for political expediency.

    I’d be interested in how MB thinks the ALP should prosecute these reforms given the MSM is completely in the pocket of the LNP, and as we saw in 2019 did not report facts correctly and were 80% anti ALP in it’s coverage.

    As much as I think negative gearing and the franking credit cash rebate need to go, until the media own up and realise that they’ve enabled the very corruption they’re now trying to tear down over rape allegations – by reporting their talking points as facts (Hugh Rimington and PVO had a good chat about this on their podcast) and refusing to call out LNP corruption (the Virgin Premier is a good example) all the while focusing on Labor, Labor, Labor how can the ALP prosecute a reform agenda. Shorten tried but couldn’t get the messaging right while Timmy Wilson whipped around the country unchalleged while he spruiked for cousin Geoff.

    https://theshot.net.au/general-news/the-us-election-proved-how-meek-australian-media-is-also-scott-morrison-is-a-bit-of-a-dodgy-dude/

    Albo’s probably just trying to Bradbury his way across the line as the LNP implodes past the point of no salvation.