10 March 2016

Labor’s negative gearing spin-cycle

Labor is desperately attempting to deceive Australians that their proposal to hit mum and dad investors and discourage business investment has been 'modelled to death'.

The truth is that in their rush to make an announcement Labor has not commissioned, let alone released, any modelling showing the impact their proposal will have on either house prices or rents.

The Shadow Treasurer should come clean with the Australian people and admit that they announced their negative gearing policy without knowing what would happen to investment, house prices and rents as a result of their changes.

Labor claims their proposal has been 'modelled to death' when in fact none of the reports they have cited, and which Chris Bowen recycled on the ABC's AM program today[1], look at the full impact of Labor's proposal, including on house prices and rents:

  • The June 2015 McKell Institute report, published more than 6 months before Labor's announcement, takes just one page to analyse a Labor-like policy, takes no account of Labor's proposed capital gains tax increase, and has no detailed analysis or estimate of its impact on house prices or rents;
  • The February 2016 ANU Centre for Social Research and Methods report is a distributional analysis and does not model broader economic impacts of a Labor-like policy, including on house prices and rents;
  • The February 2016 McKell Institute report does not quantify the impact a Labor-like policy on rents or house prices, takes no account of Labor's proposed increase to capital gains tax and its author has denied doing the analysis specifically for Labor;
  • The Grattan Institute has predicted that Labor's proposal would decrease house prices – the opposite of what Labor claims.

None of this analysis purports to model economic impacts of Labor's proposal, nor does it evaluate the impact of the fact that Labor's proposal applies to assets like shares, commercial property and potentially even investments in partnerships.

Two of the reports repeatedly cited by Labor were prepared months before Labor released its proposal. Yet Labor dismissed actual modelling by BIS Shrapnel that was also completed before their proposal was released, which examined a policy that:

- Abolished negative gearing for established dwellings;

- Retained negative gearing for new dwellings; and

- Fully grandfathered existing investments.

All of these features are in Labor's proposal and BIS Shrapnel analysis found that these proposals would lead to:

  • Rents increasing by 10% ($2,600) per annum
  • 70,000 extra households pushed into housing rental stress (costing $650 million a year if compensated)
  • 4% less new homes being built
  • GDP shrinking by $19 billion per year on average, or 1% of GDP
  • 175,000 fewer jobs, increasing the unemployment rate by 0.1%
  • Reduction in Government revenue by $1.65 billion per year

Bill Shorten and Chris Bowen's proposal is yet another reminder of why Labor cannot be trusted to manage our successfully transitioning economy. Their rushed proposals will hurt investment and discourage enterprise.


[1] CHRIS BOWEN: There's ANU modelling, there's Grattan Institute modelling, there's McKell Institute analysis… (ABC AM, 10 March 2016)