Pat Conroy (Charlton, Australian Labor Party) Share this | Hansard source

I rise to talk about the appropriation bills. I will spend a few minutes countering the member for Banks's last contribution, which was a gross mistruth around negative gearing and household investment. It is a pity he is leaving the chamber. He might have received an education about the true state of the Australian investment property market. I will send him a copy of Hansard so at least he has no excuse for peddling untruths in this chamber.

I am pleased to make a contribution on these appropriation bills. I am pleased to confirm that Labor will not be blocking supply—in the finest tradition since 1975. This is a good opportunity to take stock of the current economic debate in the nation. It is clear that there has been a significant deterioration in the Australian economy and the federal budget over the last 2½ years under the Abbott-Turnbull government. In challenging the member for Warringah the current Prime Minister stated, 'Ultimately, the Prime Minister has not been capable of providing the economic leadership our nation needs.' That was absolutely true, but it is also fair to say that five months into his prime ministership the Prime Minister has also failed in his economic leadership test. The facts are absolutely clear: the deficit has blown out, the economy is slowing and government spending has increased.

Under the stewardship of the previous Labor government Australia had one of the best performing economies in the developed world. We were the only developed country not to enter a recession during the global financial crisis, courtesy of strong, well-constructed action by the last government—strong, concerted and decisive action, unlike the coalition, who were literally asleep during the debate. Two and a half years ago the coalition were elected after three years of outrageous rhetoric that we were in a budget emergency and that they were going to revive the Australian economy. The exact opposite has happened, and the economy and the budget have deteriorated on the watch of the coalition. The recent MYEFO clearly identified this deterioration

The Treasurer confirmed that growth is down, investment is down and, at the same time, government spending is up and the deficit has increased—not a great picture by anyone's measurement.

It is disturbing that economic growth is down. In MYEFO growth was downgraded from 2.75 per cent to 2½ per cent, and both Treasury and the Reserve Bank have indicated that 2½ per cent is the new normal. Business investment fell 6.3 per cent in 2014-15. What is most worrying is that the reduction in capex was not limited to the resources sector, where you would expect it to occur; it has occurred in manufacturing and other sectors of the economy. That is very worrying, because today's capex is tomorrow's jobs and income.

Under the Abbott-Turnbull government, spending has increased to 25 per cent of GDP. The member for Warringah last year said the former government were spending like drunken sailors. Actually, the Liberal Party are spending more than the previous government, and the deficit has blown out by $26 billion over the forward estimates. This means a blow-out of $120 million per day between last year's budget and the MYEFO in December. In their 'Real solutions' fairytale booklet, the coalition promised to get the budget back under the control. This is certainly not happening, and in fact the opposite has occurred. And these are not the only disturbing figures. Living standards, as measured by net disposable income per capita, have fallen for six consecutive quarters—we actually have a recession in net disposable income per capita. Capital expenditure is falling, and consumer and business confidence is far lower than when the coalition were elected.

These figures demonstrate that the government is not competent at managing the economy, whether under the member for Warringah or under the current Prime Minister, and the MYEFO was a pathetic admission of this fact. The Treasurer's 46 minutes of waffle at the National Press Club last week demonstrated that. We had allusions to unicorns, to ponies, to used cars and to test matches versus the Big Bash, but we did not have any economic leadership. We had no diagnosis of the problem and no solution. We had a thousand PowerPoint slides but we had no economic leadership, and the Treasurer has failed the test—so much so that his bosom buddy Ray Hadley has criticised his performance, and clearly the Treasurer has now cancelled that spot, because clearly he is getting a harder go even from Ray Hadley.

What did the coalition promise before the last election? They promised:

We will:

What a blatant mistruth! The exact opposite has occurred. The Abbott-Turnbull government has slashed $80 billion from schools and hospitals, and the budget situation has got worse, not better. You cannot deliver better front-line services when you cut $80 billion from schools and hospitals.

We have also seen a very confused debate on taxation. We saw this sort of Dance of the Seven Veils routine around the GST, where it was on the table and off the table; it was not going to happen. Whose fault was it? Apparently, if you asked the current Treasurer, no work was done before September last year. Well, the former Prime Minister was very quick to stomp on that. But, whatever happened, we saw a massive increase in expectations around the GST, and then suddenly the brakes were applied and, in a fit of political courage only matched by his performance around marriage equality and climate change, the Prime Minister welshed on the GST and is now saying it is off the table. Well, I hope it is off the table, because it will hit every single family in this country if it is brought back onto the table. But that was their economic debate: five months of talking about a GST, and then it is canned.

Unlike the coalition, we have been leading a real debate on how we raise revenue in this country; improve the efficiency of this country; get investment that is productive rather than speculative; and use that process to raise revenue to invest in education, health care and innovation, pay down the government debt and improve the productive performance of this country. That is why I am so proud of the Labor Party's announcements around negative gearing and capital gain tax concessions, because that is real economic leadership: identifying a problem, solving it with concrete policy that has been independently costed by the Parliamentary Budget Office, and promising it well before an election rather than making promises before an election and then breaking them in the dead of night in your first budget.

