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Federal election 2016: Malcolm Turnbull out on a limb over negative gearing

Prime Minister Malcolm Turnbull and Treasurer Scott Morrison announce there will be no change to negative gearing. Photo: Michele MossopTop earners benefit most from negative gearing, Grattan Institute findsMichael Pascoe: Negative gearing reduced to schoolboy debating
Nanjing Night Net

You’ve heard the one about the one-year-old who’s buying a house. Addison’s parents, Kim and Julian Mignacca, are negatively gearing to buy one for her. Mr Mignacca is deducting the rental losses from his salary for tax purposes.

Visiting their house on Sunday, Prime Minister Malcolm Turnbull warned that “if Labor’s reckless change, its reckless new housing tax, was ever implemented”, they couldn’t afford it.

Which would probably be just as well. If parents everywhere started buying houses for their children at birth, they would bid prices sky high and force the would-be owner-occupiers who missed out to rent.

That’s more or less what’s been happening since the the Howard government halved the headline rate of capital gains tax and made negative gearing much more attractive at the end of the 1990s. Within two years, prices jumped from less than three times household disposable income to four times disposable income. The new negative gearers faced no problem finding renters; the owner occupiers who missed out were forced to rent from them. It’s as if, to use the words of Coalition backbencher John Alexander, we are turning into a nation of landlords and serfs.

Alexander chaired a government-dominated parliamentary inquiry into home ownership, which for some reason has yet to publish its report, even though the initial deadline has long passed.

The Grattan Institute’s new contribution to the debate is the finding that negative gearing not only forces would-be owners to rent but also limits their security of tenure. Negative gearers buy and sell houses much more often than investors who aren’t driven by tax.

Once, Turnbull himself labelled negative gearing “tax avoidance”. He co-wrote a paper that said it skewed “national investment away from wealth-creating pursuits, towards housing”. Only Labor, the Grattan Institute, the Murray financial system review and the Reserve Bank would say such things now.

Peter Martin is economics editor of The Age

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