David Coleman (Banks, Liberal Party) Share this | Hansard source

I am thrilled to have the opportunity—perhaps it has come a little earlier than I had anticipated, but I am thrilled to do so nonetheless—to speak on these very wide-ranging bills, Appropriation Bill (No. 3) 2015-2016 and Appropriation Bill (No. 4) 2015-2016. They provide an opportunity for me to reflect on the very important policy area of negative gearing and, indeed, on the very poorly constructed policy of those opposite which was announced a week or so ago. As time goes on the tremendous pitfalls involved in this policy become clearer and clearer to the Australian people.

It is important to start out by being very clear about what negative gearing is, because in the commentary around negative gearing there can be a tendency to not focus on the raw simplicity of what negative gearing is. The first point is this is not some special concept that only applies to investment property. Reading some of the commentary and some of the assertions by those opposite, you could be forgiven for thinking that perhaps negative gearing was some special thing that had been created for the investment property market, and that is, of course, not at all the case.

Negative gearing is a very simple concept, and the basic concept is: just as businesses have a cost of doing business and are able to deduct those costs in calculating their profitability, people who invest in property can deduct the cost of interest from their investment. Just as you can deduct the cost of renovations, maintenance or whatever it may be on the investment property, you can also deduct the cost of interest. That makes sense, because interest is a cost. Just as maintenance is a cost and renovations are a cost, interest is a cost.

I think that the average Australian business would find it novel in the extreme if they were to be told that there was some threat to their ability to claim interest as a cost in their business. If it were asserted that interest was not a cost, those businesses would say, loud and clear, 'Yes, it is.' Equally, interest clearly is a cost for people who invest in property. It is not a special thing for investment property. It is very important that people understand that. I would encourage all of those who commentate on these issues to reflect on the fact that negative gearing is a very broad based concept in tax law. It applies to investments in shares. It applies to investments in pretty much all investment classes and is not a special thing for investment property.

Then we get to the question of what the Labor Party want to do with respect to negative gearing as it pertains to investment property. To paraphrase their policy as I understand it, it is to say that, to the extent that someone wanted to claim interest—negative gearing, as it is known—on an investment property, that would only apply if it were a brand-new property, and it would not be possible to negatively gear an existing home. That is my understanding of the policy—along with some changes to the rate of capital gains tax that people would be required to pay.

Let us just reflect on that for a moment. That is for every existing home in Australia—by definition, it cannot be a new home if it already exists—and we have, I believe, roughly nine million homes in Australia. Not one of them is a new home, because they already exist. They are not new; therefore, they are existing homes. Therefore it will not be possible to negatively gear an investment in any of those homes once Labor's policy comes into effect for any new investments after—I believe it is—2017. What that means is that, logically, if you are an investor, you will say: 'Hang on, if I invest in a new property or indeed in shares or other asset classes, I'll still be able to claim negatively geared deductions from my interest costs, but if I invest in an existing house I won't. I won't be able to do that. I won't be able to claim the cost of interest from that investment.'

What is the logical consequence? I do not think this is Milton Friedman stuff. This is kind of simple. For every single existing home in Australia, obviously investors are a very significant part of the market at the moment. In the future, what will happen is that none of the new investments in existing homes after 2017 will be able to make use of negative gearing. So, if you are a property investor and an investor generally, you are going to say: 'Hang on, that doesn't sound like such a great deal; therefore, I'm not going to invest in existing property. I'll turn my attention elsewhere.' It might be new homes; it might be other forms of investment. But it is very difficult to see why investors are going to continue to invest in an asset class where they have just basically had the economic rug pulled from under them, in that they can no longer negatively gear those properties.

Research suggests that somewhere around 30 or 33 per cent of investment in the existing-property market is from investors, so it is quite a lot. It is not just one or two per cent. It is not just something that is conducted by excessively wealthy investors. This is a very, very widespread practice in Australia, and something around 30 per cent, or a third, of existing homes are affected by this issue. You will have a situation where, from 2017, that 30-odd per cent of purchasers will pull back, walk away. Why would they continue to invest in the asset class when they cannot claim the cost of interest, when they can in other investments? It is difficult to see why they would do that.