Who is undertaking negative gearing and enjoying the capital gains tax concession? Fifty per cent of the gains from negative gearing go to the top 20 per cent of Australian households. It is even more marked in the capital gains taxation concession, where 73 per cent of the benefit from the CGT concession accumulates to the top 20 per cent of families. Clearly these tax expenditures—because that is what they are—are going overwhelmingly to the wealthiest families in this country.

During this debate, we have seen people clinging onto this myth that the vast majority of negative gearers are those taxpayers with income under $80,000. The Housing Industry Association peddles it out, and I am sure, if I were a glutton for punishment and sat through the contributions from every single member opposite during the appropriations debate, a few of them will be coming out with this line. Well, that figure is a massive misnomer. It is a myth. First off, it is net income; it is not gross income. Second, if you look at the figures, of those individuals under $80,000, 74,000 had negative income for the taxation year, and 250,000 had income below $20,000. So, for 324,000 of those individuals, clearly that was not their genuine income level, for a variety of reasons. Either they were part of a two-income household where the investment was in their name rather than someone else's, or they were engaged in tax minimisation—no doubt very legitimate and legal tax minimisation. But to claim that the vast majority of negative gearers are somehow mum and dad investors on less than $80,000 is a complete skewing of figures. The figures show that a big chunk of them have no taxable income or very low taxable income. If you look at the figures, 50 per cent of the benefit of negative gearing goes to the top 20 per cent of wealthy Australians.

Negative gearing by itself, in normal investment activities, is a legitimate strategy. If you have costs of doing business, you should be able to write them off against the costs of that income-production activity. The trouble is that the interaction between negative gearing in the property sector and the capital gains tax concession has led to massive speculation. A range of economists and Treasury itself have testified to this. What happens under this business model is that you negatively gear a property and you enjoy the taxation benefits of reducing tax on your main job, which would be at the top marginal tax rate, with the belief that your property will gain value and those capital gains will be taxed at half their real gain because of the capital gains tax concession. Yes, you can do this in shares as well, but Treasury testified before the House Economics Committee that there is more of a market in housing because you are able to gear and leverage housing investment more than in the share market. Banks will lend you much more and allow you to leverage much more against bricks and mortar investment rather than shares, hence the interaction of these two tax expenditures leads to much greater speculation and impact on the housing market.

The part of this policy that I am especially proud of is the halving of the capital gains tax concession, because there is no economic justification to tax capital gains at half the rate you tax income derived from your labour. Treasury have confirmed this in hearings before the House Economics Committee as well. Before 1985, capital gains were not taxed. Before 1985, if you sold a share or sold an investment property, you paid zero tax on that capital gain, whereas if you were a normal worker, you would be paying tax on your income above the threshold—and, obviously, the marginal tax rates were much higher in that day than they are now. It was the bravery of Paul Keating and Bob Hawke, against the opposition of the coalition, that led to the introduction of capital gains taxation. There is this myth that the golden era of the 1980s was this bipartisan utopia. It was not. These reforms were hard fought. John Howard opposed taxing capital gains because he knew it would hit the big end of town, who were enjoying a tax holiday.

Using the GST debate as cover, Peter Costello introduced the 50 per cent concession, arguing that somehow you would not have to account for the nominal growth in capital gains and that this was a simpler method. It might be a simpler method, but it meant the Commonwealth missed out on massive revenue, because we now live in a low-inflation era where the nominal growth in capital that you are holding is accelerating nowhere near as quickly as it did in the eighties and nineties. Hence, a 50 per cent discount in capital gains is much more significant now, in a low-inflation era, than if it were implemented in the 1980s.

As I said, there is no justification for privileging capital gains over income derived from labour, and interaction between negative gearing and capital gains tax has led to a massive speculative investment that takes away investment in productive activities. That is the real hub of this whole matter. It is a massive distortion in our economy that I am proud that Labor is combating. Incidentally, one-third of property investors do not negatively gear, so they will not be impacted, nor will anyone who has a residential investment property prior to 1 July 2017.

The coalition's response to this announcement has been all at sea. It demonstrates their economic debate so far and the competence of the Treasurer, because his first response was not to criticise it as they are now—that somehow it will impact housing prices or do something else—it was that it did not raise enough revenue. His first criticism was that it would not raise enough revenue, which is an implicit support for a policy but says it has not gone far enough. The only way you raise more revenue by cutting down on negative gearing and our CGT change is either you do not allow grandfathering—therefore, it is retrospective taxation—or you completely abolish the capital gains tax concession. The used car analogy has been a complete embarrassment and has been taken to pieces by many economists today and yesterday.

We are discussing the appropriation bills, which are the supply bills for the budget. It is a good excuse to talk about the economic legacy of this government, because so far it is a shocker. We have debt up, deficits up, growth down, unemployment around six per cent. All we have is hollow rhetoric and not a single plan to put Australia back on track and really build future prosperity in this nation.

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