Bill Shorten doesn’t have a lot of public support, a fact that reflects his background as a machine politician with a penchant for self-promotion. For a long time he has been accused of pursuing a “small target strategy”, hoping to win by default against Tony Abbott.
The latest developments in tax policy ought to prompt ] a reassessment. The nature of policy debates like this is that the government holds all the cards: control of the political agenda, expert Treasury advice, and the capacity to manage the media with judicious leaks.
Despite all of this, Shorten has left Malcolm Turnbull and Scott Morrison looking flat-footed. Their preferred option of raising the GST rate and expanding its base is dead in the water, but not yet formally disavowed. Opposing it was an easy choice for Shorten, but still one that required him to override some supporters within the ALP.
The general assumption was that the government would soon announce Plan B. But Shorten has now beaten them to the punch. His proposals to limit negative gearing and scale back the concessional treatment of capital gains are more substantial than anything they are likely to contemplate in relation to property taxation. And Labor has already signalled willingness to limit tax concessions for superannuation.
So, unless the government is willing to do something really radical, involving an explicit break with the Abbott era, anything announced in the Budget will look like “me too”.
Update Immediately after posting this, I found this piece by Laurie Oakes, arbiter of the Australian political zeitgeist, making an almost identical argument.
John Quiggin 
Indeed, and Shorten’s policy was announced with the great tag line of “making home ownership affordable for the young”. A brilliant platform to build from.
@BilB
“Making home ownership affordable for the young” who have not entered the market yet will require a collapse of the RE market to prices 1/2 to 1/3 of current prices. Plus forgiving student debt plus actually making jobs available for young people including graduates. The economy is such a disjointed mess now it is hard to see these (antithetical) events happening all together.
“Zeitgeist arbiter” is a nice job description, tonier than “political strategist”. It would make a subtitle for JQ’s blog!
John, before you call Bill Shorten a “Machine Politician” (whatever that is) I suggest that you look at some of his performances in parliament. He has during the last year, given two of the best stump speeches I have ever heard. I’ve linked below his speech in support of a censure motion last Thursday, during which he left Captain Waffle bleeding from every orifice. He really starts cooking at the 2 minute mark.
Wait for the election, when the MSM has to give him more coverage.
https://www.laborherald.com.au/politics/best-and-worst-of-the-parliamentary-week-5and5-11/
If the NBN is anything to go by, the LNP won’t have a bar of what Labor is suggesting, and will come up with a policy that is in almost every way inferior, but will be spun by them and their acolytes as being far far better – until it’s introduced and the general public realise they’ve been suckered, and their policy actually only benefits their core constituency to the detriment of everyone else.
My dark-horse prediction is that the libs will go ahead with the privatisation of Medicare’s back-office services. I know it’s nuts. But Turnbull is a merchant banker which means he loves privatisation and fees, fees, fees; Sco-Mo is an chest-beating idiot. They’ll try to bribe the electorate by using the $40 billion raised to offer tax cuts.
It will be an electoral disaster, of course. But I suspect they’re not bright enough to see that.
Despite all of this, Shorten has left Malcolm Turnbull and Scott Morrison looking flat-footed.
I’d say that the key here was the release of the treasury modelling papers. Seems reasonably likely that Turnbull is trying to discredit morrison; there’s a number of possibilities as to why, but I don’t have enough insight into Turnbull’s motivations to guess.
Its the idea that counts in an election year, Ikonoclast, and Shorten nailed it to the mast first.
I like the scaling back of negative gearing. I only hope the policy is fully fleshed out though. Limiting negative gearing to new builds would be a bust if one were allowed to bulldoze perfectly good non-qualifying buildings to just to construct new qualifying ones.
I can’t see this being worthwhile, unless the old house was a wreck and the land was of high value. Negative gearing has to be the most egregious way the already comfortably well-off are advantaged over the rest. No wonder Federal MPs have on average around 3 investment properties! House prices are 2 or 3 times what they should be in some locations. The other problem with negative gearing, rarely mentioned, is that the investment is unproductive. Imagine how emerging industries could benefit from negatively-geared investment by the folk currently buying rental housing!
Perhaps Bill Shorten has been reading the Henry Tax review? It certainly looks like it.
Turnbulls warm fuzzy feel now seems somewhat diminished and he will struggle being tied to that overly ambitious buffoon Barnaby.
A few quotes on taxing, especially taxing the rich.
