An attack on Labor’s negative gearing policy has gone awry for the federal government, after the author of a damning report into the economic impacts of limiting the tax break admitted that his research was not based on Labor’s proposals.
The treasurer, Scott Morrison, has seized on the BIS Shrapnel report, which says that limiting negative gearing would be a $19bn hit to Australia’s budget, and cause rents to increase by 10% and new housing developments to fall by 4%.
Morrison says the report proves that Labor’s negative gearing policy, which is to limit the tax break to new houses only, would hurt homeowners and renters alike.
The @BISShrapnel report shows Labor's policy on #negativegearing will be bad for those who own a home, rent a home & invest in a home
— Scott Morrison (@ScottMorrisonMP) March 2, 2016
But the associate director of business research company BIS Shrapnel, Kim Hawtrey, told ABC Radio that the research was conducted before the opposition’s negative gearing proposals were made public.
“The report was written over the last few months before Labor released its policy and it wasn’t directed at any particular policy,” he said.
Hawtrey would not be drawn on who commissioned the report, insisting that it wasn’t a political party or lobby group.
“It’s commissioned for commercial reasons not for political reasons, and there’s no mystery or sinister plot there to uncover,” he said. “We’re an independent company and we are simply doing what economists do and we are impartial and dispassionate in the way that we conduct our economic analysis.”
Morrison said the report proved that the Coalition’s slow and steady approach on negative gearing was the right one.
“The Labor party have just gone out there with a growth destroying, home price destroying and affordability – particularly for renters – destroying set of tax measures,” Morrison said.
“Some 70,000 people [will be] forced into rental stress and it is going to require compensation potentially greater than what the revenue raises.”
The report bases its findings on six separate proposals:
- The abolition of negative gearing for established dwellings and the removal of tax deductibility of losses on established residential property against general income
- New properties will still have negative gearing applied
- The changes would be grandfathered so that they only apply to purchases of property made on or after 1 July 2016
- No restriction on negative gearing deductions against another property owned by the same taxpayer
- Other related taxes like capital gains tax and stamp duty will remain unchanged
- No change to other asset classes so that negative gearing offset will remain for shares and other assets
Labor said the assumptions made in the report were not in line with its proposals.
“This analysis should be treated with all the credibility of an email from Godwin Grech,” the shadow treasurer, Chris Bowen, said. “This analysis doesn’t understand our policy. It gets the basic facts wrong. It’s riddled with errors.”
“Labor’s policy does not allow negative gearing on things that aren’t property, or shares and the like. The report is based on the assumption that it does,” he said.
“They also assume in their document that you can only deduct losses in your investment property, your property portfolio for existing properties, against other properties. That’s not right, just not true. They’ve made these assumptions to reach a conclusion which is false.”
“This document should be treated like the piece of analysis and garbage that it is.”
The chief executive of the Grattan Institute, John Daley, told the Australian Financial Review that the report did not pass the “giggle test”, and that its underlying assumptions were “manifestly ridiculous”.
“The problem is that these for-hire economic consultancies are paid to run a model, they stick a bunch of silly assumptions into the model and everybody is asked to believe whatever comes out,” Daley said.
The Property Council denies that it commissioned the report, but backed its findings.
“You can’t dispute the fact that adding $32 billion in additional property taxes is going to hurt the housing market,” the chief executive, Ken Morrison, said. “Changes to negative gearing represent a risk to the economy during a time when it is going through transition following the end of the mining boom.”
