SKY TO THE POINT
MONDAY, 23 MAY 2016
SUBJECT/S: Negative gearing; Labor’s positive plans for the economy; Opinion polls.
KRISTINA KENEALLY: Welcome back to “To The Point”, we are joined now by Shadow Assistant Treasurer, Andrew Leigh.
PETER VAN ONSELEN: Doctor.
KENEALLY: Dr Andrew Leigh, an economist of note. Thanks for joining us on the program.
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: It's a pleasure. Great to be with my favourite Sky duo.
KENEALLY: Oh wow, I'm trying to think if there is another Sky duo.
VAN ONSELEN: Not sure if there is another Sky duo.
LEIGH: I was hoping you wouldn't ask that question.
VAN ONSELEN: Who's your second favourite?
KENEALLY: Kieran and Brooke, just say Kieran and Brooke.
VAN ONSELEN: Don't help him out; you can’t do that when you start asking him questions about his policy.
LEIGH: You could be my least favourite Sky duo by the end of this.
KENEALLY: Let me ask you Andrew Leigh about politicians’ perks. Now you probably don't claim an allowance for staying in your own house overnight there in Canberra -
VAN ONSELEN: But are you outraged by the inequality of this for someone like you or Senator Zed Seselja or Katy Gallagher? Are you outraged that you guys are essentially discriminated against because you're based in the nation's capital?
LEIGH: Peter there is a sort of ‘living over the shop’ aspect about representing the nation's capital. Not just do you get to represent Australia's most liveable city, but also to stay in touch with your kids during the week. It's a good grounding experience.
KENEALLY: So the benefit for you is that you don't get the $270 a night but you get to see your children every evening?
LEIGH: Yes which, let's face it, is worth a whole lot more than the money.
KENEALLY: Ok so are you looking forward to the time when if you get elected on the 2 July when your party seems to be determined to remove this perk from politicians?
LEIGH: We'll go through and make sure the arrangements for MPs are no more generous than they are for other workers like fly-in fly-out workers and that they're in line with community expectations. And to the extent that they fail those tests, we'll make changes.
KENEALLY: So the idea being for our viewers that a politician can claim an allowance for staying the night in their own apartment and then also claim deduction of some sort?
VAN ONSELEN: I don't mind that they get the allowance even if they own the home but I think that that allowance should be factored against the negative gearing as normal rent would and then they can claim the tax loss of what's left. Otherwise it does strike me as double dipping. Financially speaking, Andrew Leigh, you'd agree with that wouldn't you?
LEIGH: Yes, Peter. And I think you have described the way in which the tax law works.
KENEALLY: OK there you go.
VAN ONSELEN: Can I ask you another one about your negative gearing policy; I think it's ridiculous that the Government is doing nothing in this space. I'm not entirely sold on your model but at least you're doing something, that's certainly the Saul Eslake view as well. The Labor Party though likes to bash Malcolm Turnbull over the head about defending – and Bill Shorten did it today – defending people's ability to negatively gear ten or more properties. Here's the question though, the way that you guys have designed it, some of it is super wealthy and generates hundreds of thousands in dividends out of investment. They can then negative gear those dividends into an investment property, surely you should close that loophole anyway shouldn't you?
LEIGH: Peter, that's the way it works in Britain, that's the way it works in the United States. Investment losses are claimed against investment income; wage loss is claimed against wage income. You know Malcolm Turnbull wants you to think that somehow negative gearing is flowing across the whole community. What he'll never tell you in one of his press conferences is that half the benefits of negative gearing and the capital gains tax discount are going to the top 10 per cent. I was in a community forum in Maleny last week where a bloke stood up and said he's got four kids in their twenties and they're worried that none of them will be able to afford a home. As The Castle put it, for them it's not just for them it's not just a house, it's a home. It's not part of a property portfolio, they each just want a place to call their own. And with the home ownership the lowest it has bee n since the 1950s, Labor feels we need to act.