“We know something about billionaire consumption, but it is hard to measure some of it. Some billionaires are consuming politicians, others consume reporters, and some consume academics.” – Thomas Piketty.
“Those who eat their fill speak to the hungry
Of wonderful times to come.
Those who lead the country into the abyss
Call ruling too difficult
For ordinary men” – Bertolt Brecht.
It seems to me that any discussion about tax reform should be preceded by a debate about what sort of society we want in Australia. What the LNP wants is pretty obvious, it can be summed up by the phrase “Government by the Market” (refer Peter Self : Government by the Market, the Politics of Public Choice).
It is not clear what Bill Shorten and the Labour Party want for Australia and has simply positioned the Labour Party as not LNP, not Abbott, not Turnbull. Previous Labour Governments have adopted and even promulgated policies of what JQ calls ‘Market Liberalism’ in his book “Zombie Economics” and there has not been a substantial point of difference in practice between the parties, just a question of the degree to which these policies have been implemented.
I’d like to see the Labour Party step up to the plate and actually articulate what their vision is for Australia and what it would look like in 20 years time. Taxation and redistributive policies are simply the tools to achieve the vision.
I agree with John Turner that there has been little difference between the ALP and Liberals. And Shorten’s negative gearing quest could easily have come from the Liberals under different circumstances.
So given negative gearing is in the spot light, but I wonder what they are talking about.
Negative gearing can take two forms, if you make a loss on acquiring a productive asset you can either 1) bank it and take it off future losses, or 2) deduct it off other income from and entirely different source – eg PAYE.
But all capitalists do this. Capitalists deduct all their costs before determining taxable income. If Coles makes a loss selling petrol it deducts the loss from profits from selling staples.
Housing negative gearing is only being attacked, not from economic principles, but because of community concern and political pundits trying to grab the limelight by delivering yet another popular placebo.
So why attack property specifically just because your economy has totally destroyed public provision.
Again, populist chants against negative gearing are just encourages people to jump up and down pretending they are dealing with housing affordability without exploring the real causes of their dilema.
Given the long run collapse in workers share of income, and the puffed-up rates of capitalist rates of return, – housing for wage earners will never be affordable on the free market.
Shorten’s achievement here for housing affordability is greater than savings that a cooling market may bring, It includes the avoided automatic 5% increase that an inflated GST would have brought.
Now all Shorten needs to do is propose some really effective regional investment incentives, and property values will stay stable for a very long time as young people get the opportunity to work in places other than our pressure cooker cities.
Here is a comment from Wikipaedia on homd ownership
“In June 2011, The CEO of ANZ Bank, one of the big 4 banks in Australia and New Zealand said housing should not be a vehicle for speculative price growth, but simply as shelter.[9] He also criticized the Federal Government’s policy on negative gearing tax breaks which increases the focus on housing as an investment rather than shelter and decrease affordability.[9]”
And the same should apply to clothes, food, furnishings, transport, utensils, book, health and education.
Maybe the ANZ speaks with a forked-tongue.
Doesn’t seem sensible to me to both deny interest deductibility on a class of asset purchases and to intensify the capital gains tax on them. Do one or the other but not both. No other asset purchase is subject to such measures – the family home for example does not give interest deductibility but capital gains are untaxed. Borrowing to invest in shares allows full deduction of interest costs but capital gains are subject to (discounted) capital gains tax.
Will this measure be extended to equity and other asset market purchases? Probably a field day for lawyers of course as they put building investments by households into corporate shells.
….and the rest of the quote
“He also criticized the Federal Government’s policy on negative gearing tax breaks which increases the focus on housing as an investment rather than shelter and decrease affordability.[9]”
I guess the correlate to the proposed policy in equity markets would be to allow the tax deductibility of subscriptions to newly issued capital and to tax capital gains on this but to deny this deductibility for capital gains made on any transferred shares and to subject any capital gains on them to tax.
@hc
Nobody is suggesting interest on loans used to finance investment in real estate should not be tax deductible from income earned from such investment. The point of discussion is that losses on real estate investment (rental income less expenses) should not be deductibel from income from other sources.
Gearing (debt financed) purchases of ‘assets’ puts upward pressure on asset prices. The obvious example is the stock exchange price boom prior to the Lehman event. You may have noticed that almost 9 years after this event, the ASX indices (All Ord and ASX200) is about 1200 below its peak in 2007/08.
Negative gearing is a small scale example of tax minimisation available to multinationals and other complex corporate structures.
It seems to me, the Australian public is the mover and shaker on the tax debate since Hockey’s May 2014 budget.
