Page 1722 - Week 05 - Wednesday, 15 May 2019
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The fourth note in Mr Coe’s motion probably goes to the substance of this pre-election notion. It dovetails with the Liberal attack ads which are on corflutes and mobile billboards throughout Canberra right now. As well as, to the best of my knowledge, falsely implying that the federal Labor Party will introduce death tax, they link a local issue, changes to our rates system in the ACT, with a federal one, the ALP’s proposed changes to negative gearing. This is a false equivalent.
In relation to negative gearing, I note that removing it and abolishing the 50 per cent capital gains tax discount has been a longstanding Australian Greens policy. As with a slew of other sensible things, Labor has belatedly come to the party regarding negative gearing. On behalf of the Greens, I would like to welcome them.
Negative gearing costs the Australian budget more than $4 billion a year in forgone revenue. It is difficult to say exactly how much, because it is not counted by treasury as a tax expenditure. But if you combined the cost of negative gearing and the capital gains tax discount it would have to be at least double that figure. Negative gearing is problematic enough on its own, but housing experts believe that it is the interaction between negative gearing and the 50 per cent discount on capital gains tax that has been responsible for the dramatic increase in speculative investment in property and the subsequent increases in house prices since the beginning of the millennium.
In 1999, when Treasurer Costello introduced the 50 per cent discount on capital gains tax, the Greens, ACTCOSS, National Shelter and others pointed out the distorting and inflationary impacts these changes would have on the property market, as have many people since, including distinguished economists such as Saul Eslake. Sadly, history has borne out these predictions and we can see them now in Canberra.
It is also worth noting that the urban myth about increases to rents during the period when the ALP abolished negative gearing in the late 1980s is just that: a myth. Unfortunately, it has become an article of faith for those who have proposed reforming this expensive folly. The data from this period shows that the cost of rent grew at a double-digit rate in Sydney and Perth off the back of unusually low vacancy rates in both cities. These changes distorted the national figure.
It is very hard to predict how the federal ALP’s proposed changes to negative gearing will affect the property market, because the property market, the housing market, is subject to a wide range of other factors, including interest rates and population changes. The general view we have seen from independent experts is that the ALP changes are likely to moderate the level of house price growth.
While we are talking about negative gearing, I note for the record my disappointment in the Real Estate Institute of Australia’s current campaign on negative gearing. As part of the scare campaign, tenants are being sent REI brochures in the post by their managing agent. These brochures warn tenants that their rates will rise if a federal Labor government is elected. The direct marketing of partisan political material of dubious factual merit to tenants is nothing more than irresponsible fearmongering.
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