On the Liberal party and housing affordability
Martin Gordon writes: Re. “Libs eat their young to protect an intergenerational theft racket” (Wednesday).
I had not had the benefit of reading Harry Stutchbury’s article in Fairfax as I was overseas. But I found Adam Schwab’s defence of Harry’s comments very positive. I have great sympathy with Stutchbury’s argument. I have a seniors and means testing policy background and have proposed that the principal place of residence be included in the assets test. I don’t agree with the abolition of negative gearing as it would undermine the principal of allowing deductions for expenses in earning income (I happen to have had a tax background).
But agree with the likes of Chris Richardson that the discounting of capital gain tax be eliminated (or only subject to indexation). I have also proposed scaling back the value of tax concessions for superannuation which are massively regressive. Currently they amount to about $50B a year, and overwhelmingly accrue to the top end of the income distribution, who would not have qualified for age pensions anyway.
Do I expect any of this to happen anytime soon? Probably not, as the ALP set up the vast bulk of the superannuation tax concession framework (and resisted fiercely the small changes made by the Turnbull Government last year). As well in the past the ALP has supported removing assets and income testing (in the Whitlam period). Do I expect a grand bargain on this area, probably not. When vested interest is involved, some really stupid stuff can be hard to get rid of.
Edward Zakrzewski writes: Re. “Libs eat their young to protect an intergenerational theft racket” (Wednesday).
In this article, Adam Schwab says “Governments distort housing by giving a CGT exemption on a principle residence (which acts as the greatest form of intergenerational theft)”.
Surely, if there were a GST on a principle residence, the seller would not have enough money to purchase an equivalent dwelling and would have to borrow an extra amount equal to the GST paid (great for banks). This would make it very difficult to say move from one part of Sydney to another.
The powers that be should never have allowed house prices to escalate to the extent they have.
Altogether too much opinion and comment and not enough news breaking
Crikey
Both of your correspondents confuse principle and principal : are these bona fide commentators – I’m smelling a rat ??
They each use it incorrectly differently, quite an achievement.
Seems to be some confusion between CGT & GST as well.
Well one gets it wrong one way while t’other gets it wrong the other way so both need to proof read and not rely on spell checkers.
Hasn’t Edward Zakrzewski also confused his acronyms? Surely Schwab was arguing for making the principal residence subject to capital gains tax, which is rather different from making it subject to the goods and services tax.
As to the substance of his point, making the principal residence subject to capital gains tax would greatly reduce the value of residential property as a means of avoiding tax, which would reduce its price. When prices return to a new and lower equilibrium, making the principal residence subject to capital gains tax would require purchasers to have a higher deposit or a higher mortgage, just as is required by stamp duty, agents’ fees, rates, etc.
My apologies. It should have been CGT.
What makes you think a CGT would reduce the price. Taking into account all the factors responsible for price increases, I would argue the opposite, that it would increase the price.
Anyway, as well as stamp duty, agents’ fees and rates, you are now adding a CGT component to the mortgage which of course means higher interest payments which is itself a major factor in price increases.
As I wrote, making the principal residence subject to capital gains tax would reduce its price because it would greatly reduce its value as a means of avoiding tax. Currently taxpayers make improvements in their residence knowing that they will not be taxed on its increased sale price. Without this tax break owners would not be encouraged to make so many improvements which increase the price of their residence.
Higher interest payments means that mortgagers can afford lower prices, which depresses prices, not increases them.
There were a number of astute economic observers during the mid-eighties who predicted, accurately, just what the effect of negative gearing would be. Thirty-odd years later it is apparent that an entire generation has been disenfranchised. A comparable house in an “average” or equivalent location in the USA (or Canada) is about a third of the price of that in Australia. Add to that predicament a tax code that, on a set of weighing scales, exceeds that of multiple countries in Europe and Scandinavia.
Initially Hawke rejected the proposal of negative gearing out of hand; I distinctly recall a speech in the Sheraton during Nov. (or was it Dec.) 1985. Now most or all of the Members of Parliament have a personal interest as to this policy and thus being the case all we can expect is talk (or flannel). Ditto for the tax code. We might begin with (e.g.) 17.5% flat tax with NO deductions for business or other expenses. This measure in itself will compel managers to define costs against risks and revenue. The neo-liberals ought to think highly of such a market-orientated policy (but, in this respect, I doubt very much if they will).
Implementing a policy where the median mortgage repayment divided by median income corresponded to that fraction thirty-odd year ago will sit in the too-hard tray for quite some time. Ditto for (re) implementing death and estate duties (5-15% on a proportionate scale) where other assets needed to be sold to pay for the duty of the asset to be retained. The prognosis for the future : static wages/salaries (a compliant workforce encumbered with (student) debt etc.) for those under $60,000 and decline real asset (e.g. property or house) ownership.
Consider the taxation initiatives that occurred, in general, in Scandinavia after WWII (where the Scandinavian countries were more or less rural; i.e. almost no secondary or tertiary sector). The tax on enterprises that enhanced production or commodities was almost zero. The (capital) taxes on items that produced nothing (e.g. real estate or paintings) were taxed at almost the entire rate of increase.
Lastly : a contributor mentioned “ Altogether too much opinion and comment and not enough news breaking”. Well, nowadays, is there a distinction between the two ? I, for one, have read very few articles this century where there has been the least pretense of objectivity.