JOSH NAILS LABOR ATTACK ON YOUR HEARTH AND HOME

TREASURER Josh Frydenberg has nailed the double-sided disaster that the Labor duo Bill Shorten and Chris Bowen’s attack on negative gearing would be for both owner-occupiers and renters.

He’s done so with the sort of cut-through message that worked so well for then-opposition leader Tony Abbott ahead of the 2013 election with his straightforward, easy to understand – and deliverable – promises to ‘axe the tax’ and ‘stop the boats’.

From Frydenberg it’s: for anyone who owns a home Labor will make it worth less, for anyone who rents their home Labor will make them pay more.

As that covers pretty much 100 per cent of the population – and 100 per cent of voters – it’s a powerful political message.

He – and prime minister Scott Morrison and every member of the Coalition – need to keep repeating it five times a day, every day, and twice as many times on Sundays, Donald ‘build the wall’ Trump style.

Apart from being simple and easy to understand, the message has the virtue of being true.

What Labor plans to do with negative gearing – and with the help of the Greens in the senate ‘the plan’ would turn into ‘tax policy’ – would hit both owners and renters.

But at the same time – and this shows how really dumb the whole exercise is – it wouldn’t actually cut the big tax deductions that investors get from negative gearing for a long, a very long time.

That’s to say: very effectively hurt owners and renters but don’t actually get the existing negative gearers.

Although maybe, that’s not so surprising from a would-be treasurer in a future Shorten Labor Government who is on the record as thinking Wayne Swan was one of our greatest treasurers.

Labor proposes to only allow negative gearing on newly built houses and apartments after the as-yet unstated implementation date.

If you buy a ‘pre-owned’ property you wouldn’t be able to negatively gear it. And obviously – but perhaps not to Bowen and Shorten – that new property immediately becomes preowned when bought by either an owner-occupier or an investor.

At the same time Labor plans to ‘grandfather’ all existing negative gearing. This would discourage any existing investors from selling; and at the same time mean there would be little tax saving from the end of existing investment deductions.

The overwhelming number of properties are of course, and again obviously, pre-owned ones. In one sweep of a Labor-Green legislative pen, the pool of potential buyers for each and every one of these would be cut, as they no longer became tax attractive for investors.

It’s the most basic reality: if you reduce the number of buyers you reduce the potential selling price.

For anyone who owns a home (or indeed buys one, whether as an owner or investor) Labor will make it worth less.

Hey, but won’t lower house prices make it better for renters because rentals will fall?

Well, no, because over time the stock of rental properties will fall as there will be fewer investors; and, very importantly, people will ‘invest’ more and more in the one totally tax-free ‘family home’.

If you rent your home Labor will make you pay more.

But property builders say there’ll be a surge in new builds – fringe houses and inner city apartments?

There might well be – for a while, until people wake up to the reality they have been led into a double-edge financial trap.

Fringe houses and shoebox apartments are exactly the worst properties for value growth. And the Labor policy adds the second trap – as soon as you buy one, it becomes preowned and so there’s an even smaller pool of future buyers.

It would be entirely reasonable for a future government – any government, Labor or Coalition – to put some curbs on negative gearing. But what Shorten and Bowen propose would be disastrous for everyone – including their own government’s fiscal position!

It is also much worse than this, because the attack on negative gearing is just one of three policies that directly attack investors and investment.

In combination, they would be devastating.

The other two are a big increase in capital gains tax and reducing dividend franking credits.

It’s the politics of envy and stupidity.