VAN ONSELEN: Let me just ask though, on this. To personalise it, you could have a surge of people who earns hundreds of thousands of dollars, probably close to a million dollars on their salary. But because they're so wealthy they've got a suite of investments that also generates a couple of hundred grand in dividends on those investments. That surgeon will be able to negatively gear those dividends into a property as currently happens. Whereas the nurse or two nurses in a family, each earning $65,000, they would only be able to negative gear under your policy if they bought new homes rather than the existing home that the surgeon could use to negative gear his investment income. That is the way it could actually work isn't it?
LEIGH: Peter, make no mistake. Negative gearing is massively skewed towards the top of the distribution and Labor's changes will be progressive. Labor's changes are going to help people like the factory worker, Nathan, who I met in Geelong last week who is in a housing commission home and wants to buy a home. And those who are at the top of the distribution buying 7, 8, 9, 10 houses; they are the ones that will pay a little more tax. We believe that's right. We don't believe it is right to have a whole generation of Australians locked out of the housing market. If Malcolm Turnbull wants to tell you that Labor's changes aren't progressive, he simply hasn't looked carefully at the numbers here.
VAN ONSELEN: One last one if I can, on this. The data does tell us, you'd be across this you're right across the data when it comes to economics. The data tells us that a disproportionate number of new home buyers, as in first home buyers tend to buy brand new homes that are built off the plan because that's cheaper. You're going to be shovelling investors into that market if that's the only place that you can negatively gear properly?
LEIGH: You're absolutely right to ask why we're encouraging investors to buy new built homes if they want the benefits of negative gearing. Under our plan, existing negative gearing homes are grandfathered, but from the 1 July 2017 you'll have to buy a new built home. The reason we've done that is exactly the same reason that Coalition Governments at a state and territory level have changed the first homeowners grant so it's more generous for new built homes. It's the same reason why a Federal Coalition Government believes that foreign buyers should have to buy new built homes. Because in both those cases, they are adding to housing supply. We're just applying exactly that same principle to negative gearing. It will add to the total housing stock. We know in Australia we've got one of the fastest population growth rates in the advanced world, we just haven't been building enough homes.
KENEALLY: Andrew Leigh can I take you to another comment that your leader, Bill Shorten, made, was it a mistake for him to use the phrase spendometer, "add another million to the spendometer"?
LEIGH: Bill is entitled to make light-hearted remarks at what is let's face it, the longest election campaign since 1954. He takes the challenge of budget repair pretty seriously. The thing I chuckled at was the suggestion by Scott Morrison and Malcolm Turnbull today that they are in some way outraged by this. They should save their outrage for their own blowouts and deficits from $30 billion when they were elected to $37 billion now. They should be outraged in the blowout of debt by $5000 under the Liberals, a Liberal Party that promised the budget would be in surplus in their first year and every year after that. So I'm not taking any lectures from the Liberals about budget management.
KENEALLY: What about the Australian Financial Review claiming on the front page that Labor’s promises are potentially an $8 billion drag on the budget and in fact because the Coalition has adopted so many of your revenue measures your budget position may not be as you're describing?
LEIGH: Kristina, I struggle to imagine that making sure that kids get great teachers is a drag on the Australian economy. Education is one of the most important investments we can make in our future, Making sure that every kid has access to a great teacher. It's why Labor is committed to needs-based funding of schools. If you talk about a drag on the budget, making sure that people can get into see a GP will end up being cheaper for the system than having people who put off GP visits end up in hospital where they are costing the tax payer not tens of dollars but hundreds of dollars for the same ailment.
KENEALLY: I'm not arguing whether or not those investments are worthwhile, what I am asking though is given the quantum of promises over the last few days both in health and education – some $8 billion being put out there, you're taking in the Gonski commitments as well. Are we likely in the forward estimates to see a real drag on the budget? Labor has been quoting a lot of 10 year costings but is the forward estimates going to be impacted by the promises Labor's making in these areas?
