Bowen fails the tax test

“Mr Bowen insisted build-to-rent developments would offer a solution to families whose home is dictated by the motives of individual investors with the power to kick them out at short notice to sell and collect a profit.

‘Boosting affordable and stable rental accommodation has a double dividend — it is critical for Australia’s 2.7 million renters that can’t afford to buy a home or are saving to do so, and it boosts construction jobs and economic activity’, he said. CoreLogic said the concept hasn’t been an attractive option in Australia because rental returns are so modest.

Source: Daily Telegraph

This is Bowen’s response to research which shows that his Negative Gearing and Capital Gains policies will INCREASE RENTAL for first home buyers. chief economist Nerida Conisbee was quite diplomatic about Labor’s bull-in-a-china-shop policies:

The scheme would be vital for the health of the property market given Labor’s contentious plans to change negative gearing and the capital gains tax.

‘What’s happened in Australia is that we’re relying almost 100 per cent on mum and dad investors to supply rental housing’.

‘So if you introduce changes to discourage investment in rental properties, then you need someone else to pick up the slack’.

‘This is one way they’re looking to do it’.

Because it has finally dawned on Bowen that his disastrous CGT and Negative gearing policies will destroy the supply-side of the market – Mum & Dad investors – he has come up with this half-thought out ‘scheme’ to answer critics, Build-to-Rent run by institutions.

Adam Smith set out four basic principles for tax systems in the ‘Wealth of Nations’, first published in 1776:

Good Tax systems should conform to Four basic principles, outlined by Adam Smith: Simplicity, Neutrality, Stability and Flexibility. The OECD guidelines add fifth and sixth principles; Certainty and Fairness.

Bowen and Shorten’s ill-thought out tax system fails on ALL of these principles:

  • Neutrality: FAIL. Bowen’s proposals are NOT neutral because he will discriminate against individual investors

    Taxation should seek to be neutral and equitable between forms of business activities. A neutral tax will contribute to efficiency by ensuring that optimal allocation of the means of production is achieved.

  • Stability: FAIL. The proposal to increase CGT by 50% and disallow so-called “negative gearing” has the capacity to crash the property market.
  • Flexibility: Labor’s tax policies FAIL to accomodate emerging investment structures, such as

    Taxation systems should be flexible and dynamic enough to ensure they keep pace with technological and commercial developments.

  • Certainty and Simplicity:

    A simple tax system makes it easier for taxpayers to understand their obligations and entitlements. As a result, businesses will make more optimal decisions and respond to intended policy choices. Complexity also favours aggressive tax planning, which may trigger deadweight losses for the economy.

    FAIL. Bowen is creating a complex tax regime which will trigger aggressive tax planning.

  • Fairness: FAIL. Banning so-called “negative gearing” is quite unfair as it disallows valid deductions. It results in discrimination against individuals again, because whilst corporates can fund property investment from ‘cash cow’ business units, individuals will be barred from doing so. Wealthy individuals will simply set up corporations.

    Taxation should produce the right amount of tax at the right time, while avoiding both double taxation and unintentional non-taxation.

Bill Shorten likes to use the word “fair” all the time.

About 66,549 teachers, 47,200 nurses and midwives and 8,106 emergency services personnel negatively gear.

Of the 1.3 million Australians who declared a net rental loss, 588,169 were female.

Josh Frydenberg attacked Labor’s idea of ‘fairness’. “More than six in 10 of those tax filers making a capital gain have a taxable income under $80,000. Labor’s idea of fairness is not only to discourage those hard working Australians who save, but to punish those who do”.

Source: AFR

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