Ernestine, Interest deductions apply to your gross income inclusive of ALL types of income. For example, if your interest costs on holding equities exceed the dividends you receive you can still claim a tax deduction provided you earn other income.
What you call a “tax minimisation” technique (negative gearing) applies to all assets in the economy – firms and individuals.
Gearing was not a new feature of stock market investment in the events prior to 2008. It has been used since the start of time.
If you can’t afford a house, you don’t benefit from the family home being exempt from capital gains tax. And naturally you don’t benefit from negative gearing on the rental properties you aren’t buying.
Master Builders were on the telly threatening hellfire and damnation over this policy which just proves that like most others they haven’t read the detail. The proposed policy is to exclude negative gearing on new purchases of older homes; negative gearing will be allowed on new home builds.
I’ve heard various figures of additional tax revenue of anywhere between $3 and $30 billion. Leave the CGT concession to one side for a moment as this is a suggested reform too.
If these measures prevented tax reduction from other income sources wouldn’t these same expenses simply be deducted from the profit margin at sale time and effectively water down the CGT obligation. Seems more like the net tax liability over time doesn’t change much just the date when it is due.
Pardon me if I’m missing something. It is getting late.
I know it is a bit off subject but there seems to have been very little sensible debate about the proposed privatisation of Medicare Billing and processing of Medicare Claims.
As someone who manages a large General Medical PracticeI am probably in as good a position to see how the present system works. In my opinion there is no real issue with the billing and rebate side of Medicare in terms of process. With the advent of easy claim, practices and patients are able to receive payment into their accounts immediately, bulk billing claims are efficiently and easily processed.
Where problems do exist it is in those functions where there are no plans to privatise. Huge amounts are wasted because Medicare insists on dealing with doctors individually despite the fact that activities are frequently based on the Medical Practice rather than the individual doctor. For example a few years back the government/Medicare decided to provide incentives for doctors to offer patients video consultations with specialists. The incentives consisted of a $6000 dollar incentive triggered by the doctor’s first video conference consultation, the incentive was supposed to encourage doctors to provide the necessary IT infrastructure for future video conference consultations. However For a large practice such as ours with 20 doctors it meant that if every doctor made one video conference consultation a total of $120,000 would be received by the practice. The infrastructure required is a couple of laptops and Internet access and some cheap/free software.
Many practices that I know of took advantage of the situation and with some 43000 GPs around the country if all took advantage of the scheme the cost would have been in excess of $250million.
Every time Medicare wants to send general information to doctors, it sends it to every individual doctor. Most end up in the bin in our practice because we have a communications board where this info is placed and we also circulate the info electronically. How many trees are sacrificed as a result of this individualised approach – must be thousands.
Getting doctors registered for Medicare can also be a nightmare, the systems are inefficient and bureaucratic and could easily be streamlined.
However these are not the areas the government has said are their priority, it seems to me to be a case of where it is working well, privatise it, where its a problem leave it where it is.
@John Turner
«What the LNP wants is pretty obvious, it can be summed up by the phrase “Government by the Market”»
Maybe that’s what they want, but they are actually doing, like most parties in anglo-american countries, is “government for the benefit of property owning middle aged and older middle classes”.
There is nothing market-oriented in the policies designed to push up the growth of property prices and push down the growth of wages, redistributing from labour income to property income.
The goal is simply to ensure that the middle classes feel and vote like “upstairs” people.
Another way I put is is that the dream is that of a “plantation economy”, with the “winners”, the “highly productive” middle and upper classes living comfortably or in luxury from property rent and capital gains in the airy, tree lined suburbs, and the “losers”, the “lazy exploitative” working and poor classes, immigrant or native, are pushed to toil endlessly to serve their superiors and live in whatever shacks they can find in decaying estates.
The “plantation economy” dream is very, very popular with the middle classes. Their motto is the usual “Blow you! I am allright Jack”.
@hc
“What you call a “tax minimisation” technique (negative gearing) applies to all assets in the economy – firms and individuals. ”
It is exactly not the case that interest payments on loans paid to acquire assets is tax deductible from wage incomes. Examples: Credit card interest for a loan used to purchase assets like household white goods, gold bars, …; interest on a loan to buy a car; interest on a morgage to buy a house to live in. And where does this leave student debt? Education is often said to be ‘an investment’. Well, if it is an investment, then education is a process of acquiring ‘an asset’. But interest on a student loan is not tax deductible from income.
