4 April 2020
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Bill, rethink your negative gearing policy

Peter Switzer
31 October 2018

Good news, good news, read all about it! Gee I don’t know how that’s going to work because it’s bad news that really sells. And by the way, the guy who is big news is Bill Shorten!

Nearly every time I write about Bill, the daily readership of my story triples. I’m wondering if he’s the most loved or hated guy in politics! I guess it’s a bit of both. That said, it’s a very positive sign for his election, as he certainly has cut through. Whether it pays off will be determined by how hard the Coalition (which doesn’t look all that coaligned) works telling voters about Bill’s controversial policies.

And while we’re starting to see experts hose down fears about three of Labor’s policies and actually call analysis of it as scaremongering (which a tweeter accused me of recently), these three policies must hurt some people in the pocket or why would Bill risk doing them?

Let’s face it, the Coalition has virtually handed Bill the keys to the Lodge but when he came up with his negative gearing policy and his end of tax rebates to retirees in the tax-free zone, his party was clobbering the Government in the polls but he was trailing Malcolm Turnbull as preferred PM by a pretty long chalk!

And the Budget Deficit was really large then. Now, however, as Chris Richardson from Deloitte Access Economics told me on my Money Talks TV show on the Your Money channel on Monday, “we’re close to a surplus”.

And CommSec’s Craig James headlined the latest fiscal figuring on Friday with “Federal budget nears surplus.” And he summed it up this way: “ In the twelve months to September 2018, the Budget deficit stood at $3,379 million (less than 0.2 per cent of GDP) and down from the $6,890 million deficit in the year to August. The rolling annual deficit is the lowest in 9½ years. Over the same 12-month period to September the fiscal balance was in surplus by $1.24 billion.”

Fifteen months ago, the Deficit was tipped to be in the $20-something billion area. Then it was high teens. It was roughly $6.8 billion only at the August count and now, in the 12 months to September, it’s $3.4 billion! This budget problem is disappearing with jobs and economic growth (what Malcolm promised and what Scott Morrison must have helped happen as Treasurer), so Bill’s need to play hardball with retirees and property investors is less urgent.

Of course, Labor can argue that this Budget improvement is a cyclical one, helped by a better economy and what they want to do is fix up the Budget structurally.

Only allowing negative gearing on properties already with it, and then new ones going forward, reduces the attractiveness of investing in property. And while some credible economists think the effect will be insignificant, it always rests on the assumptions of their model.

And we know how reliable economists are in making predictions.

Call me an economist but why would you introduce negative gearing changes that are aimed at making property buying for investors less attractive and not expect one or two things? First, it has to slow down house price rises. If you don’t believe this, then you have little experience in selling houses. Anyone who has faced no bids at an auction knows what your agent is going to propose and it’s not going to be: “How about we raise the price to make the property look more attractive?”

Second, for lots of non-special properties, prices will fall and Labor has to admit when you want housing to be more affordable for households and first homebuyers (which isn’t a bad thing), then you have to own the fact that house prices are likely to fall.

This is not scaremongering. It is economic analysis based on the history of markets.

And when you throw in the fact that experts think house prices in Sydney and Melbourne are falling between 10-20%, you have to wonder about the timing of these changes. It might be my memory but we saw a mining tax just when the mining boom was ending.

I’d love Bill or his numbers man, Chris Bowen, to come out and say we could delay the changes, if housing looks vulnerable when we win power.

After all, prices are falling and first homebuyers are increasing their share of home sales, so it looks like APRA’s attack on investors and the Royal Commission’s impact on banks (and how easily they lend) is already doing a lot of what Labor wanted to achieve.

Personally, provided I keep my investment properties, I know the Labor policy won’t affect me but when I come to sell, if investors can’t get tax deductions to buy my increasingly expensive properties, then I know I’ll get a lower price because there’ll be fewer buyers.

I get that and no end of sunny-thinking economists can change that likely outcome. The question is: just how much effect will it have?

As I’ve said from the start, these policies favour homebuyers, not home sellers. And the fear of losing votes from current home owners could be the only reason you’d try to rework reality or because you’re a Labor tribalist.

On Bill’s policy on retirees and tax refunds, I bet he changes that, either because he sees the unfairness of taking $10,000 off someone living on $40,000 in retirement or because the Senate makes him. A cap on the refund sounds fair and more like Labor. When retirees were encouraged to plan for their post-working days, killing it altogether borders on the Bolshy!

Stories like mine are meant to encourage debate, which a lot of tribal conservatives and Laborites can’t stomach. But I’ve always loved the English Romantic poet William Blake’s advice: “Without controversy there is no progress.”

By the way, what was the good news I referred to in the first line?

When you think about the fall in house prices now, you can’t blame rising interest rates because they’ve hardly risen. You can blame the Royal Commision because banks are lending with much tougher criteria because of the Commision. But the really big change has been APRA virtually telling banks to be really tough on investors. So those who think taking investors out of the market won’t have a price fall effect look like they’re ignoring what’s actually going on right now.

Michele Bullock, Assistant Governor ( Financial System) at the Reserve Bank of Australia, spoke yesterday and told us that our banks and their balance sheets are very sound. That is such good news on so many levels. It really must annoy the scaremongers out there who like to tell us how dodgy our banks are because they lend to a group of people who actually pay back their loans, unlike other crazy places in the world.

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