Editorial – More Taxes Won’t Fix the Budget

Budget3

It’s an absolute pleasure to have the current political conversation flatulating around the edges of the government’s revenue sources – and the get-rich-quick schemes that could be used to extract more money out of us. Meanwhile, $40 billion annual deficits are still being cranked out (see also above graph) and our $400 billion debt will be added to for years to come.

Now that Malcolm Turnbull has jingled his keys away from GST and in the direction of negative gearing, we’ve all shifted our attention to the issue like good little lemmings (me included). And, of course, there’s one special lemming who stands out above the rest.

Crazy Bill

Faster than the speed of a French surrender, Labor’s Lemming-in-Chief responded to Turnbull’s negative gearing thought bubble by elbowing everyone out of the way to be first off the cliff with his insane policy.

In what can only be described as homicidal economic science, Shorten wants to eradicate all negative gearing, except for new home constructions and reduce the capital gains tax discount from 50% to 25% (applying to assets held for more than a year). To make things really explosive, Shorten also announced that none of the changes would apply to properties purchased before July 2017.

Apparently, Shorten thinks this will solve the housing affordability ‘crisis’ while giving the government an extra $3 billion a year to play with. In other words, nowhere near enough money to solve the budget catastrophe but plenty enough to wreak havoc on everyday people’s lives and create complete uncertainty in the economy.

Why?

Nobody can accurately predict what this policy would result in. There are simply too many crazy and contrasting variables being slammed into each other. Of course, this then begs the obvious question: why would anyone want to do this? When you look through some of the basic consequences of the policy, the answer becomes clear.

Firstly, there would be the strong possibility of an immediate and artificial housing boom/bubble as people stomp over their grandmas’ graves to get ‘lifetime negative gearing’ on pre-July 2017 properties. On this point, I wonder if Shorten has even considered the possibility of people perpetually refinancing their pre-2017 properties until they die and using the funds for other investments – i.e. keeping the pre-2017 properties permanently geared to the maximum amount possible as they rise in value over time. Let’s hold that thought for a moment…

Then, once the magic date hits in July 2017:

  • There would be a clutch of people who’ve just bought or still own pre- July 2017 properties and won’t sell even if you put a gun to their heads. This will especially be the case if:
    • they’ve bought high during an artificial boom which then quickly deflates somewhere around July 2017; or
    • IF THEY ARE ALLOWED TO KEEP REFINANCING THE **** OUT OF THESE PROPERTIES UNTIL THEY DIE.
  • With the property pupu platter that’s left over, there would be twin mixed government price signals: one creating lower investment demand for established housing, and another encouraging increased investor demand for building new homes.
  • Demand for building services would increase, driving up building costs (which are already insane). Aside from screwing over investors, this will make it even more difficult for families to build their own dream homes.
  • Last, but not least, all the extra building activity would create plenty of fat for construction unions to chew on. Mmm, delicious.

And finally we arrive at the likely heart of Shorten and Labor’s motivation (NB: any time Labor comes up with a policy that defies all common sense, just think to yourself ‘how would this help unions stealprocure more money’ – then all will become clear).

Our only saving grace is that Shorten remains completely unelectable. Just ask Gary Gray.

Of course, the real question is what will Turnbull and the Liberals do?

Remember our spending problem?

It’s possible that Turnbull created the GST and negative gearing ‘conversations’ to drag a desperate Shorten out of the woodwork and make him look stupid (well, more so than usual anyway). If so, then bravo, clap clap, we’re all so very proud. Meanwhile, the budget remains in the mire with many years to go before we even start paying off a single cent off our debt:

Treasurer Scott Morrison admits there is no quick fix to a budget surplus, likening it to a cricket Test match rather than a Twenty20 bash.

There are budgets and budgets and budgets and budgets required to fix that problem,” he told the National Press Club.

Mr Morrison said the problem of rising taxes remained, and tax relief needed to come from tougher budget cuts.

It’s not good enough that, after five months as treasurer, Morrison was unable to find time in his one hour Press Club speech to say how and where such spending was going to be cut. It’s time he and Turnbull came clean with their plan. Here’s a tip: welfare for families earning $150K is a great place to start.

For more coverage on the federal budget, go here.

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