Thursday, 10 March 2016

Australian Federal Election 2016: we'll all be rooned!

Ever since Labor released the outline of its negative gearing and capital gains tax reform policy, both the Prime Minister and the Treasurer have been thundering on about the catastrophic consequences which would result.

Apparently if implemented this policy will be like one of the seven plagues of Egypt sent to decimate the wealth of the chosen ones.

Malcolm Turnbull telling voters that “every homeowner in Australia has a lot to fear from Bill Shorten” and that removing negative gearing will “smash the residential housing market”While Scott Morrison informed us that "It's bad news if you own a home, it's bad news if you're an investor in a home, and bad news if you're renting a home…That's three strikes and you're out."

Then the authors of the report Turnbull and Morrison relied on, BIS Shrapnel, came clean……

Financial Review, 3 March 2016:

The government's assault on Labor's negative gearing tax has suffered an embarrassing setback with the authors of a damning report saying it was written late last year and had nothing to do with Labor's policy released just a month ago.
Just hours after Treasurer Scott Morrison used the findings to slam Labor's policy for driving up rents and dragging the economy backwards, BIS Shrapnel associate director Kim Hawtrey made an urgent clarification.
"The assumptions were set several months ago, and the analysis done late last year, well before Labor announced its policy. Therefore the assumptions do not align with Labor's policy," he told The Australian Financial Review.
"The report makes no recommendations and does not purport to be an assessment of any particular policy."…..

This was followed a few days later by further embarrassment for Turnbull & Co…...

Peter Martin: Economics Editor, The Age, 7 March 2016:

Negative gearing encourages excessive use of debt, lifts overseas borrowings and raises real interest rates, according to the economist whose work on the subject has been lauded by the Treasurer Scott Morrison.
Kim Hawtrey, now with consultancy firm BIS Shrapnel, wrote the words more than 20 years ago when he was an academic at Macquarie University in an article in the journal Australian Tax Forum.
"Deductibility of interest payments on debt creates a tax advantage for debt over equity," he wrote. "Negative gearing ensues by way of combining debt interest deductibility with concessional tax treatment of capital gains, encouraging over-investment in property and related asset inflation sectors."
More than two decades on, Dr Hawtrey says he won't divulge his personal position on negative gearing, saying the work his firm released last week was "technical" and "dispassionate".
"I have not commented on my views and I am not going to comment on my personal views, from a policy point of view, or as a voter or whatever," he told Fairfax Media.
"We were simply given a task and we carried out that task, and no attribution or nothing should be read into that as to any policy preference."….

Then matters became a little worse for Liberal and Nationals MPs who were hoping to use the BIS Shrapnel report as strong talking points in their respective electorates – another report surfaced…..

ABC News, 7 March 2016:
A new report on the housing affordability crisis in Sydney and Melbourne calls for the Federal Government to urgently rethink its support of negative gearing.
The report, Sydney and Melbourne's Housing Affordability Crisis – No End in Sight, was written by Dr Bob Birrell and David McCloskey from Monash University's Centre for Population and Urban Research.
Dr Birrell said the report highlighted the seriousness of the problem.
"These governments have abandoned the current generation to a lifetime of rental properties," Dr Birrelll said.
"The situation is much worse than it was a couple of years ago. It is a social catastrophe."
He said governments have created the conditions for major concessions for investors.
"The result has been an enormous increase in investment but it has been primarily in established houses and that has caused these prices to reach levels in Sydney that are among the highest in the western world," Dr Birrell said.
The report revealed the record-high housing prices in Sydney and Melbourne would lead to social problems.
"The PM's stance reveals a monumental insensitivity to the social catastrophe flowing from record-high housing prices for the next generation of home seekers in Sydney and Melbourne," the report stated……

It comes as no surprise that the latest Newspoll reveals that the Coalition and Labor are still neck and neck on a two-party preferred basis, with Turnbull’s net satisfaction rating shrinking to three points. The Australian pointing out on 8 March 2016 that “It was 10 points a fortnight ago and 22 points in January. If it continues to slide on this trajectory, he will sink below zero.”

Nor is it any surprise that the Essential Research opinion poll released that same day also has Labor and the Coalition tied on a two-party preferred basis, with primary votes for Turnbull & Co down 2.6% since the September 2013 federal election and primary votes for Labor up 3.6% in the corresponding period and approval of Malcolm Turnbull's performance as prime minister standing at 45% - down 6% since its February 2016 poll.

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