Malcolm Turnbull: Negative gearing is off the table and blancmange is on (again)

The Age reports that “The Coalition will make no changes to capital gains tax and negative gearing arrangements, as Prime Minister Malcolm Turnbull signalled an election campaign focused on property values and household wealth.

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 Malcolm Turnbull is short of budget options

After weeks of suggesting the government might make some changes to negative gearing at the higher end of the income scale, Mr Turnbull said it was “common sense” to make no adjustments to existing arrangements.

Mr Turnbull faced opposition to any changes to negative gearing from within his own party room, including from former prime minister Tony Abbott.”

Well, opposition from within the party is something he could have expected but then again, he could have expected support from within the Labor Party because a goodly proportion of parliamentarians own negatively geared properties.

Turnbull has done a remarkable job of ruling out  options for the budget and has effectively left himself and Treasurer Scott Morrison no political or economic wriggle room.

If he goes to a double dissolution, he must be hoping that his budget is going to earn a lot of political brownie points. So it’s going to need to be a political masterpiece, given that he has decided not to address the issue of bracket creep or of the debt and deficit crisis so actively touted by Abbott and Hockey when they were around.

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The days of shock/horror debt and deficit crisis are over

His decision to focus on property values and household wealth is going to be a difficult one to pursue because the only option has a scare campaign about Labor destroying capital value of family homes with its policy of restricting negative gearing to new properties.

Particularly in the light of the report published by the Grattan Institute and published in The Age today which shows that:

Surgeons, anaesthetists, finance managers and lawyers will be the overwhelming beneficiaries of the Turnbull government’s decision not to touch negative gearing in the budget, research shows.

The report also finds that teachers, nurses, hairdressers and sales assistants are among those least likely to negatively gear. The top 10 per cent of earners collect almost half the negative gearing tax deductions and three-quarters of the concessionally taxed capital gains.

What is not mentioned is the huge number of people who don’t,And can’t afford to, negatively gear at all, hairdressers, builders labourers, waiters and waitresses, all the low income earners who subsidise the top 10%.

One of the profound ironies of the situation is that Malcolm Turnbull’s wife, Lucy, is a director of the Grattan Institute. She is also the head of New South Wales Government’s new Greater Sydney Commission tasked with tackling Sydney’s housing affordability crisis.

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Tax: Turnbull to “consider all of the considerations”

That is other than changing negative gearing, abolishing tax breaks for superannuation, increases in the GST, income tax cuts, increasing capital gains tax and probate duties.

The question is: “What else is on the table?’ It’s beginning to look a bit like Old Mother Hubbard’s cupboard.

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The Prime Minister and the Treaurer search for ideas on tax reform

 Mr Turnbull went on to tell Labor’s Chris Bowen directly that the shadow treasurer’s place in Parliament would be at risk under the opposition’s changes. “I will leave the Member for McMahon with this sobering thought,” he said across the dispatch box. “There are nearly twice as many people in his electorate that are negatively geared as votes needed to change hands for him to lose his seat.

What Turnbull didn’t mention was how many people there are in the seat of McMahon who are potential first-time buyers. This group of people will benefit immensely by the removal of negative gearing and will probably vote for Labor.

Turnbull appears to be getting increasingly strident (and desperate) in recent weeks. His comment about the number of people who are negatively geared in Chris Bowen’s seat is a simplification that insults the intelligence of the Australian voter, something he promised he would not do when he was elected as party leader.

Turnbull also maintained that house prices will collapse if negative gearing is limited. This is probably nonsense.  But it begs the question of whether we need to have house prices as high as they are and housing unaffordable for most  first home buyers.

The only time that the value of your house is important to you is when you sell it. However, most people who sell their houses normally do so to buy another one. In this situation, the house you sell and the house you buy will both have increased in price. A more expensive house will have increased more in absolute dollar terms.

The other time when the value of the house is important is when you die and leave it to the kids.  Chances are, that they would use the money to buy a new/another house.

The cheaper that houses are, the more money people will have to spend other things: the children’s education for instance, investment in a business or consumer spending. All of which stimulate the economy. The more money that is tied up in the housing market, the less money there is for economic stimulus (except when people invest in building new houses).