Shadow treasurer Chris Bowen slams negative gearing election scare tactic

It is seemingly the perfect reason for both house owners and renters to be scared — but look closer, and it turns out to be based on a fib.

It’s one of the biggest arguments against voting Labor this election — but according to shadow treasurer Chris Bowen, hysteria over his party’s proposed changes to negative gearing is just a scare tactic.

Mr Bowen told news.com.au those against the ALP’s controversial taxation reforms were looking for an “excuse” instead of examining facts.

Under a Shorten government a range of new measures would be introduced purporting to make the housing sector fairer.

But while each proposal has attracted its share of criticism, the one causing the most outcry appears to be based on a myth.

MYTH BUSTED

If Labor wins the May 18 election, negative gearing — a practice that allows landlords to claim a tax deduction if the rent they charge doesn’t cover the property’s expenses — would be limited to new housing from January 1, 2020.

Critics of the plan claim it could send house prices crashing and even spark a recession, with many arguing the Hawke government briefly abolished negative gearing in the 1980s only to cause house prices to fall — and rents to skyrocket.

But Mr Bowen said that never happened.

“Prices did go up in Sydney and Perth, but they went down in other cities, and (the factors) driving up Sydney and Perth prices were completely different,” he said.

“If (abolishing) negative gearing caused it, it would have caused it equally in every city. No credible economist believes rents did increase — so it doesn’t make sense that it would happen now.”

Treasurer Josh Frydenberg (right) says it’s not the right time to mess with negative gearing — but shadow treasurer Chris Bowen (left) says that’s a ‘poor excuse’. Picture: Rohan Thomson/AAP

But don’t take Mr Bowen’s word for it — RMIT and the ABC’s Fact Check also dispelled that common myth as far back as 2016.

After inflation was removed, an analysis of rent charged across Australia’s capital cities during that period revealed only Sydney and Perth experienced “strong growth in real rental prices”, while rents “fell considerably” in Adelaide and Brisbane and remained relatively stable in Melbourne.

“During the period negative gearing was abolished rents notably increased only in Sydney and Perth. Other factors, including high interest rates and the share market boom, were also contributors to rent increases at the time,” the investigation revealed.

Mr Bowen said the argument that landlords who couldn’t claim negative gearing would jack up rents to cover their losses was incorrect.

“Show me a landlord who doesn’t charge as much rent as they can now? They charge whatever the market can bear, and if they charge too much, tenants go elsewhere,” he said.

“The other point is that there will be less landlords if negative gearing is reformed — but if they put their property on the market and a first homebuyer buys it, then there’s one less landlord but also one less renter, so the market sorts itself out.”

Mr Bowen pointed out the policy would be grandfathered — meaning anyone with negatively geared property at the moment won’t be affected by the change.

He also explained negative gearing wouldn’t be abolished altogether — under the ALP plan it will still apply to new properties in a bid to boost construction, meaning Aussies will still be free to take advantage of the incentive if they are planning on building or buying off the plan.

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“We are hoping this stimulates new construction so people wanting that tax break can invest in something new anywhere in Australia, not only in the city they live in,” Mr Bowen said, adding the policy had been announced with “plenty of time” for Australians to get their affairs in order.

He said while not every Australian with a negatively geared property was rich, the fastest growing demographic of negative gearers had “multiple” properties and were clearly well off.

“If you can afford five or six houses, then you’re doing pretty well,” he said.

Treasurer Josh Frydenberg has argued it’s the “worst possible time” to interfere with negative gearing because it could weaken a tanking housing market.

But Mr Bowen dismissed the claim as a convenient “excuse”.

“He (Frydenberg) was against it when we first announced it when house prices were skyrocketing, and now he’s still saying the timing is wrong. It’s just a very poor excuse,” he said.

CHEAPER RENT

The ALP has announced two other key strategies to make rent cheaper for many tenants.

Under Labor’s National Rental Affordability Scheme, housing construction would be supported with 250,000 new affordable dwellings to be built over 10 years and 20,000 to be constructed in the party’s first term.

Labor hopes to meet that ambitious target by offering 15-year subsidies — worth $8500 per year — to investors who build new houses on the condition they rent the dwellings out at 20 per cent below market rent.

They will be made available to those on low to moderate incomes and those working in “essential” services such as nursing or the police force and will be managed through community housing and non-profit groups.

Labor hopes to stimulate construction if it wins the May 18 election.

According to Labor, a family paying the national weekly rental average of $462 could save $92 a week through affordable housing.

The ALP also plans to kickstart a “build-to-rent” market in Australia it says will increase supply, lower rents and give tenants more security.

The model is already popular in the US, UK and Europe and involves developers holding and leasing properties rather than selling up after a new residential development is built.

Labor will entice investors to participate by halving the managed investment trust tax from 30 per cent to 15.

“When you think about it, a lot of the problems tenants have is when landlords say they have to get out — they haven’t done anything wrong, but the landlord wants it for themselves or their niece or nephew, but companies don’t do that — if you’re a good tenant, they’re going to keep you there paying rent,” Mr Bowen said.

“Overseas this has led to very good quality developments with amenities like swimming pools you don’t always get in rental accommodation.”

A BROKEN SYSTEM

Mr Bowen said Labor’s housing policy was designed to put first homebuyers on a “more level playing field” and to make the system fairer.

“Investors have a big advantage over first homebuyers at the moment — they have to scrape together stamp duty, which everyone has to do, but once that’s factored in they also have to then pay their mortgage, but they don’t get a tax deduction — only investors do,” Mr Bowen said.

“It’s a very significant disadvantage. Investors aren’t doing anything wrong, but they aggressively outbid first homebuyers, and we think that’s unfair.”

One of the biggest arguments against a Shorten government is based on a lie, shadow treasurer Chris Bowen says. Picture: AAP Image/Lukas Coch

Mr Bowen said the tax systems of other countries such as the US favoured first homebuyers over investors, but Australia did the opposite.

And he said most Australians understood just how tough the situation was for first homebuyers today.

“Sure, house prices have come down in Sydney and Melbourne, but they are still 50 per cent higher than they were five years ago,” he said.

“They are still historically really high, and I think people understand that. Our policies aren’t designed to smash house prices — they’re designed to level the playing field.”

He said other first homebuyer-friendly policies such as grants often ended up “putting upward pressure on prices”, which was why the ALP was focused on reforming taxation instead — such as by halving the capital gains tax discount for investments entered into after January 1 — which he claimed would lead to “long term” improvement.

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