The Labor Party’s negative gearing policy has the potential to become a rerun of its mining tax – creating major upheaval and uncertainty but raising very little additional revenue, an analysis by the Australian Institute for Progress has shown.

AIP Executive Director Graham Young said comments yesterday by shadow Treasury spokesman Chris Bowen indicate Labor is wildly over-estimating the amount of money its negative gearing policy will raise.

“This is appears in some ways to be a re-run of the mining tax debacle where Labor taxed an industry at the top of a boom, only to find the income illusory due to price declines and behavioural changes,” Mr Young said.

“Yesterday Mr Bowen claimed that the policy will allow investors to carry forward losses and offset current interest expense against other investment income.

“But if this is the case, then all the ALP policy would capture would be the timing difference between the deduction being claimed now, or later in the cycle after rent increases made it cash flow positive, or a profit was made when it was sold.

“This will be a lot less than the $7Bn in annual ‘savings’ being claimed.”

Mr Young said this is confirmed by the modelling that is available on the policy.

“While the ALP won’t release its costings we have modelling done by Labor’s in-house think tank, the McKell Institute on which the policy is partly based, and we have modelling done by Associate Professor Ben Phillips at the ANU which models the actual ALP policy.

“Phillips arrives at a tax “saving” of $5.4 to $5.9Bn per annum in the long run, but he specifically rules out “behavioural changes” in his analysis:

The analysis here is considered over the ‘long run’ and does not attempt to model behavioural changes such as investors changing their investment portfolios, carrying losses forward or altering their taxation affairs and behaviour to minimise the impacts of these policies. As such we expect these estimates are upper limits with regard to total impacts for the policies modelled. (p3)

Mr Young said that the ANU figures were already significantly lower than the ALP figures of a “saving” of $7Bn a year, but a failure to take account of behavioural changes, which the Shadow Treasurer now says is a design feature of the policy, makes them still far too generous.

Mr Young said there appeared to be other problems with the modelling which would also change the “savings” figure.

“If the policy leads to a decrease in investment in the housing sector by investors, it is unlikely that this will be taken up by home owners, unless the real price of housing drops. This will impact on capital gains tax receipts in volume and price terms.

“A drop in the price of housing is specifically predicted by the ALP policy document which refers to housing affordability.”

Mr Young said this will also have consequences for state government stamp duty receipts potentially increasing pressure for federal state transfers.

“The deleveraging in the housing sector will also have consequences in that it may lead to less income tax being collected from lenders and depositors.

“All in all this is a poorly thought-out policy which has only been partially modelled, and which will encourage Labor to adopt policies in the future which will be basically unfunded.

“This in turn will lead to higher taxes, or higher borrowing, and unfortunately, we’ve been here before.”