Labor is peddling conflicting messages on negative gearing and needs to come clean on what it really believes.
According to comments reported in The Australian Bill Shorten affirmed Labor would maintain its negative gearing policy, at the same time he accepted Chris Bowen’s assertion earlier this year that the government had lied by claiming the policy would have a big effect on prices while holding a Treasury report suggesting Labor’s policy would have only a “small” impact on prices.
Labor’s problem is this. If abolishing negative gearing is to improve housing affordability it has to decrease prices. But if it decreases prices it decreases the savings of all home owners, which would be electorally unpopular and have a negative economic effect.
So it doesn’t want to tell older Australians its policy will reduce house prices but it does want to simultaneously signal to younger Australians that it will.
If the government lied, then so did Labor. The government’s “lie” was to accept Labor’s position as factual and to disagree with the Treasury advice.
But Labor can’t logically accept the Treasury analysis because Labor’s analysis must disagree with Treasury’s (unless its real purpose is as a tax grab, not an affordability measure). So Labor is accusing the government of lying in a situation where it agrees with Labor. This only works if you believe the government secretly agrees with Treasury, and there is no evidence of that – to the contrary.
So, if Treasury is right, and both parties believe it is right, then both parties are lying.
And if Treasury is wrong, and both parties believe it to be wrong, then neither could be accused of lying on the policy, but in this case Labor would be lying about the government’s motivation, because they would believe the government’s position to be correct.
Either way, Labor loses.
Our view is that Labor’s negative gearing changes will dampen investment in housing and lead landlords to demand higher rents to compensate for the increased taxation.
In the short term there will be some price weakness, but in the medium term it will actually decrease housing supply, forcing prices back up again. Increasing supply is the key to affordability.
Our research shows that owner occupiers, rather than investors, receive the most concessional tax treatment, because they don’t pay capital gains tax, and investors do.
Capital gains taxes in Australia would become amongst the highest in the world under the Labor plan, which doubles them.