Why cheaper housing may not happen

IF FIRST home buyers were hopeful that cheaper housing could finally be on the horizon, they may well be disappointed.

In this Tuesday, Jan. 26, 2016, photo, a "For Sale" sign hangs in front of an existing home in Atlanta. On Thursday, Feb. 11, 2016, Freddie Mac reports on the week’s average U.S. mortgage rates. (AP Photo/John Bazemore)

IF FIRST home buyers were hopeful that cheaper housing could finally be on the horizon, they may well be disappointed.

Labor’s decision to put forward a policy on negative gearing and the capital gains tax could ensure neither policy gets off the ground.

Nicholas Economou of Monash University said it would just be “too easy” for the Federal Government to attack Labor over the policies during this year’s federal election.

“Labor will probably lose the election on the basis of what they are proposing,” Dr Economou told news.com.au, adding that the smart political move for Prime Minister Malcolm Turnbull would be drop any reform in these two areas.

“Voters don’t like taxes in any form and if the Australian community were open to accepting the argument over equity they would have done something about negative gearing a long time ago.”

Opposition Leader Bill Shorten announced on Saturday that a Labor government would change negative gearing laws so that they only applied to new homes purchased after July 1, 2017.

Along with cutting the capital gains tax discount to 25 per cent from 50 per cent, this will potentially save the budget $32.1 billion over 10 years.

But Dr Economou said the Labor policies would only make them a target for attacks from the government and other vested interests. This will focus voters’ thoughts on Labor’s policy rather than on the Coalition’s performance in government.

He said Labor did not seem to understand that the easiest way for an opposition to win government was to wait for voters to get sick of those in power.

“People clearly vote governments out,” Dr Economou said, “so the smart tactic is to not say anything about proposed increases or changes to taxes that would give your opponent the opportunity to confuse or frighten voters”.

Tax reform is very difficult to achieve unless the party is prepared to sneak the change in, or pay the political price of losing seats, he said.

Even in 1998 when John Howard fought an election on the GST, he lost a lot of seats and came close to losing the election. Dr Economou said Mr Howard was also helped by Labor proposing a bizarre tax on 4WDs. “This gave the government something to attack Labor over,” he said.

The Property Council has already hinted at a scare campaign, warning that tinkering with negative gearing could hurt the economy.

If the Turnbull Government steered away from changes to negative gearing and capital gains tax as well as weekend penalty rates, Dr Economou said it would likely “steamroll the opposition” during the election campaign.

“They will do it by focusing on people’s fear of taxes and painting Labor’s policy as being about class envy,” he said.

According to the ABC, there are already some in the Coalition who have recognised that attacking Labor’s policy could be a vote winner and government should therefore leave negative gearing alone.

But while Mr Turnbull has attacked the Opposition’s plan as badly designed, he has also said the Coalition is considering changes to negative gearing.

According to the Australian Financial Review, the government plans to target high-end investors by either capping the number of properties that can be geared or limiting the annual tax deductions that can be claimed.

Dr Economou said it was interesting that the government was seriously thinking about some of these changes.

“If Tony Abbott was still prime minister, there would have been a fierce reply today accusing Labor of raising taxes,” he said.