For decades, negative gearing and capital gains tax reform was politically toxic. It was backed by the Greens, but neither major party wanted to go near it for fear of a scare campaign from their opponents, even though the case for reform was compelling — as even Joe Hockey admitted in his valedictory speech, as even Scott Morrison acknowledged when he referred to “excesses” of negative gearing. Then Labor went there in an act of policy bravery unseen from an opposition for several parliamentary terms.
Fortune favoured the brave. The resulting Liberal scare campaign was crueled from the start by over-the-top claims from senior ministers, the government’s own abandonment of meaningful tax reform and a decision by Turnbull to avoid negative campaigning in the 2016 election. After the election, we found out Treasury had given Scott Morrison very different advice to what he claimed about Labor’s policies. You wonder what would have happened if Tony Abbott, the master of cut-through negative messaging, had still been Prime Minister.
But ultimately, the problem for the government was that, despite its efforts to portray the beneficiaries of negative gearing as battlers living hand-to-mouth on Struggle Street (with an investment property round the corner on Tough Terrace), most of the people affected by Labor’s policy were middle and high-income investors who don’t vote Labor.
Now Labor’s trying again, fixing the refundability in the dividend imputation system introduced by the Howard government at a point when Howard was in deep trouble with his political base. There are some similarities with the negative gearing and capital gains tax reform: we know the government has already itself looked at this exact issue — its 2015 tax reform discussion paper devotes a section to refundability. And very few of the beneficiaries of refundability, wealthy shareholding seniors and self-managed super fund holders, would vote Labor even if you pointed a gun at them — in contrast to the Liberals, which descended into internal warfare over relatively modest proposals to curb the abuse of super tax concessions by the wealthy.
On the other hand, the targets are a more tightly defined group. And they have their own media — the people affected by the changes are basically The Australian’s readership — old middle and high-income retirees. The Oz has already swung into campaign mode, although some of its economic commentators have offered half-hearted support, and Simon Benson invoking “class war” in his very first piece perhaps doesn’t leave a lot of room for dialing up the hysteria in coming weeks. The ABC, too, with is older, wealthier audience can be expected to provide a sympathetic ear to the complaints of seniors grumpy that their hundreds of thousands of dollars of shares won’t deliver quite as much tax-free income. And you can bet that at the next election campaign, all that high-minded restraint about negative campaigning will be long gone.
But, unusually, The Australian is correct. This is about class war. It’s a war waged by wealthy older Australians on lower-income Australians and younger Australians, and it’s one they’ve been winning for decades courtesy of their political power. They’ve won on the housing front, forcing up prices through tax subsidies and NIMBYism. They’ve won on the superannuation front, turning our retirement incomes policy into a colossal vehicle for tax avoidance. They’ve won on private health insurance, with massive subsidies for themselves and the threat of punitive taxes for young people if they don’t sign up. They’ve won on the education front, enjoying high-quality free or subsidised higher education while imposing expensive, poorer-quality higher education on their kids. Traditionally, both major parties have fallen over themselves to look after them. But Labor has decided to slightly reduce the massive benefits that flow to this class. They did it in 2016 with negative gearing and capital gains tax reform. They did it last year with taxation of trusts (another area Joe Hockey flirted with). Now they’re doing it again.
The result will be fascinating for those of us concerned about the broader direction of politics and the sense of disempowerment that is driving populism around the world. This will be a bare-knuckle brawl between a very powerful interest group in the electorate and a major political party, an intersection of policy virtue and raw power politics. Buckle up.
Aux armes, citoyens!
Well, I’m an old white male who has a very large share portfolio and a reasonable superannuation income (tax-free, thanks Mr Howard – for stuffing up the federal budget), which more than covers my normal and abnormal day-to-day spending.
I don’t think that it’s going to affect me much if at all. I still pay tax, perhaps not as much as I should (I pay PAYG quarterly and usually receive a tax refund that almost matches it after the end of the tax year).
In the very unlikely event that it affects my cash inflow I could always cancel the dividend reinvestment scheme in the Commonwealth Bank or Woolworths and take the dividends in cash instead of new shares. And stop saving.
I doubt seriously that this is going to affect anyone who can’t afford it.
Vox ran a similar article today:
How the baby boomers — not millennials — screwed America
The boomers inherited a rich, dynamic country and have gradually bankrupted it. They habitually cut their own taxes and borrow money without any concern for future burdens. They’ve spent virtually all our money and assets on themselves and in the process have left a financial disaster for their children.
We used to have the finest infrastructure in the world. Now it’s crumbling, and the boomers have allowed it to crumble. Our public education system has steadily degraded as well, forcing middle-class students to bury themselves in debt in order to get a college education.
https://www.vox.com/2017/12/20/16772670/baby-boomers-millennials-congress-debt
Yep, that pretty well describes what happened here as well. I expect the upper class to run massive campaigns at the next election against Labor. I can only hope the hoi polloi will put them in their place.
These comments seem to be conflating “upper class” and “baby boomers”.
As a baby boomer, I didn’t want house prices to rise etc – I had nothing to do with it.
+1
No, the upper class are the ones who now seem to be in control of our parliamentarians and therefore our lives. We the baby boomers, like the proverbial frogs in slowly heating water, let it happen on our watch, culminating with Howard and Costello (thinking the boom would last forever) ripping out around $35-40B out of the tax revenue in tax cuts & benefits mainly to the already wealthy, helping to create the upper class. Its high time Labor and the Greens put some equilibrium back into to our society.
Great work again Bernard – the pathetic squawking from the privileged few has already begun in earnest, and you are right…the ABC is giving them a sympathetic hearing.
But the next generation have social media, the Greens, and groups like GetUp on their side, so the gamble for Labor is not so bad as it would have been a few years ago.
Go Bill and team, more power to you..!!
Not sure having social media is such a good thing. It helped give us Trump.
That’s an excuse. America didn’t need social media to blame for electing George W Bush and then re-electing him.
Well as another old white baby boomer, I really hope fortune favours the brave this time, too, and that the toxic relationship between the Libs and the big end of town is dealt a severe blow. The country will be better off. Vive la révolution!