Daley hits back at PM criticisms over negative gearing

by John Maguire28 Apr 2016
The public back and forth between Prime Minister Malcolm Turnbull and CEO of the Grattan Institute John Daley has continued, with Daley writing of Turnbull in the Australian Financial Review that “none of his criticisms stick”.

Earlier this week the Grattan Institute published a report that recommended restricting negative gearing deductions to non-wage income, and cutting the tax discount for capital gains from 50 per cent to 25 per cent.

The Prime Minister responded with a blog post stating that the Grattan report was “littered with factually incorrect statements” and “left a lot to be desired”. He also told the ABC that rather than being skewed to serve the wealthy, negative gearing was mostly used by mum and dad investors, pointing to the fact 70% of those who negatively gear own just one property.

However, Daley’s retort took aim at Turnbull’s assertion that negative gearing is a “generally accepted principle”, pointing out that the practice is not accepted in most other developed countries.

Daley also argued that tax changes would lead to more home ownership, more investment in assets other than property, less investor leverage and $5 billion more in tax a year, leading to a step in the right economic direction, if not curing all ills. He also insisted that the proposed changes would make for a fairer system and deconstructed Turnbull’s claim that negative gearing would reduce gross rental income by around 10%.

Asked by Australian Broker what he made of the exchange between Turnbull and Daley, CEO of the FBAA Peter White said, “It’s good to think these things through and get different opinions on these matters. There’s nothing wrong with having the debate.

“But I stand resolute with my previous comments that any changes to negative gearing would be a negative outcome to our economy and to investors and to people who rent properties. There are many ways the government can look to save money, all of which can be explored.

“Changes to negative gearing would have a lot more serious effects than just sheer mathematics and saving money along the way. I think [the debate] goes far beyond just trying to rectify the balance sheet.”

 

COMMENTS

  • by SA Broker 28/04/2016 10:04:51 AM

    Well done PM!

  • by Tom 28/04/2016 10:38:49 AM

    It's always good to engage in debate about policy options, but I do wonder why our economists fail to see the benefits on Negative Gearing when the are forever highlighting what they perceive to be the inefficiencies of it.

    It makes me question if they actually understand what it is and why it is so important to the Nation.

    For example, an Investor purchases a property. They pay Stamp Duty locally, so a funding boost for the local State Government, no exceptions if or but's - they pay Full Rate Stamp Duty. (A First Home buyer may be eligible for an exemption, and therefore no State income derived from the transaction.)

    The investor (generally for a recent purchase) has to subsidise the mortgage payment from his/her/their personal income. The rental income is normally insufficient to cover the loan repayment, and that effectively equates to a RENTAL SUBSIDY - the Investor subsidises the cost of the providing accommodation to the tenant. Then the Investor pays for all the maintenance costs related to the property, and they pay Rates AND Land Tax to the State Government. Strangely enough, these taxes paid locally never seem to enter into the equation when the cost of Negative Gearing is mentioned.

    In this case, the Tax Contribution from the Investor is paid at a State level, and not Federal, thereby reducing the Federal funding requested by the State. As such, the Investor is not dodging tax, but actually paying his/her/their fair share - it's just split between the Federal & State Governments.

    The other big comment our leading economists like to confer in this debate is that if an Investor sells, then an Owner Occupier will purchase. Which in some cases is true. But like all economic models, they are fundamentally flawed because they do not consider external influences that have a significant impact on the purchasing proposition.

    The problem with any property purchase is the cost, very few people can afford to pay cash for a home, therefore in order to purchase, a prospective buyer must obtain finance to fund the purchase. And of course this comes from the banks, and in Australia - unlike the US pre-GFC - our banks do not operate as a benevolent society and just give money to anyone, a prospective purchaser needs to satisfy bank policy to be eligible.

    And that's where the economic flaw comes in. Not everyone that is currently renting is going to be in a position to purchase, therefore rental accommodation will always be required. Now if property is deemed inefficient as an asset class by investors, and assuming they sell up (let's assume prices don't collapse because they won't sell up en-masse). Again, let's assume that over a 5 year period, all investors have sold off their properties and invested their funds elsewhere.

    WHO WILL THEN BE REPONSIBLE FOR PROVIDING RENTAL PROPERTIES TO THE TENANTS THAT ARE UNABLE TO QUALIFY FOR BANK FINANCE AND THEREFORE UNABLE TO PURCHASE THEIR OWN HOME?

    Oh, yes, that would now be the responsibility of the Government, either Federal or State. Can you imagine the fighting between the levels of Government that would ensue? Our State Governments can't afford to provide Public Housing now, how would they cover they demand once private investors exited the property market?

    So who would be the biggest losers from a change in Negative Gearing Policy? Yep, that's right, THE POOR !! This change in policy will hit the ones that can least afford it the hardest - so what I don't understand is why are they leftist leaning economists pushing so hard for its removal?

    But hey, what would I know, I'm not an economic genius, but I do know that there is more to the Negative Gearing debate than just numbers. I just wish our economists and our finance editors in the media could see that!

    Let's have an open honest debate that includes all the facts, not just an argument that engages in class warfare!

  • by Pro pack 29/04/2016 11:02:33 AM

    I'll back the economists over interested parties for unbiased analysis.

    Their job is to put reseach and facts over private nest feathering.

    (and remember economists are in the class that would benefit from neg gearing).