LEIGH: We've been quoting forward estimates and also over the decade. In some cases we've got measures which apply fairly evenly there. In other cases – such as our changes to negative gearing and the capital gains tax discount – because existing investors aren't affected, much of the revenue comes later on. Before he began his ridiculous scare campaign about house prices, Malcolm Turnbull's first critique of our housing affordability policy was to say it didn't raise very much revenue in the first few years. That's indeed because of the grandfathering. We'll have our full costings well before the election. You certainly won't be getting them the Thursday before the election like you got from the Coalition in 2013. We've said we'll have more saving then spending over the course of the decade.
VAN ONSELEN: More generally speaking though, help me feel more confident about Labor.
KENEALLY: Help me help you.
VAN ONSELEN: I just don't believe either side. For so many years now, the budget, both sides have been telling us here is our pathway back to surplus, here are our projections, here is where it's going to go. And every single time except once I think, very early on in the life-cycle of the Rudd Government it has always fallen short. It happened to the Coalition, it has happened to your side. We always get excuses about revenue and all the rest of it. But at the end of the day, both sides spend, spend, spend, promise that there's this pathway back and we never ever get there. It's like the can that keeps getting kicked further and further down the road. Why should anyone be anything other than cynical at both sides at this when they pledge, here's how we're going to get there. Well not according to history?
LEIGH: Peter, one starting point is to look at the comment that the Moody's Vice President made earlier this year, saying that the Coalition were mistaken to be thinking that they can ensure budget balance over the medium term simply by cutting spending. They said a sensible economic policy in Australia required looking at both the revenue side and the spending side. That's what Labor does. We don't believe that we ought to spend on areas like the Coalition’s pay-for-polluter program, like a marriage equality plebiscite which many Liberal backbenchers will ignore, like the restoration of the baby bonus. But at the same time we also believe that there are revenue measures that need to be put in place, fairly taxing multinationals when the Coalition is out there defending loopholes. Closing down negative gearing and the capital gains tax discount over the long term with the existing stock grandfathered, and making sure that we've got fair arrangements in place on cigarette taxation and superannuation. All of those measures reflect the real concern Labor has about making sure that our budget repair plan isn't just on the spending side it's also on the revenue side. But you're right Peter, it's a significant challenge. The budget is in a worse place than it was when the Coalition won office, debt up over $100 billion, deficit widened not narrowed. A party that used to drive debt trucks around has massively blown out Australia’s debt and deficits.
KENEALLY: Andrew Leigh we've only got a couple of minutes left. I do want to ask you about the polls. I'm guessing you're going to tell me the only poll that counts is the one on election day.
VAN ONSELEN: Well he is now.
KENEALLY: Let me not ask about whether or not whether the poll counts but really the impact it's having. Peter and I talked earlier about whether or not it was causing alarm or not within the Coalition camp. What about complacency on the Labor side, what about hubris? How do you keep that sense of gloating and glee in check that the trend seems to be your friend?
LEIGH: I don't think there is any hubris on our side. We'll be the underdogs right up until polling day. We recognise that we've got a very tough shot in trying to be the first political party to unseat an incumbent Government since 1931. That means that we have to put a positive plan to the Australian people. That's why we've got more ideas out there than any other Opposition in 20 years. I don't believe that the polls ought to drive election campaign, in fact I believe they are largely a distraction. Gallup is now polling Americans daily. The more you increase the frequency of the polls, the less we get these good conversations about ideas that we've had today and the more you get the flim-flam ‘who's up, who's down?’ which is much less important for where the nation goes.
VAN ONSELEN: Andrew Leigh we know you've got a function to get to we appreciate you joining us on “To The Point” as always, thanks very much. I hope we're still your favourite duo on Sky News.
LEIGH: You absolutely remain my favourite duo.
VAN ONSELEN: That means we didn't do our job properly. We should have had him walking out of there squirming. Alright Dr Leigh thanks for your company, much appreciated.