Caroline Overington put the Prime Minister over her lap this morning and gave him a good smack for his absurd endorsement of a new class of negatively geared landlords – the infant landlord.
The following comment in particular caught the all seeing (albeit LASIK corrected) eye of the Glass Pyramid (emphasis added).
“….Malcolm, we’ve been over this. Most Australian parents are trying to put new school shoes on their kids feet. Most parents are crunched. Really crunched. Fifty years of neoliberalism — you know, the kind you love — means that everything that used to be sweetly subsidised now comes to them at full cost. They’ve got mortgages and school fees and health insurance (and every other type of insurance) and car rego and gas, electricity and mobile phone bills, and pay-TV and broadband connection notices coming out of their ears…”
When regular writers for The Australia start to use neoliberalism as a pejorative rather than a term of endearment, there is a whiff of change in the air. When they starting referencing Chicago and the MPS without a smiley face it will be children of the revolution au go go.
While the Prime Minister’s concern for the infant landlord class is touching and very amusing we should not lose sight of the important issues.
- Loading up on debt in order to have a punt on house prices is NOT investment – it is speculation.
Real investors look to make a return from their investment as soon as possible and by growing those returns the value of the asset they invested in (or created) naturally rises. Property speculators seeking to claim losses against other income are not really interested in the return (aka rent) and the rent is not what justifies their investment – they are simply speculating that the RBA and APRA will allow subsequent buyers to borrow even more and pay an even higher price at some point in the future. To date the RBA and APRA have worked very hard, by cutting the target rate and facilitating lower mortgage rates, to make the ‘punt’ by the speculators a sure thing but “mum and dad” speculators should not kid themselves that what they are doing is real investment that adds to the productive capacity of the economy.
- The cheap rates on debt are made possible because APRA is allowing our banks to borrow massively offshore.
This national punt on property prices is being supported with foreign debt. Hundreds of billions (approx $650B) is owed by the private sector to foreigners and the largest chunk relates to punting on house prices by speculators and those poor working families burying themselves in debt trying to acquire a place to live now – and not 20 years after they graduate from nappies.
- All those foreign debt transactions push up the exchange rate and make us less competitive.
When our banks attract foreigners to acquire $AUD deposits or to buy the banks bonds covered and uncovered, each of those transactions puts some upward pressure on the $AUD. A higher $AUD undermines our competitiveness and helps shut down our local industries. For what? So speculators can make a tax effective punt on asset prices!
- House prices that have been driven through the roof with speculative debt make all Australian industry and workers less competitive as land is a fundamental economic input.
High land prices do no help Australian business and do not help Australian workers compete against their counterparts overseas. The cost of land is built into everything we do. Low cost land should be our competitive advantage.
- If people want to take a punt on house prices at the very least they should be required to carry any initial losses forward and claim them against the capital gains and not unrelated salary and wage income.
If negative gearing is restricted it will not stop people having a punt. All it means is that their losses on the property are carried forward and claimed against future profits and in particular the capital gains they make when they eventually sell the property. They still get to have a punt – they just don’t get to claim their losses against wages and salary that have nothing to do with the property punt.
- The ALP reforms are very very modest. To be honest they could be more readily criticised for bending over backwards to appease the rent-seeking speculators having a punt on the national credit rating.
They are going to allow “mum and dad” investors to continue to have a foreign debt funded punt but require them to actually build something new if they want to do it. How unreasonable is it to ask an investor to actual invest in new productive capacity – new housing – if they want access to the special treatment of being able to claim losses against their wage and salary income?
All those ‘mum and dad’ investors who are already having a punt on a property purchase and claiming losses against unrelated wage and salary income get to keep doing it for those existing purchases. This is the grandfathering we hear so much about.
All those “mums and dads” who are real property investors and seeking to invest their capital (and not just foreign debt) in property for the rental return will find that now they can do so without being outbid by speculators who are having a punt on neoliberal debt driven ponzinomics that Mr Malcolm Turnbull and Mr Morrison have made clear they fully support.
Its time for real investment in new housing and not this foreign debt driven “negative gearing” tax sham asset price speculation on existing housing.