It's clear Labor's negative gearing and capital gains tax increase proposals are rushed, reckless and risk doing massive damage to our economy at a critical time in our transition from the mining boom.
It is also clear that Labor have failed to answer basic questions about their changes, let alone the inherent flaws which are exposed on a daily basis.
Labor's rush to announcement meant they either did not turn a thought to the damaging effects their proposals will have on mum and dad investors, house prices and rents, or they just didn't care.
Labor did not commission, let alone release, any modelling showing the impact their proposals will have on either house prices or rents, or they ignored it completely.
Tax experts, business, as well as the property industry have added to growing alarm about the impact of Labor's rushed and ill-considered changes.
Bill Shorten and Chris Bowen can't dodge scrutiny. They need to answer crucial questions on their proposals.
That's why the Turnbull Government has today published a list of 28 questions that go to the heart of the damage Labor's changes will inflict on our economy.
Labor can't spin away from accountability for their damaging proposals or attempt to shout it down, as they did when the only actual modelling on a proposal that, like Labor's, abolishes negative gearing for established dwellings, retains negative gearing for new dwellings; and fully grandfathers existing investments; found it would increase rents, push 70,000 extra households into rental stress and shrink GDP by $19 billion per year on average.
Labor should come clean with the Australian people and answer for the ramifications of their proposals.
Bill Shorten and Chris Bowen's rushed and reckless proposals are yet another reminder of why they cannot be trusted to manage our successfully transitioning economy.
Questions for Labor – negative gearing and capital gains tax
- What is a "new" property? How would you classify a knock-down rebuild? Substantial renovations? Would a property no longer be new once purchased, or once lived in?
- How will the ATO determine that a negative gearer is only claiming a tax deduction in respect of a new home, or a grandfathered investment?
- Has Labor spoken with State and Territory Premiers and Chief Ministers about increasing land supply and changing planning rules? Will Labor continue with their policy if the Premiers do not cooperate? What impact would their policy have on house prices and rents if Premiers do not cooperate?
- What is Labor's reply to former Reserve Bank Board member Warwick McKibbin, who has said in relation to changes to negative gearing and capital gains tax that: "Doing something big now, it's not the right time to do it"1? Why does Chris Bowen list McKibbin as a supporter for the Yes case on their reforms?2
- The Urban Development Institute of Australia recently found that it remains difficult to respond to changes in property demand quickly because of "delays and uncertainty in the rezoning, planning and approvals processes".3 On what basis does Labor believe that these issues will be resolved by the time its policy commences, as Tony Burke has previously suggested?4
- Did Labor do any modelling of the economy-wide and property market impacts of its policies before announcing them? Why did Labor announce a policy that would affect hundreds of thousands of investors and millions of Australian home-owners without conducting any modelling beforehand?
- Why is Labor refusing to release its PBO costing of this policy, or the assumptions behind it? Does this analysis quantify the likely impact of the policy on the property market?
- How can Labor claim that two McKell Institute reports and an ANU study that do not quantify the impact of a Labor-like policy5 on house prices or rents are sufficient modelling for its policy?
- Does Labor acknowledge that more than half of the executive and 70% of the research fellows at the McKell Institute are former Labor MPs, staff or officials? How can their research be considered an independent source of modelling?
- ANU research often cited by Labor draws no conclusions about the impact of a Labor-like policy on rents, saying that the restrictions on negative gearing in the 1980s were made in a very different market context and little can be inferred from that experience. Will Labor continue to claim that this research supports their conclusion that rents will not increase as a result of their policy?
- The same ANU research finds that a Labor-like policy would affect 1 to 1.1 million people but only 100,000 to 200,000 would opt to purchase a newly constructed dwelling and therefore retain negative gearing. How many investors does Labor predict will no longer invest in the property market in Australia as a result of their policy?
- Saul Eslake is a well-known critic of negative gearing, however he does not appear to have published any modelling of the economic impacts of changes to it, and certainly not in respect of Labor's actual policy. Does Labor acknowledge that Saul Eslake has not published any modelling on Labor's negative gearing and capital gains tax policy?
