Daily Telegraph 17 January 2019
The Coalition government is due to return Australia to surplus from next financial year.
Despite the improving financial standing of the nation, the Labor Party proposes to hit the economy with $200 billion in new taxes.
Labor will turn Australia into a high tax paradise. There will be brand new taxes on houses, shares, superannuation funds, trusts and there will be higher personal income taxes for millions.
Small businesses, typical “mum and dad” investors and the economy at large will suffer from this swag of unnecessary taxes.
One of the worst new taxes is Labor’s housing tax.
The housing tax has two elements: (1) a ban on negative gearing on existing homes and (2) a reduction on the capital gains discount for assets held for more than one year from 50 to 25 per cent.
This proposal will end the practice of deducting investment costs (such as loan interest) against wage and salary income unless the investment is a new house. This overturns a fundamental principle that expenses are deductable for tax purposes.
There are three significant problems with this new tax.
Firstly, this will do nothing to boost housing affordability – indeed it will likely increase rents.
Labor’s attack focuses on the evils of negative gearing exercised by “property barons” and have promised to improve housing affordability.
Labor says: “this policy will see a boost in new housing and will provide young families with the chance to find a home, and will take pressure off inner city housing markets that are predominantly made up of existing dwellings”
Any link between banning negative gearing and increasing capital gains tax with increasing affordability is totally confused.
How would increasing housing taxes which reduces investment in housing create more homes?
With studies showing the policy will dry up investment into both new and existing houses, it is more likely we will end up with fewer houses which are worth less with higher rents.
Cadence Economics’ study for the Master Builders Association shows the housing tax will reduce supply of housing in Australia:
“Changes to limit negative gearing to new dwellings and reduce the CGT discount to 25% are estimated over the next five years to reduce new dwelling starts by between 10,000 and 42,000.”
Over summer, new analysis from housing market experts Corelogic Data highlights the prospect of misguided tax policy is already impacting the supply of new homes:
“Potentially investor sentiment is being weighed down by the potential for changes to taxation policies related to housing should there be a change of government.”
UBS’ chief economist has warned the changes could badly damage the economy:
“My concern would be that if you were to make a material change to tax policy at the same time as banks are tightening lending standards, it could exacerbate what's already a downturn into something more serious.”
Secondly, Labor’s housing tax is poorly targeted.
Australians with more modest assets will suffer the worst consequences. The policy cancels the ability to deduct investment expenses against wages but not against non-wage income.
70 per cent of people using negative gearing have one property and have a net rental loss of less than $10,000.
Prior government analysis shows people earning less than $100,000 will be able to claim on average 28 per cent of their investment costs (unless they invest in new housing). Whereas people earning more than $109,000 will be able to keep claiming 86% of their investment costs in existing housing.
Big wig investors will be able to use income derived from non-wage income such as investments in other houses or complicated investment schemes.
Property tycoons win out whilst the nurses, teachers and police investors miss out.
The Centre for Independent Studies has said: “the proportional benefit of negative gearing is substantial at low income levels. This could include non-working spouses holding negatively geared property. Abolishing negative gearing will disproportionately hurt the lower income earners.”
Thirdly, it is unclear what the purpose of this policy is; and when it starts.
On purpose, despite the policy being likely to reduce housing supply and therefore affordability, its confused stated aim is to improve housing affordability by reducing investment.
Even one of Labor’s key budgetary advisers Bob Officer says “What is the social cost associated with home ownership or investment in housing? As a generality there is none. In fact, one could argue for a social benefit in that providing housing encourages better citizenship and social cohesion.”
Why would any political party want to reduce investment in housing?
In reality, it is a populist exercise which has the illusion of smashing rich people when it simply reduces opportunities available to all working Australians.
Surely now that Sydney and Melbourne house prices are falling by 9 and 6 per cent respectively, even Labor will not maintain the lie this policy will increase affordability.
On timing, Labor’s official website says: “Labor will limit negative gearing to new housing from a yet-to-be-determined date after the next election.”
Newspaper reports claim the Opposition Leader is “unsure” when the policy would start. Sound good? Only if you don’t want to buy a house, rent a house or invest for the future.
Australia is soon to be back in surplus and cannot afford amateur hour economic management.
Andrew Bragg is a Liberal Senate Candidate for NSW - @ajamesbragg