SKY NEWS ON THE HOUR WITH TOM CONNELL
TUESDAY, 11 APRIL 2017
SUBJECT: Housing affordability.
TOM CONNELL: There's another litany of stories about housing affordability today, with the Coalition seemingly wrestling over just what to do. We know Labor's plan – it's been settled since before the last election – they will reduce the Capital Gains Tax discount and keep negative gearing only for new homes. Of course, grandfathering both of those measures. We've seen house prices climb a lot higher since then – in Sydney, in Melbourne – is the policy still fit for purpose? Joining us now is the Shadow Assistant Treasurer, Andrew Leigh. Thanks for your time today.
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Pleasure, Tom.
CONNELL: The plan that you've got at the moment. The intention – we're talking about stalling house prices. Do you need more than that in Sydney and Melbourne given 15-19 per cent increases? Do you need prices lower?
LEIGH: Tom, let's just look at what happened at the end of last year where house prices in Melbourne and Sydney were rising nearly ten times as fast as wage growth. So you get this phenomenon – I've struck it with young couples in my electorate – where they'll come to me and they'll say, 'I nearly had the deposit and then a few more auctions went by and suddenly I was priced out of the market.' The challenge is not driving house prices down, it's just making sure we don't continue to see this massive mismatch – terrible wages growth and house prices going gangbusters because investors are now half of the new buyers.
CONNELL: There's a lot of talk about modelling in the government's company tax plan, what about modelling on your plan? Any update on the "huge increases" as you say? Any updated modelling or you just still want to get things to stall basically?
LEIGH: Those who've carefully looked at our plan, including the Grattan Institute, Saul Eslake, people like Richard Holden, find that what it will do is moderate the growth in house prices-
CONNELL: So you're still relying on that rather than coming out with a new document and saying, "Here's an update. Here's some modelling on what our policies will do."
LEIGH: Tom, it's been carefully modelled. The difference between what Labor's plan would do and the accusations that are often levelled at it, is that – as you said – it's grandfathered. Because it's grandfathered, its impact is over time, and only affects new purchases. We didn't think it was fair to change the tax rules on people who'd made a big investment based on the existing rules. And that's why the scare stories you see Scott Morrison coming out with are just completely wrong.
CONNELL: And what about the federal approach? You've got an approach that applies to every city and state. The same plan. Whereas in Sydney the last year, a 19 per cent increase, Perth a five and a half per cent drop. How can you take one blunt instrument to those many markets?
LEIGH: What we have in Australia is a set of tax rules that are uniquely generous to investors. We have negative gearing - which came out of the 1930s as a way of trying to stimulate the economy, and a Capital Gains Tax discount – that came out of the Ralph Review in the late 1990s as a way of getting more investment in high-tech companies. Put those two together and suddenly you saw the housing market blow-up.
CONNELL: But on that very point, is there a danger in having a blunt instrument that applies to very, very different markets?
LEIGH: It's about taking away a set of tax rules which are not fair to ordinary Australians, and they're not fair in all parts of the country. That's why Britain doesn't have negative gearing. That's why the United States doesn't have negative gearing. These are rules which are skewed to the top end. Those who are in the top tenth in income distribution get more than half of the combined benefits of negative gearing and the Capital Gains Tax discount. You've got Scott Morrison saying, "This is all about teachers!" The average teacher is getting less than $400 dollars a year out of negative gearing. The average the anaesthetist or surgeon? They’re getting more than $3000 a year.
SAMANTHA MAIDEN: Can I just pick up on something Tom was asking you about though? You take, for example, Sydney and we've had these reports it's had 19 per cent growth over the last year. What would have that growth had been if your policies had been implemented?
LEIGH: It would have been a slower pace, Sam-
MAIDEN: But what would it be?
LEIGH: It would have been a slower pace.
MAIDEN: But give me an idea. Would it have been 17 per cent? 18 per cent? 15 per cent?
LEIGH: Sam, we simply know that rate would have been lower because you would have had fewer investors in the market and more first home buyers. Those-
MAIDEN: But is you are going to mock the government for not releasing its modelling to explain how much of an impact $24 billion in tax cuts would have on the growth rate, how is it that you can't even name a percentage figure? You're saying that the growth would have slowed, what is it?
LEIGH: This policy has been modelled to death. Every expert-
MAIDEN: But if it has been modelled to death you must know the answer!
LEIGH: Every expert you talk to says that this is the answer to reduce the growth in house prices. This will have a positive impact – not just in income distribution – but also by ensuring that we don't have house prices growing out of whack with wages.
CONNELL: Is it fair to say that your policy would not have had a significant dent in the 19 per cent?
LEIGH: Our policy would have ensured, over time, that you get slower house price rises.
CONNELL: Over time.
LEIGH: And as you so correctly said at the outset there Tom, it doesn't kick in strongly from year one because it's affecting new investors. Right now, nine out of ten negative-gearers are buying existing homes, so this is a policy with more than a 90 per cent failure rate, which is seeing a skewing of our tax dollars towards the top end of town and helping to drive up house prices. That's why when you look right across the spectrum it's not just Labor. You had Jeff Kennett coming out and saying you should do this, you had Joe Hockey coming out and saying you should do this, you had Mike Baird, the former New South Wales Premier, saying you should do it. And indeed, Scott Morrison and Malcolm Turnbull took a plan to curtail negative gearing to their own cabinet last year and were knocked back. Peter Dutton making economic policy in Australia – alongside Barnaby Joyce – it's a sad state of affairs.
CONNELL: We are right out of time. I’m sure we'll be talking about this again with many others and yourself as well.
CONNELL: Andrew Leigh, thanks for your time on Sky News.
LEIGH: Thanks Tom. Thanks Sam.
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