- Does Labor acknowledge that the NATSEM modelling cited in their policy document is actually part of an Australia Institute paper commissioned by activist group Getup?
- Isn't it contradictory for Labor to claim that no investor will be worse off and also that negative gearing is an unsustainable call on the budget? Do they want the existing number of negative gearers in the property market or not?
- Labor frontbenchers have repeatedly claimed that negative gearing is a tax loophole. Why then do they not shut it down completely? Are they worried that property supply will dry up?
- Bill Shorten has claimed that the Grattan Institute had done modelling on their policy.6 While Labor says their policy will only slow down house prices growth, is Shorten aware that John Daley claims that Labor's policy would actually decrease house prices by around 2%?
- Is Labor aware that economist Dr Peter Abelson of Applied Economics has estimated that house prices will fall by 4% as a result of Labor's policy?7 Are they aware that this would represent a more than $30,000 loss on a house worth $800,000?
- ABC Fact Check has confirmed that the largest group using negative gearing are those with taxable incomes under $80,000,8 John Daley has previously found that middle income Australians claim the most under negative gearing,9 and the Re:think discussion paper found that the majority of tax filers with negatively geared properties fall into the middle income bands10. Why does Labor want to impose a new tax on middle Australia, the predominant users of negative gearing?
- Won't this discourage investment in small business by preventing investors from managing losses through negative gearing (of net dividend income) in years when business profits are low?
- Will this increase insurance premiums for landlords, including commercial landlords, since the risks they face if they make a loss are more significant when they cannot negatively gear?
- Will Labor introduce complexity into the tax system through a new active and passive assets test for investors who want to use negative gearing in relation to their business?
- Is Labor considering preventing self-managed superannuation funds from borrowing to buy investment properties, in addition to the restrictions announced in its negative gearing policy? (Is this consistent with their superannuation policy statement that says: "If elected these are the final and only changes Labor will make to the tax treatment of superannuation"11?)
- Labor's capital gains tax increase would give us the second highest CGT rate in the OECD. Won't Labor's change encourage Australians to invest in property or other assets overseas?
- Since superannuation funds are excluded from the change to the CGT discount (and will retain the 33% discount they currently hold), will the new policy allow people to use SMSFs to avoid the new rules? Has Labor factored this into its costing?
- Labor's policy cites Martin Feldstein approvingly, but he wants CGT abolished completely.12 Does Labor also support this idea?
- Shorten has previously said: "higher taxation reduces incentives to work, save and invest, which I believe are essential building blocks for ensuring Australia's long-term economic growth."13 In light of his new negative gearing and CGT taxes, does he still believe this?
- Under Labor, a property mogul could use rental losses from their tenth property to offset rental income from the other nine. But mum and dad investors with only one investment property will no longer be able to use net rental losses to offset against their wage income. Why has Labor deliberately set out to hurt middle income investors while allowing property moguls to continue to use tax rules to carry on investing?
- Under Labor, someone with a $1 million share portfolio could use net rental losses from their property investment to reduce the tax payable on their dividend income. But mum and dad investors will no longer be able to deduct net rental losses from their wage income. Why has Labor deliberately set out to hurt middle income investors while allowing wealthy investors to continue to use tax rules to carry on investing?
4 "Well, one of the reasons the start date is as far off as 1 July 2017 … is to make sure that there's a decent lead time to be able to work with the states on different land release, on in-fill, on the different proposals that state governments would have to make sure when the extra investment becomes available and targeted at new supply, the states are in a position to be able to work with that." http://www.tonyburke.com.au/tony_burke_transcript_abc_lateline_monday_15_february_2016
5 Labor-like because all of the studies repeatedly cited by Labor (two McKell Institute papers and an ANU distributional modelling) claim to be independent, non-commissioned studies. Labor has not claimed to have provided its actual policy to any researchers prior to announcement.