A butcher shop (‘the accounting entity’) cannot claim as an expense interest paid on loan for a private car. (Yes, it is common knowledge that family members can be employed and have a car for allegedly business purposes.)
A dentist cannot claim interest paid on a loan for a fashion shop as an expense against the income as a dentist – unless the dentist is a company, which is a subsidiary of another company which has another subsidiary, namely a fashion shop. This is the simplest example of a ‘complex company structure’ I can think of.
You may note the notion of ‘cost of production’, as taught in Economics, is very different from ‘the cost’ of productions which are relevant for taxation purposes. This is not due to ‘markets’ but due to the legal structure.
The case of dentist and fashion shop is easy to disentangle. With multinationals it is not so easy because the production technologies are not common knowledge.
If people wish to simplify the taxation system and make it more transparent then there is an obvious solution. Disallow all work related deductions for wage earners. This means their wages are revenue (in the sense of sales). Impose a revenue tax (sales in juristiction A) on all companies. This standardises the notion of ‘income’ between wage earners and companies. Then we can talk about ‘income tax reductions’.
“Gearing was not a new feature of stock market investment in the events prior to 2008. It has been used since the start of time.”
Well, I assume you don’t mean ‘since the start of time’ literally.
True, all prices are interrelated. Hence some of the decline in share prices may be due to shifts from equity to debt securities and real estate, domestic and international. However, the effect of debt on equity (shares) prices cannot be ignored. During the period prior to 2007-08 not only bank loans (heavily promoted to just about all home owners) but debt in the form of derivative securities grew rapidly. The relationship between complex debt securities and the real estate crash in the USA and in Spain are surely well documented by now.
When people talk about ‘deliveraging’, it ought to be taken seriously. There is so much debt in the system that any attempt to reduce it causes severe discontinuities somewhere in the system.
I believe you have helped to cristilise the fundamental problems regarding ‘fairness’ and ‘financial stability’ in relation to taxation policy.
«government/Medicare decided to provide incentives for doctors to offer patients video consultations with specialists. The incentives consisted of a $6000 dollar incentive triggered by the doctor’s first video conference consultation, the incentive was supposed to encourage doctors to provide the necessary IT infrastructure for future video conference consultations»
«Many practices that I know of took advantage of the situation and with some 43000 GPs around the country if all took advantage of the scheme the cost would have been in excess of $250million.»
6,000 dollars flat-rate “expenses” for the IT needed for something like a Skype call? Something that nearly all practices have anyhow already? Obviously it was a thinly disguised excuse for the government to give a present to each doctor. So it was probably quite intentionally a per-doctor present rather than per-practice one.
If you remember A Bevan in the UK “stuffed their mouths with gold” (overpaying doctors so they would join the NHS) so there may be some of that. Or maybe the government just rewarding one of their constituencies.
Too many people here overcomplicate matters. Seems to me that the message was that Shorten had drawn a line in the sand. It has already drawn stupidity from Morrison.
Apparently Labor’s measures are beyond the pale so of course they were never on the LNP table. More lies that will not be reported.
My other point is that I would have gone further and given all CGT concessions the flick. CGT more than NG distorted the market and should be increased.
@John Turner
Labor you dill.
@dedalus
My apologies if my incorrect spelling offended you. I am used to spelling ‘Labour’ in the English manner rather than in the bastardised form of the English language practiced here and in the US.
@John Turner
No, John, we colonials happily labour too, just like the mother country. But the ALP was, in fact, the Australian Labour Party until 1912 when it became the Australian Labor party for reason(s) that utterly escape me.
However, the ALP as a party and government predates both the British and the NZ Labour Parties, so maybe it’s just a matter of brand differentiation when you poms and those NZedders copied our lead.
Some good jokes about the spelling at this page.
http://www.smh.com.au/news/big-questions/why-does-the-australian-labor-party-embrace-an-american-spellingfor-its-name/2005/12/08/1133829714837.html
@John Turner
‘It seems to me that any discussion about tax reform should be preceded by a debate about what sort of society we want in Australia.’
I’m curious about why it seems that way to you. It doesn’t seem that way to me.
‘I’d like to see the Labour [sic] Party step up to the plate and actually articulate what their vision is for Australia and what it would look like in 20 years time.’
I’m also curious about why you’d like that. It’s not what I would like.
@J-D
1. So, in your view tax policy is totally unrelated to social policy? If it is not related to social policy what is it related to?
