Budget 2017: scalpel to ease the pain on negative gearing

For more than a month, the conventional wisdom has been that the Turnbull government has ruled out changes to negative gearing in the budget as part of its housing affordability policies.

The conventional wisdom has been wrong.

The idea of taking a “scalpel not a chainsaw” to negative gearing rules has been thrust back and forth in budget considerations up to the final moments.

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There are good political and economic reasons to deal with some of the excesses in property investment involving negative gearing in the interest of housing affordability, opportunity and fairness. This is Malcolm Turnbull’s mantra for the 2017 budget, the Coalition’s first “normal” budget since the 2013 election.

Labor’s successful political campaign over negative gearing is the ALP’s last surviving outpost and must be addressed.

After seeking to neutralise so many Labor issues — such as university funding, the so-called “zombie measures”, Medicare and Gonski school funding — it makes sense to attack the ALP on housing affordability. Labor has won the political argument that if you don’t do something about negative gearing you’re not serious about housing affordability.

Labor’s response to any direct or indirect changes to negative gearing is that it will be a complete capitulation and adopting of another Labor policy — but the Coalition would be back in the contest.

What’s more, at no stage have the Prime Minister, Treasurer Scott Morrison or Finance Minister Mathias Cormann ruled out changes to negative gearing — they have simply said they went to the election promising not to adopt Labor’s “destructive” and “chainsaw” approach of abolishing negative gearing.

Turnbull yesterday stressed “fairness” and “opportunity” in this budget. Limiting the excesses of negative gearing to make those with several high-priced properties contribute to the “fairness” of housing affordability while protecting the more 70 per cent of “mums and dads” investors with only one negatively geared property encourages “opportunity”.

As the Treasurer pointed out recently those investors, including nurses, teachers and police, supply a quarter of the residential rental properties in Australia. He also pointed out that putting up rents — under Labor’s proposal — doesn’t help people trying to save for their first house.

“Basically, Labor say they want a chainsaw; we think you should use a scalpel,” Morrison said.

Cormann also refused to rule out changes to negative gearing as the internal budget debate continued.

Whether directly or indirectly, tonight’s budget is going to challenge Labor’s remarkable achievement in convincing the public that something has to be done about negative gearing — once an impossible political task.