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Labor’s negative gearing proposal could extend to shares and other investments.

Labor's negative gearing plan will hit stocks too!

Peter Switzer
16 February 2016

By Peter Switzer

Last week I ignored the tax debate because I told you that Wall Street’s sell off and its impact on our stock market were more important. Well, today, as US stock market’s spike (yahoo!) despite a slight fall in the oil price, I now want to concentrate on Labor’s negative gearing proposal, which some will say is courageous, while others will tag it CRAZY!

Now because the future of the stock market last week was linked to the possibility that Deutsche Bank’s plight was telling us that a banking crisis was possible, which could create the recession outcome that I currently rule out, I couldn’t get too excited about a tax policy from a political team that has as much chance of taking the election as Clive Palmer winning the Mr Universe contest!

However, the latest polls show that the PM is losing his appeal, which I blame on GST-talk, so if Bill Shorten is doing a Lazarus, I better look at his policy option that could really bury him forever!

Because I only took a side glance at Labor’s negative gearing proposal, I relied on the media hype and related interviews, which told me old homes will not be up for negative gearing for investors but new homes would be.

My reaction was: “Gee, if Labor looks a chance to win, investors will rush to link negative gearing to old homes before this law comes in 2017 and after that, new homes will become more expensive, as investors are forced to avoid old homes.”

That made me think that my older homes I hold will become less valuable, as investors won’t be showing up to auctions in the future, if and when I sell my homes. Hmm, that could be an outcome that supporters of the policy haven’t thought through.

Anyone hoping to sell their older home as a trading down option to lift their retirement nest egg could be in for a disappointment as these homes lose some value!

I also thought if I was a developer, I’d go for apartments near the CBD, near transport hubs and in places like Bondi, where tenants want to live. This combination will attract investors like bees to honey and because investors are chasing new homes, young people will find these sorts of properties more expensive, so they will be tenants for wealthier investors with relative tax advantages.

The one plus I could easily see is that it would encourage new building projects, which would be great for job creation and investment in the home building sector. (I won’t be a cynic and suggest that Labor’s union buddies in this sector would do anything to frustrate the economic benefits of their policy.)

But wait there’s more and I think it’s huge and has been largely ignored.

Last night on my TV show, the Melbourne radio broadcaster Tom Elliott, who also doubles as an investment expert with Beulah Capital, told me that the Shadow Assistant Treasurer, Dr. Andrew Leigh, told him on his radio show that Labor’s negative gearing proposal will also extend to shares and other assets that can be used for investment!

At this stage, because the info is only 12 hours old for me, I don’t know if the old-new rule will apply, which means you could buy new shares in an IPO but not existing shares. Could I buy new art and negative gear it but not existing art? As you can see, a tax change like this could have huge impacts on many markets, so today we should start to see some better questions asked on Labor’s Treasurer-in-waiting, Chris Bowen.

The ensuing tax talk should not only give ammunition to Malcolm Turnbull and Scott Morrison, it will teach them a lesson about being damn careful with ‘good ideas’ on tax.

I’ve got an idea. What about a GST extended to nearly all goods services, just like the Kiwis? And let’s throw in tax cuts for individuals along with companies. I know normal people are snaky about people calling for company tax cuts because companies reduce their tax bill but our rate is 30% for big and 28.5% for small companies, while the UK rate is 20%. The rate in Singapore is 17%. We compete against these countries for investment that creates GDP and jobs. By the way, the GST in Singapore is 7% but it’s on nearly everything, except some financial services. In case you’re interested, the VAT in the UK is 20%, with a few exemptions. 

Last night I interviewed Tom Seymour, the head of tax for PwC and his take on tax is worth thinking about. It actually makes you think that a broader GST at the current rate with income tax cuts could actually be better than some of the crazy tax changes that both Labor and the Government might come up with.

I know I might lose some fans with this thinking but I hope someone is prepared to defend to the death my right to think this! Death and taxes are closely related after all.

 

 

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