The government has got its eye in, and been blooded through the odd embarrassment. It needs to ask itself whether it wants to be a two-term government? Of course it does. But what about becoming a four-term government?
Australians like to give their new governments a go. So if you’re a first-term government all you have to do is avoid really big mistakes, and keep the photo ops coming. But the second term gets harder. And the one after that? Well you’re fighting that nagging “it’s time” feeling in the electorate.
The government needs to invest its political capital now doing things that might not please the electorate, but leave it with something to show for having stuck with you.
To embrace a four-term strategy, the government needs to come up with some measures that show it means business. It needs to find measures that don’t cause a riot but that generate growing dividends in the out-years. And not that they matter in the short term, but the cognoscenti will be even more impressed if the reform takes advantage of the specific short-term circumstances we find ourselves to build for the long term.
There are plenty of such policies around. Here’s one.
With the RBA’s anxious about a housing bubble, now’s just the time to do something about negative gearing. It’s much more targeted than raising rates and it will raise bucket-loads of revenue. Here’s how to minimise the political flak.
- Don’t abolish negative gearing. Just introduce a cap on it so that it’s targeted at bona fide investment. So you could say that negative gearing will continue but only up to a cap of — say — 20% of the interest payments on any asset (or 30% or 40% if you’re a chicken).With lots of rents at 5% of value and interest rates of 6 or 7 that would be ample for most bona fide investors. But it would pick up the rorts where huge amounts are written off with interest carry forward and various other tricks.
- “Grandfather” all mortgages for — say — five years so that no one’s expectations are upset and in five years rents should have risen to take any reasonable negative gearing into the black.The beauty of doing it right now is that you can’t do it when house prices could start falling as you’ll get the blame. There’s one further snag. Rents are rising and will keep doing so. This was the reason the ALP government reversed its original decision to abolish negative gearing in the mid-1980s.
- So you also allow unlimited negative gearing for the first five years investment in any new building — channeling investors’ money where we want it — into building new homes.
Voila, you’ve added another string to the bow of your housing affordability strategy.
Dr Harvey M Tarvydas
Nicholas Gruen good one.
Breeding sophistication into process.
I think you have a point regarding channelling investment into new homes, but negative gearing isn’t really the answer here. As has been discussed many times, it’s currently the banks that simply won’t lend to developers, deeming it too risky.
One factor that really stuffs this up is that GST needs to be paid on any new home when it is sold. That puts a MASSIVE disincentive against buying a block and developing it for investment, versus buying an established home next door. Taking the GST off this might help, but it won’t solve the problem.
Any messing with negative gearing would be political suicide, and it won’t happen.
Depreciation of the house is one of the biggest components of negative gearing. Currently you can depreciate a house or apartment over a 40 year period. If you made a small adjustment to the depreciation laws (saying that you can depreciate housing over 30 years instead of the 40) you keep the same amount of negative gearing available for investors (as you have higher amounts depreciated over that shorter 30 year period) but you remove the investment activity on the older stock of housing. Houses/apartments over 30 years old become less attractive to investors, leaving them for owner/occupiers. Easy!
Second string? Get real about capital gains. Do it carefully, but recognise that income is income, regardless of source.
Third string? How long has it been since any polly has mentioned tax havens? Surely the time is ripe for coordinated international action against tax havens. Perhaps Crikey! could publish an article which brings us up to date re the current situation.
On a smaller scale, how much additional traffic is there on our roads, subsidised by governments, and entirely due to private choices of the (mainly) wealthy to have their little darlings educated in private schools across town or even 80km away?
There’s much to be done on the personal front – bill of rights stuff. Silence again from our pollies.
Or wide ranging climate and environmental and planning and energy policy.
I could go on, but these examples are intended to illustrate that our politicians are focussed on yesterday’s wars and tomorrow’s headlines and are truly scared about taking a position on real issues.
” ..recognise that income is income…’ and..” to have their little darlings educated in private schools..”
Ah the politics of envy! Of course, these are the same people who’ll happily dismember the “little darlings” in their mothers wombs.
And doesn’t the Left want to get their hands on all that income, which, by their absurd estimation, is almost always, by definition,’ ill gotten’.
Good luck with this absurd policy, while public housing and affordable rentals are in such short supply. How to ensure the Labor government loses about a dozen seats in NSW alone!
Just pursue this policy formula.