2. What would you like to see the ALP do? (Since articulating a social plan and vision for the nation is not one of the things you think they should be doing.)
Ivor, you’ve been warned previously. Please take a week off commenting and don’t come back unless you are going to mind your manners – JQ
So, if we think that Shorten’s policy proposal is a good thing, is the fact that he has announced it first a bad thing because it means the government can’t possibly introduce it?
@Robertito
I doubt they could anyway. There seems to be powerful forces within the LNP coalition suppressing any suggestion of reform to negative gearing and capital gains. I was under the impression Joe Hockey (as Treasurer) was a key component of these forces (as per his rhetoric as Treasurer) yet in his valedictory speech he clearly said (exact quote) “In that framework, negative gearing should be skewed towards new housing so that there is an incentive to add to the housing stock rather than an incentive to speculate on existing property and we should never ever forget small business.”
@J-D
I’d be intrigued to know what you would like. Care to share?
An intended consequence of Labor’s proposal is to head off the bubble in house prices. This is creating an unnecessary indebtedness in most consumers, particularly first home buyers and renters.
Will it work? I think so. Here are my reasons.
Investors will retreat from established properties because of the removal of the tax incentives. That will lead to a switch in their attention towards newly built properties. However, this will be short lived, as rental yields on new properties are too low to be attractive, since the base line for land + new build in $500k+.
The nett result, in my opinion, will be a big decline in the number of investors in residential property.
The flow on in the short term will be a drop in house prices in the lower price range, possibly offset by a slight increase at the top end. Why? Investors liquidating their cheap portfolios will see a glut of these coming on to the market, and the freed-up cash will go, amongst other things, towards upscaling their personal abodes to higher value properties.
In the medium term, I’d predict house price stabilisation followed by greater affordability as inflation brings house prices back to normative levels.
That is a very good outcome. Question is, will current house owners be spooked by the prospect of short term asset depreciation? The next election will answer this question.
@dedalus
My semi-educated guess is that there are several factors feeding in to the house price bubble in Australia. Some have operated for quite a while, some are more recent economic influences. These include;
(a) over-lending by banks;
(b) low interest rates;
(c) first home owners grants;
(d) negative gearing;
(e) foreign speculators (like Chinese buyers).
We need to take the pedal off the metal by removing, at least progressively, some of these influences. A good start would be removing first home owner grants and negative gearing. Unfortunately, there are too many pollies, upper middle class people and rich people making money off these kinds of government welfare. Their hands are in the till. So they won’t change the policies. Instead, we will have to a full-on economic crash to correct prices. One can only hope it is mostly the manipulators and opportunists who get burned.
@Ikonoclast
1. In my view tax policy is related to social policy, but a debate about what sort of society we want in Australia is not helpful to making social policy.
2. I would like to see the ALP articulating a plan, but not a vision.
@Ikonoclast
The one about ” The ancient Romans wrote “labor”. A “U” was added in English perhaps because similar words have a “U” in French.” was a bit sad. It appears that Jim Mackenzie believes that there was an “English” word ‘labor’ derived from the Latin which under French influence became ‘labour’.
I guess nobody ever told Jim just how much of the mainstream English vocabulary actually is Old French, because of having been conquered and ruled by French speakers.
Just consider ‘apple’ and ‘fruit’. Amongst many.
Honi soit qui mal y pense.
@J-D
Well I don’t think you’ll have to worry about that J-D, the ALP couldn’t articulate a vision even if their retirement fund entirely depended on it.
Except maybe Penny Wong. She might be able to, given half a chance.
@GrueBleen
If you think articulating a vision would be a good thing for a political party to do, I’m curious to know why you think that.
@J-D
1). I presume that in ‘making social policy’ there is some end goal that the policy is designed to achieve, or is Social Policy made in a vacuum? Surely, Social Policy is directed at achieving specific outcomes and logically these objectives would relate to the ‘sort of society we want in Australia’. If they do not, then please explain the purpose of Social Policy
2). You subsequently state “I would like to see the Labour Party articulating a plan but not a vision”. It begs the question – a plan to achieve what exactly? If any party cannot tell me what their plan(s) are meant to achieve in terms of the sort of society they want Australia to be then I am not interested in them because any plans they come up with are devoid of meaning
@Blissex
Be fair, I didn’t say that they wanted a a fair and competitive market. Markets that are distorted or can be manipulated and produce monopoly profits is just fine.
@Ikonoclast
And of course, Ikon, a fear felt by some that if they don’t buy, they will miss the boat and rent for life.