The treasurer, Scott Morrison, has dismissed an internal document from the Reserve Bank that reveals bank officials’ concerns about the impact of negative gearing on Australia’s financial stability.
The RBA document, released under freedom of information laws, contains a declarative statement from Bank officials:
“Any change which discourages negative gearing may be a good thing from an FS perspective,” with FS standing for financial stability.
It also warns: “The concessional rate of taxation of capital gains might encourage leverage speculation, particularly in combination with negative gearing provisions.”
The four-page document, which was posted on the RBA’s website on 4 May, specifically addresses issues in the 2014 Financial System Inquiry, which released its final report in December 2014.
But it also lists concerns about problems arising from the interaction between negative gearing and the 50% capital gains tax discount. It is unclear when those concerns were written.
After news of the FoI release broke on Monday, the finance minister, Mathias Cormann, and the assistant treasurer, Kelly O’Dwyer, were quick to dismiss it as an “internal memo” that was two years old.
Morrison repeated that line on Tuesday, saying the document did not represent the Reserve Bank’s official position, and the warnings in the document are out of date.
“This was a note, it’s not official RBA advice,” he said on Tuesday.
He said the note shows what Reserve Bank officials were thinking in 2014 about the state of the housing market then.
That was before the Australian Prudential Regulation Authority (Apra) introduced measures to tighten bank lending standards to take some heat out of the housing market, he said.
“What the RBA said in 2014 was addressed by Apra and it worked, so I think frankly, it’s out of date,” he said.
“The report was written almost two years ago in a very specific environment. What we’re dealing with now I think, Phil Lowe, the deputy governor who I announced would be becoming governor later this year in September, in one of his most recent speeches was talking about the key issue on housing affordability was supply, and he’s right.
“If you want to deal with housing affordability issues we have to continue to deal with the issue of how supply is constrained. That is actually a more effective measure because you can deal with that in specific markets,” he said.
He acknowledged the RBA’s concerns about negative gearing and capital gains tax were relevant in 2014.
Morrison’s comments come after the Economist magazine published an article on Australia’s 2016 election campaign last week in which it labelled Australia’s contemporary negative gearing policy “crazy”.
“The crazy practice of ‘negative gearing’, which allows investors in property to write nearly everything off against tax, has also helped push up prices beyond the reach of Australians in their 20s and 30s (many of whom, even if they are able to buy a property, still have to live with their parents to afford it),” the magazine said.
“Yet Mr Turnbull calls the idea of repealing negative gearing ‘reckless’, knowing that it would anger property-owners – and possibly alarm banks, heavily exposed to mortgages,” it said.
The shadow treasurer, Chris Bowen, said on Tuesday that the RBA document could be added to the evidence that economists are concerned about Australia’s housing policy settings.
“Wherever you look, the evidence continually mounts up that Malcolm Turnbull’s shrill scare campaign is based on myths and lies,” Bowen said.
“You’ve got the Reserve Bank in this internal memo making these points, you’ve got the Economist magazine, not a left-leaning magazine, a very well-respected journal, calling Australia’s negative gearing house settings ‘crazy’ and effectively endorsing calls for reform. You’ve got the evidence from [the Committee for Economic Development of Australia], from the Grattan Institute. Everywhere you look, Malcolm Turnbull’s scare campaign falls apart.”
Turnbull has warned that Labor’s proposal to change negative gearing would deliver “a reckless trifecta of lower home values, higher rents and less investment”.
