Negative gearing is becoming increasingly isolated.
Negative gearing has always been a pretty divisive topic, but more and more its key advocators and supporters are abandoning ship.
The latest is Joe Hockey.
Last week we saw Hockey enjoying his new-found freedom as a back-bencher to have a bit of a spray.
There were the normal attempts to re-write history and bolster his own legacy.
Mr Speaker, the Abbott government was good at policy but struggled with politics. When faced with a choice, I would always prefer to do what was right than what was popular…
… Nothing illustrated this better than the 2014 budget, where the government had more courage than the parliament.
But Hockey also took the opportunity to speak his mind on taxation reform:
Mr Speaker, our taxation system needs reform for the 21st century economy…
I endeavoured, and failed, to keep all options on the table.
We must increase and over time broaden the GST…
We should be wiser and more consistent on tax concessions… in particular tax concessions on superannuation should be carefully pared back.
… negative gearing should be skewed towards new housing so that there is an incentive to add to the housing stock rather than an incentive to speculate on existing property and we should never ever forget small business.
This is pretty radical stuff. Remember that when Hockey was Treasurer these things were totally off the table. There would be no increase in the GST, no changes to super concessions, and no changes to negative gearing.
I’ve have heard some people say that this is Hockey lobbing a political grenade on the new leadership team.
“Here you go you pricks, deal with this.”
But my read on the “I endeavoured to keep everything on the table” meant that he always thought these things were a good idea, but got rolled by Abbott.
(And he wants history to remember it that way!)
Negative gearing now has very few friends in its corner. Over the past year or so we’ve seen quite a few surprising sources start calling for a review.
In August it was CBA chief Ian Narev:
“This is one of the things that needs to be looked at broadly as part of the overall tax review…. In the structure of the Australian property market, where you have a high degree of investor borrowing… undoubtedly negative gearing is a factor.”
That was similar to ANZ chief Mike Smith’s comments in June:
“It is somewhat ironic that we live in country which encourages borrowing and discourages saving, that doesn’t, somehow, feel right… But I don’t think you can look at negative gearing in isolation, I think the whole tax system needs to be looked at.”
… or Westpac’s concerns over negative gearing’s side-kick, the CGT discount:
“We note the concern that the current 50% discount after only 1 year is not appropriate as it does not strike the right balance between removing the impacts of inflation, while discouraging speculative ‘asset flipping’ behaviour…
… we recommend considering an adjustment to the current arrangements for capital gains to align the tax treatment with other savings options.
This would support the goal that investment decisions are not taken on the basis of after tax outcomes and would improve overall equity between investors at differential marginal tax rates. It may also moderate the concentration of debt-funded risk-taking in property investment…
We agree with the observations in the Tax Discussion Paper that negative gearing, in itself, does not cause a tax distortion. However, it is important to note that negative gearing does have an impact as leverage allows more people to enter the (housing) market…”
The Business Council of Australia also chimed in in August, through BCA chair Jennifer Westacott:
“What we’ve said is these concessions need some examination. Are they working? Are they achieving their desired objectives?
And clearly some of these concessions, I think there’s a general perception that they’re not doing what people thought they ought to be doing.”
And of course you can add to this the usual chorus of Greenies and welfare groups, who’ve been opposing negative gearing for a while.
But it’s interesting I think that the political landscape seems to have shifted. The business community and the banks aren’t going to die in a ditch to defend it. Even the former Liberal Treasurer says it needs to be reviewed.
Only the peak property industry bodies are still batting for it, but even then I think they’d roll over pretty quickly if it was retargeted on new construction.
I don’t have a view on what should happen, and I think it’d be a very brave government to mess with it at this stage in the cycle, but it seems the winds of change are gathering momentum.
I think some of the principals behind negative gearing are sound, but I think we’ll probably see a bust up of the negative gearing CGT discount duo, and probably see extra measures aimed at encouraging new construction.
But it won’t be this term of government. My bet is that its still too hot too touch.
Leave it to parting Treasurers who no longer have any skin in the game.
Will negative gearing evolve? Should it?