The Minister for Revenue and Financial Services has dismissed claims that the government overstated the impacts of Labor’s 2016 housing policies, following the release of confidential documents from Treasury.
This week, the ABC published some 2016 documents outlining confidential advice from the Treasury department to government ministers.
The redacted document, released to ABC under the Freedom of Information Act, outlines advice from Treasury to Treasurer Scott Morrison regarding Labor’s plans to restrict negative gearing for new homes and reduce capital gains concessions from 50 per cent to 25 per cent.
The analysis concludes that while these could reduce house prices in the short term, they would only have a “relatively modest downward impact on property prices” over time.
Details of the document
For residential investment property, the advisers state, the after-tax returns would be reduced for Australian residents, but only marginally.
The document reads: “Returns for Australian resident investors will fall under the policy. However, owner-occupiers who are unaffected by the changes are likely to limit the extent to which there is an impact on prices. In fact, the impact of the policy on investments in other asset classes, such as shares, may see investment in owner-occupied housing increase.
“Grandfathering and the high transactions costs (stamp duty) for transacting in this market may also impact upon the extent to which adjustment takes place. As with other markets, foreign investors may have a moderating influence on price, though perhaps a little less so, given the restrictions on foreign investment in existing residential real estate.”
The advice concludes: “More broadly, previous changes to negative gearing (1985–1987) and the introduction of the CGT discount (1999) had little discernible impact on the market, though the housing market itself has historically been highly cyclical and it is possible that uncertainty arising from the policy change itself could compound upon a cyclical downturn that may be underway at the time.
“Overall, price changes are likely to be small, though the composition of ownership may shift away from domestic investors.”
Further, when looking at owner-occupied housing, the department suggests that while the ALP policies could introduce “some downward pressure on property prices in the short term, particularly if the commencement of the policy coincide with a weaker housing market”, in the long term, increases in taxation on rental policy could have a “relatively modest downward impact on property prices”.
It elaborates: “As the after-tax returns for Australian investors in other assets such as shares and property will fall due to the reduction in the CGT discount, households may increase their investment in owner-occupied housing, which remains exempt from CGT. This would tend to counter any downward pressure on prices arising out of the rental market.”
‘Little more than outright lies’: Bowen
The Labor Party has politicised the release of the documents, arguing that the Prime Minister, the Treasurer and several other ministers “lied” when they claimed the party’s policies would take a “sledgehammer” to the housing market and be a “huge reckless shock to the market”.
Shadow Treasurer Chris Bowen said that the Treasury advice shows that the coalition’s “overblown attack” on Labor’s housing policies were “little more than outright lies”.
He stated this week: “The Prime Minister and Treasurer must come clean today on why they spent the best part of two years trying to stop the release of a Treasury document which directly contradicts their repeated claims that Labor’s reforms to negative gearing and the capital gains tax discount would be a ‘sledgehammer’ to the housing market, would ‘block innovation and entrepreneurship’ and see the economy ‘come to a shuddering halt’.”
However, the Minister for Revenue and Financial Services, Kelly O’Dwyer, told ABC NewsRadio that the documents back the government’s position.
Speaking to Sandy Aloisi on Monday (8 January), Ms O’Dwyer said: “Treasury’s advice confirms what we’ve been saying all along, that to have a permanent tax hike — which is what Labor’s proposing — to increase capital gains tax by 50 per cent and to remove negative gearing would have a disastrous impact when combined with weakness in the housing market and that’s what the documents reveal.”
Noting that the documents were “drawn up at the time that the policy was released and before any changes to macro-prudential rules”, Ms O’Dwyer suggested that APRA’s interest-only changes last year were tantamount to the “slightest scalpel-like changes” but had contributed a drop in Sydney house prices “from around 15 per cent to around 5 per cent in six months”.
“So, what Labor’s proposing is to slash house prices by an even more significant amount,” the minister said.
Minister O’Dwyer hit out at the allegations that the government had been lying, saying that it was “completely false” and that the government’s position was “entirely consistent” with the advice.
Concluding, the minister said: “[T]he government is on the side of not only Australian home owners, but also first home buyers and the over one million Australians who negatively gear property.”