The release of the Grattan Institute report Hot property: negative gearing and capital gains tax has raised the temperature of the scare campaign for a day or so on Labor’s Positive plan to help affordable housing, aka negative gearing.
Turnbull says Labor’s policy will drive down house prices:
- “What Labor is proposing is a huge reckless shock to the market. This is not fine-tuning. This is a big sledgehammer they are taking to the property market,” Mr Turnbull said.
Grattan found otherwise. They found that the effect on house prices would be about 2%, in the context of a market that has been rising by about 7% each year.
Turnbull says that it’s the average mums and dads who are doing most of the negative gearing. Peter Martin has an excellent summary of the Grattan report. He says they found that the top 10 per cent of earners collect almost half the negative gearing tax deductions and three-quarters of the concessionally taxed capital gains.
The AFR has this chart, sourced from Grattan, that shows who is really tucking into the pie:
Grattan found that the two policies that benefit the rich, negative gearing on income and capital gains tax concessions on housing investment, cost the budget $11.7 billion per year. Labor has proposed limiting new investments to newly built homes and reducing the capital gains tax concession from 50% to 25%. Grattan wants to go all the way over time, including the removal of concessions applying to existing homes. Grattan says:
Australia is almost alone, along with New Zealand, in allowing rental losses to be deducted from ordinary wage income. The United States only allows deductions against other investment income, while Britain only allows deductions against capital gains from other rental properties.
In a second article Peter Martin points out that since the late 1990s when Howard halved capital gains tax and thereby made negative gearing more attractive:
Within two years, prices jumped from less than three times household disposable income to four times disposable income. The new negative gearers faced no problem finding renters; the owner occupiers who missed out were forced to rent from them. It’s as if, to use the words of Coalition backbencher John Alexander, we are turning into a nation of landlords and serfs.
Alexander chaired a government-dominated parliamentary inquiry into home ownership, which for some reason has yet to publish its report, even though the initial deadline has long passed.
The Grattan Institute’s new contribution to the debate is the finding that negative gearing not only forces would-be owners to rent but also limits their security of tenure. Negative gearers buy and sell houses much more often than investors who aren’t driven by tax.
Once, Turnbull himself labelled negative gearing “tax avoidance”. He co-wrote a paper that said it skewed “national investment away from wealth-creating pursuits, towards housing”. Only Labor, the Grattan Institute, the Murray financial system review and the Reserve Bank would say such things now.
Turnbull took to his blog to rebut the Grattan report. Here John Daley responds.
Ross Gittins says we need an independent umpire to sort the issue out, and luckily we got it in the Grattan report. See his article Umpire calls time on negative gearing and voters should listen.
See also earlier articles:
Macro Business: Dodgy Turnbull drowning in negative gearing lies
Greg Jericho: Don’t underestimate Labor’s property tax plans
And on the shonky BIS Shrapnel report, still being quoted by some politicians and industry representatives:
Ross Gittins: Time to take a stand against misleading modelling
Waiting for the dentist back in early March I read in the Oz (paywalled) “government sources said cabinet had resolved to attack Labor’s tax policies every day until the election”. Negative gearing is certainly going to get a lot of attention in this project.
Tim Dunlop thinks this election will be about class warfare and fairness. He could be right.
Finally, Turnbull erroneously asserted that Labor’s negative gearing policy applied to business ventures. It does apply to share investment, which I think is unfortunate. As citizens we should be encouraged to invest in productive enterprises rather than dead assets.
Yes, I do have an interest, but I think the argument stands.