Labor’s negative gearing plan to hit like a bomb: John Symond

Labor’s negative gearing “handgrenade” could tip Australia into recession, warns mortgage broking pioneer John Symond.

‘It will be a nuclear bomb’ ... John Symond in Manhattan. Picture: Darren Ornitz

Labor’s negative gearing “hand grenade” could tip Australia into recession, mortgage broking pioneer John Symond has warned, amid calls for the opposition to reform its “sledgehammer” grand­fathering policy to prevent wealthier investors accessing the tax break.

Mr Symond, who transformed the Australian lending sector in the 1990s when he founded Aussie Home Loans, has again waded into the high-stakes property investment debate as concerns mount about the health of the $1.6 trillion housing market.

Labor will limit negative gearing to new dwellings if it wins government but Australians who already access the tax break for their existing investment properties will still be able to do so.

“I don’t care whether it was Liberal, Labor or the Greens, if they come out with such a radical move that could tip the economy over, I’ll be outspoken,” Mr Symond told The Australian.

“I appreciate that they say they’ll grandfather existing investors, but the unintended consequences would be astronomical.

“I am concerned that it would do so much damage — unemployment, higher interest rates — it could tip us into recession.”

Auction clearance rates at the weekend were below 45 per cent for the third week in a row amid falling house prices, concerns about the federal election and as banks restrict credit.

Labor says its policy will ease pressure on the federal budget while encouraging the development of new housing and create a more level playing field for first-home buyers.

Mr Symond said grandfathering negative gearing would help first-home buyers get into the market but would “hurt the vast majority of Australians” who ­already own a home because property prices would fall.

“Every home through every street will be impacted. You’ll have tens of thousands of people in negative equity. Bank balance sheets will be whacked and so funding costs will be higher.

“Banks will lend less, banks will earn less, share prices will fall and it will impact superannuation fund returns,” he said. “It will be a nuclear bomb. There will be very little incentive for people to get into property.”

Negative gearing allows Australian property investors to write off losses against their total income, thereby lowering their tax bill. The most recent official figures, for the 2016 financial year, showed landlords lost a collective $12 billion.

Labor also has plans to halve the capital gains discount for owners of houses that are held longer than a year from the current 50 per cent to 25 per cent.

Josh Frydenberg said opposition Treasury spokesman Chris Bowen was refusing to budge on his negative gearing policy “despite the widespread criticism from economists and property ­analysts of Labor’s plan”.

“He can’t have it both ways claiming the policy was right when housing prices were rising and now claiming it's a perfect time to introduce the policy as prices are falling,” the Treasurer said.

“Its time Labor abandoned its negative gearing changes, which for people who own their own home will see it worth less and for those who rent their home end up paying more.”

This morning, Mr Frydenberg stopped short of saying Labor’s negative gearing policy would cause a recession but he said Labor’s policy risked harming employment and the triple A credit rating.

Mr Frydenberg said his position meant he did not like to use the word “recession”.

“As the treasurer I’m very careful about using that particular word,” he told Sky News.

“What I would say that it would cost jobs, it will hurt the economy, it will endanger our triple A credit rating.”

Mr Frydenberg said Labor should dump its negative gearing changes as property prices were no longer rising nationwide. “We’ve already seen property prices come down to what the RBA has said is a more sustainable level,” he told Sky News.

Mr Frydenberg said the Coalition will make no changes to the system if it is re-elected next year. “We’re not changing negative gearing. We’ve made that very clear,” he said.

After calling for negative gearing to be overhauled in 2014 amid surging house prices, Mr Symond has criticised Labor’s proposal over the past three years while ­arguing that the tax should be ­reformed as part of broader tax policy changes.

“Aussie John Symond has adopted more positions on negative gearing than the Kama Sutra,” Mr Bowen said.

“He was against reform, then he was for reform; now he’s against it again. He needs to be held to ­account for his many and different views on negative gearing.

“Labor wants to level the playing field so all Australians can ­aspire and realise the dream of owning their own home.”

Assistant Treasury and Fin­ance Minister Zed Seselja yesterday said house prices had already fallen enough and there was “no doubt” Labor’s policy would “drive property prices down further”.

“It could affect tens of thousands of jobs,” Senator Seselja told Sky News. “They should abandon it. It’s already playing into pessimism about the broader economy.”

About 1.3 million Australians own loss-making investment properties, and about three-­quarters of all landlords lose money on their properties. A decade ago, hardly any property ­investors made rental losses.

Meanwhile, the fastest-growing segment of the investment property market is landlords who own five or more properties. The rate of negatively geared property also increases among Australians with higher incomes.

“Negative gearing has been very popular and generous to everyone,” Mr Symond said. “But there are ways to improve negative gearing to make it more fair. High-earning people, such as myself, using negative gearing should be pruned back.

“The government should put a cap on how much you can claim. You can fix it without blowing the economy up. You can still incentivise people who most need the tax incentive so they don’t rely on the public purse in later years while cutting back on the people who can afford it.”

The call to shift wealthier investors out of negative gearing comes as Tax Institute senior tax counsel Bob Deutsch warned that Labor’s proposals would still allow wealthy owners of several properties to benefit from tax breaks for interest expenses on a portion of their investments.

This is because an entire portfolio of properties or shares is subjected to the policy, which allows investors to mix and match investment losses on different assets depending on how successful the investments are.

House prices nationally have fallen by about 5 per cent from their peak under the Morrison government because of restrictions on investor lending and risk­ier loans and as banks more stringently apply responsible-lending laws after being shamed for loose standards at the banking royal commission.

House prices have fallen more steeply in the Sydney and Melbourne markets, although a 20 per cent fall would leave property prices at 2016 levels.

Sydney house prices have doubled from a median $500,000 in 2010 to $1 million this year.

SQM Research managing director Louis Christopher last week warned that property prices could fall 30 per cent under Labor’s plan.

Additional reporting: Richard Ferguson