With
just over five weeks to go till the budget, the government appears
locked into defending Malcolm Turnbull’s old statements and positions,
rather than reacting to issues in a way that could help deliver a budget
that signals it is more in tune with the policies and politics of a
post-financial crisis world.
In the past couple of weeks, the housing policy issue has undergone a change. For a long while now, the talk has been all about affordability – what to do to help those looking to buy their first home. Now the focus has shifted to a housing bubble.
The two issues are clearly linked – the reason housing affordability is such an issue is because prices in Sydney and Melbourne have been rising much faster than incomes. That the rise has been occurring for several years brings into question just how sustainable the market is.
And so the shift is not just about making housing more affordable, but taking out some of the air in the market without bursting the bubble.
This puts the government in a tricky spot – although it’s one of their own making.
This time last year, housing affordability had reached such a state
that the Labor party went into the election with a policy to curb
negative gearing. Such a move would have been viewed as political
suicide at pretty much every previous election. It would have been good
policy – just tough politics.
Sometimes it takes a while for politics to catch up with the policy. But that the ALP went within a whisker of knocking over a first-term government was a very good sign that negative gearing was no longer a sacred cow.
And yet there is little to indicate the government will make a move in this area in next month’s budget.
It could have got a whiff of the wind last year when the Labor party came up with its policy. It would have been very easy for the government to criticise the ALP’s policy to limit negative gearing to new housing as one that would distort the housing market and not actually solve the problem, and instead come up with its own measure – such as limiting the number of properties that could be negative geared, or capping the dollar amount that could be claimed.
On the capital gains tax (CGT) front, where the ALP proposes halving the discount from 50% to 25%, the government could again have argued that such a policy was too reckless and instead proposed that the discount be reduced to 40%. After all, that was the level recommended by the Henry tax Review, which would have given the government plenty of political and policy cover.
But no. Instead, despite the Treasury investigating the policy, the prime minister took the nuclear response, suggesting the ALP’s policies would “smash” the value of people’s homes and that they “should put concern into the minds of every single house owner”.
And so his position remains, while not only is the politics moving ever more away from him, but so too is the policy.
Instead it appears we will get a “housing affordability package”. There will probably be some spending on transport infrastructure, assistance for renters – most likely something about social housing similar to that in the UK – talk about moves by the Australian Prudential Regulation Authority (APRA) to limit investor lending, but nothing that will go near taxation. And yet negative gearing and capital gains tax are clearly the big drivers of the instability in the market – because they are the drivers for people to take out multiple interest-only loans, about which the Reserve Bank governor expressed concern this week.
Mostly we are in this position because Turnbull has painted himself into a corner. His language to attack the ALP’s policy was so over the top that it is hard to walk back from. He also uses the same talking points to argue against reducing the CGT discount as he does for cutting company taxes.
Repeatedly, over the past year, the prime minister has argued that “if you want people to do less of something, you put up the tax”. Last year he used it to argue against increasing the CGT (which is what reducing the discount would do), and this year he has used it to argue in favour of cutting the company tax rate to 25%.
The government’s struggles to sell the company tax cut plan are a good example of the politics and the policy shifting again beneath its feet.
There was a time when talk of cutting taxes to improve economic growth would have been relatively safe, but the impact of policies on inequality and, in turn, the impact of inequality on growth has come to the fore over the past few years.
It is a world now where the former Reserve Bank governor Bernie Fraser criticises the move to cut company tax as “another illustration of ... an increasing trend towards unfairness in so many ways in policy”.
Rather than react, the government continues with its policy – but the politics is done badly. We’re at a point where the treasurer is demanding that big business help with the sales pitch – and where the prime minister continues to argue for the company tax rate cut with ardent fervour, telling the Sydney Institute “no other single tax reform by the commonwealth can do more to grow the economy”.
And so the government appears wedded to its previous positions, unable to move with the times. On both housing and company tax, the policy and the political ground has shifted away from it, and with little time before the budget, it would seem it is unwilling to react.
That will be bad for the government – both in terms of policy and politics.
In the past couple of weeks, the housing policy issue has undergone a change. For a long while now, the talk has been all about affordability – what to do to help those looking to buy their first home. Now the focus has shifted to a housing bubble.
The two issues are clearly linked – the reason housing affordability is such an issue is because prices in Sydney and Melbourne have been rising much faster than incomes. That the rise has been occurring for several years brings into question just how sustainable the market is.
And so the shift is not just about making housing more affordable, but taking out some of the air in the market without bursting the bubble.
This puts the government in a tricky spot – although it’s one of their own making.
Sometimes it takes a while for politics to catch up with the policy. But that the ALP went within a whisker of knocking over a first-term government was a very good sign that negative gearing was no longer a sacred cow.
And yet there is little to indicate the government will make a move in this area in next month’s budget.
It could have got a whiff of the wind last year when the Labor party came up with its policy. It would have been very easy for the government to criticise the ALP’s policy to limit negative gearing to new housing as one that would distort the housing market and not actually solve the problem, and instead come up with its own measure – such as limiting the number of properties that could be negative geared, or capping the dollar amount that could be claimed.
On the capital gains tax (CGT) front, where the ALP proposes halving the discount from 50% to 25%, the government could again have argued that such a policy was too reckless and instead proposed that the discount be reduced to 40%. After all, that was the level recommended by the Henry tax Review, which would have given the government plenty of political and policy cover.
But no. Instead, despite the Treasury investigating the policy, the prime minister took the nuclear response, suggesting the ALP’s policies would “smash” the value of people’s homes and that they “should put concern into the minds of every single house owner”.
And so his position remains, while not only is the politics moving ever more away from him, but so too is the policy.
Instead it appears we will get a “housing affordability package”. There will probably be some spending on transport infrastructure, assistance for renters – most likely something about social housing similar to that in the UK – talk about moves by the Australian Prudential Regulation Authority (APRA) to limit investor lending, but nothing that will go near taxation. And yet negative gearing and capital gains tax are clearly the big drivers of the instability in the market – because they are the drivers for people to take out multiple interest-only loans, about which the Reserve Bank governor expressed concern this week.
Mostly we are in this position because Turnbull has painted himself into a corner. His language to attack the ALP’s policy was so over the top that it is hard to walk back from. He also uses the same talking points to argue against reducing the CGT discount as he does for cutting company taxes.
Repeatedly, over the past year, the prime minister has argued that “if you want people to do less of something, you put up the tax”. Last year he used it to argue against increasing the CGT (which is what reducing the discount would do), and this year he has used it to argue in favour of cutting the company tax rate to 25%.
The government’s struggles to sell the company tax cut plan are a good example of the politics and the policy shifting again beneath its feet.
There was a time when talk of cutting taxes to improve economic growth would have been relatively safe, but the impact of policies on inequality and, in turn, the impact of inequality on growth has come to the fore over the past few years.
It is a world now where the former Reserve Bank governor Bernie Fraser criticises the move to cut company tax as “another illustration of ... an increasing trend towards unfairness in so many ways in policy”.
Rather than react, the government continues with its policy – but the politics is done badly. We’re at a point where the treasurer is demanding that big business help with the sales pitch – and where the prime minister continues to argue for the company tax rate cut with ardent fervour, telling the Sydney Institute “no other single tax reform by the commonwealth can do more to grow the economy”.
And so the government appears wedded to its previous positions, unable to move with the times. On both housing and company tax, the policy and the political ground has shifted away from it, and with little time before the budget, it would seem it is unwilling to react.
That will be bad for the government – both in terms of policy and politics.
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