What does that mean? There has been a lot of discussion on this topic about the impact on people who negatively gear. That is an important issue, and I will come back to that in a moment. But the more fundamental issue is not just the impact on somebody who happens to negatively gear but what happens to the house price of the nine million existing homes in Australia. If 30 per cent of the market has just gone, which is what will happen for every one of those homes, as an average, because every one of those homes is existing—this is an important point: no home that exists in Australia today is a new home under Labor's policy, not one. So every single home in Australia as it exists today is an existing home which you will not be allowed to negatively gear post 2017 for new investments. So 30 per cent of the market, of the potential buyers of your home, goes away.

Think about it like this. Imagine a government policy that said: 'You know what we're going to do? We're going to take 30 per cent of the potential buyers of cars out of car yards through our policy.' Imagine that that occurred. Imagine a government policy that said, 'We're going to make it so unattractive for the existing market that 30 per cent of the people who are participating in it won't participate anymore.' That obviously would have a dramatic impact on that industry, and the same thing will happen here with the housing industry with homes because 30 per cent of the investment value of people who are participating in buying existing homes will dry up. It is not possible rationally to assert that that will not have a negative impact on the value of Australians' existing homes.

About 65 per cent, I believe it is, of Australian households own a home, either paid off completely or with a mortgage, so it is a big number. It is millions and millions of Australians. What the Labor Party is saying is that 30 per cent of people who previously participated in the market for existing homes will basically be completely disincentivised to participate in that market, so this is a really big deal. This is not so much about the academic point about negative gearing; this is about the practical impact on ordinary Australian families.

In my electorate, in Sydney, Deputy Speaker Kelly, parts of which you know very well, there are a lot of people who have worked very, very hard to save to buy their homes. ABS figures say that the vast majority of household wealth of Australians is held in real estate. Interestingly, that is particularly the case for middle-wealth households. Very wealthy households have a more diverse range of assets because they are more likely to have invested in shares and so on. Middle-income and middle-wealth households have a very high proportion of their net assets in housing. So this policy from those opposite basically reduces the value of the single most significant asset held by middle-Australian families. That is the practical consequence of this. This is a very significant problem.

There have been a number of reports in recent years that have commented on the fact that Australia has high household wealth relative to other countries in the world. Credit Suisse investment bank and other people have put out reports on this issue. Those reports consistently concluded that Australians have very high median wealth. As much as those opposite might like to say that this is about a small number of wealthy investors, it is not. The median household in Australia has an enormous proportion of its household wealth in housing. We have been so successful as a society in generating wealth that our median household is either the wealthiest or right up at the very top of the list in terms of household wealth in the whole world. The key underpinning foundation of that is housing. So let us be clear: we have an opposition that say, 'Let us put in place a policy to materially reduce the value of the single most important asset that is held by mainstream middle Australia.' That is the consequence.

Think about the big picture in terms of the size of the Australian housing market. CoreLogic RP Data, who do a lot of really good work in this area of housing data and so on, said last year that the value of housing held by Australian households—again the majority of all wealth held by Australian households—is $6 trillion. It is the single biggest thing there is in the Australian economy. So imagine a percentage decline on $6 trillion. You get very quickly into the hundreds of billions of dollars. That is what people in business would call wealth destruction, value destruction. What this is about in more practical terms is reducing the value of people's homes.

In my electorate of Banks in suburbs like Panania, Mr Deputy Speaker Kelly, which was recently added to my electorate after your tremendous representation of them, the median house price is $900,000, give or take. A lot of people have very high mortgages. They work very hard—they work shift work and have both members of the family working—to pay the mortgage and to build those household assets. This policy goes directly after the single most important asset of those homes. So this is an extraordinary policy.

This came out of the McKell Institute. I had a look at the McKell Institute report on this. I think it was option 4 in its report. It is a Labor aligned think tank I understand. This is a policy that should have stayed in the think tank. This is an academic debate about negative gearing but a policy that will have a very significant impact on ordinary Australian families.

If you were to design something to depress the value of Australian housing, you would say: 'How do we get as many people to leave the market as possible?' We want a lot of people out of the market. Investors are 30 per cent of them, so let us basically completely change the model so that investors do not invest in any existing home in Australia.' If you are actually trying to hurt the asset value of ordinary Australian families, that is what you would do and that is what this policy does. It is a very bad idea. It will have a very significant impact on Australian homes if it is ever implemented. That is why it is so important that those opposite do not ever succeed in becoming the government, because it would result in huge loss of value for Australian families.

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