A bold Scott Morrison can right Canberra’s wayward course

The Treasurer can still right policy direction but he needs to be bold and adopt the best positions of both parties.

Treasurer Scott Morrison holding a press conference about the Australian National Accounts, at Parliament House in Canberra. (Picture Kym Smith)

Finally it has hit Treasurer Scott Morrison that his political career is in trouble. Surprise, surprise, according to the budget leaks, he is now starting to make the sort of sensible decisions he should have made a year ago on areas like retirement rules, negative gearing and first home buyers/superannuation.

But the vested interests, including parts of Treasury and people in government, may try to undermine him.

If he is to have any chance of starting in on the hard road back, Morrison will need to be bold and ignore past policies and concentrate on the voters and the long-term interests of the nation.

Because bad decisions by previous treasurer Joe Hockey were not reversed, Australia is putting a big financial penalty on older people in certain asset brackets not to downsize their home and outrageously incentivising them to spend their money on cruises by giving them a 7.8 per cent return on every dollar of assets disposed.

The Abbott government policy, which came into operation around January 1, 2017, will be a big cost to our long-term pension bill, albeit there is a substantial short-term revenue gain. That’s worst type of decision making, and voters know it.

I felt sorry for Christian Porter who, as minister for social services, was given the job of trying to trying to sell the bad policy even though it was the product of a previous Coalition administration.

Along with many others, I tried to explain to the government the stupidity of what they were doing but to no avail (Savage pension swipe will come as a Christmas surprise for many, October 26).

Then, this week, a breakthrough, The Australian’s David Crowe reported that the federal government will move within weeks to break down barriers that discourage older Australians from “downsizing” to smaller homes. There is a lot more to do but at least it’s a start.

The cruise operators will be hoping Morrison does not wake up.

And then we have carefully structured the housing market to boost prices via negative gearing incentives, restrictions on supply and the freezing of superannuation out of housing. Thanks to those government policies, and other factors like bank credit and overseas buying, most young people in the main population centres can’t own the houses they live in.

That is going to cause the most horrendous retirement bill in the future.

Clearly ending restrictions on supply that state governments and local councils impose because it gives them power and greater revenue is a first step. As it happens, there are signs that this is happening in New South Wales and Victoria but we also have action in Canberra.

Shadow Treasurer Chris Bowen has part of the answer — stopping negative gearing on existing dwellings. But, on its own, the Bowen plan is very dangerous because it would slash the price of dwellings because investors could not support the secondary housing market.

Accordingly, over time, dwelling prices would have to fall to a level where first or existing homebuyers could purchase. That will make a lot of voters and banks unhappy, so the Coalition makes great political capital out of this and is reluctant to consider restricting negative gearing in any package.

But it is part of the solution. (The Coalition talks about increasing capital gains taxes but that will not change the game materially).

Morrison is now flagging the essential component that must accompany negative gearing restriction — allowing first homebuyers to tap their superannuation income stream to gain a deposit.

Yet, on its own, using superannuation for a home deposit is even worse than simply using negative gearing because it will put up house prices to even more unsustainable levels.

All the superannuation fund groups, including the ALP with its industry fund connection, will a say this is a nonsense policy. And it is, unless combined with negative gearing restrictions.

By allowing young people to access superannuation for a deposit you help them acquire the greatest asset they can have in retirement — a dwelling. You also substantially reduce the cost of keeping them when they retire.

Planning such a superannuation exercise requires expertise that will not exist in Treasury but help is available outside of Canberra. Every time they touch superannuation it’s a mess.

So, we have a Coalition policy and an ALP policy that together makes sense but neither party will agree to their combination because there is too much capital in admonishing the lone policy of your opponent.

Morrison has the chance to make a real difference to the nation.