Tuesday, April 18, 2017

Housing:  Should the capital gains tax be increased?

Economist Jason Murphy below doesn't seem to know what he is talking about.  The reason not all capital gains are taxed is that most of them are simply an inflation effect.  He does not seem to know that.  Without the discount people would be paying for illusory gains. 

The discounts is certainly badly targeted in that it does not allow for how long someone has owned the property.  The previous system of discounting the value gain by a price deflator was much better.  I would certainly back a return to that.  But the present system does foster a quick turnover of property ownership, which should free up more housing for sale. So the solution offered by Murphy could make the situation worse  rather than better

THE pre-Budget period is a fun time.

The government is busy trying to make sure it won’t be another stinker like the one that brought down Abbott and Hockey. So its ministers are testing out ideas. They leak them to the press and watch: Does the idea get a bollocking?

In the case of using your superannuation to buy a house, the bollocking was good and proper.

Most people noticed the idea would add money to the housing bidding war while simultaneously draining people’s super balances. In my opinion the idea was a dud — a great way to transfer young people’s super balances to old people’s bank accounts.
And their bank accounts are big enough. This two bedroom house in St Kilda just sold for $1.35 million, $150,000 over reserve.

And their bank accounts are big enough. This two bedroom house in St Kilda just sold for $1.35 million, $150,000 over reserve.Source:Supplied

The government is now acting coy about the idea, so the chance of actually seeing it in the Budget papers on the second Tuesday in May must be skinnier than before.

Nevertheless they’re still promising a housing package. Doing something to make housing more affordable. The Treasurer has been out there saying he’s worried about the falling rate of home ownership.
The proportion of households that are homeowner households, by state.

The proportion of households that are homeowner households, by state.Source:Supplied

He is going to try a few things, and you can expect him to hit a soft target — vacant houses.

A tax on vacant houses is good in theory. There’s lots of stories in the press about vacant flats. But I have strong doubts about whether it will make a real difference.

The most widely-cited data are based on water use patterns, which suggest 4.8 per cent of all homes are vacant. That number depends on analysis that says if you use less than 50 litres of water a day, you count as vacant.

There’s plenty of reasons a house might use less than 50 litres a day and not be vacant in the classic sense, including weird people with a phobia of showers, or because of tank water, ill health, or frequent travel. If someone’s away for work every week and only home on weekends, is that house really vacant?

If you live alone in a flat, use a communal laundry, and sometimes shower at the gym, it’d be easy to come in under 50L a day. And it’s worth noting that most of the empty places they identify are right in the inner city. Most of those places are probably occupied, at least sometimes.

So a vacant property tax is likely, but it will mostly be for show. What we need is something effective. The Treasurer has ruled out negative gearing changes, and the super for housing idea is teetering on the edge of the bin, but there is one good idea he hasn’t ruled out.

Changing capital gains tax. Negative gearing gets all the limelight, but this is actually the big one. The capital gains tax discount came in 1999 (marked by the vertical line in the graph below) and you can see that across Australia, houses started getting more expensive shortly afterwards.

That’s circumstantial evidence, to be sure, but there is no question that the CGT discount makes investing in housing more attractive, and Australians have invested so much in housing that we’ve pretty much stopped investing in anything else.

The CGT discount works like this: An investor buys the property for $400,000, sells it later for $500,000 and gets a $100,00 capital gain. Instead of paying tax on the $100,000, they effectively “discount” the gain by 50 per cent. So they only pay tax on $50,000. It’s a pretty nice way of making money without paying much tax, especially if you’re buying property and flipping it quickly.

The government has mentioned the idea of cutting the capital gains tax discount from 50 per cent to 25 per cent (i.e. the investor would pay tax on $75,000 in the above example).

That could be a good way of getting housing out of the hands of investors and into the hands of owner-occupiers. (You don’t pay any capital gains tax on the family home.) But it will only work if ScoMo gets a few things straight.

The Treasurer hasn’t ruled out this change, but he seems nervous about changing CGT. He says mum and dad investors are important for increasing supply of rental properties, and he says the reasons they own those houses is for capital gains. He’s worried that if he makes them pay tax on capital gains, they’ll stop providing rental properties.

But he may be getting a bit mixed up. Whether they are rented out or owner-occupied, those properties exist. If they’re not owned by investors, they’ll be owned by someone who lives there. Most investors already have a house. So a renter will probably move in and become an owner-occupier in the process.

Of course, some caution is required. I’ve written before about the economic consequences of a housing crash. ScoMo is probably worried about pushing house prices — which are frothier than a beer in a dirty glass — into a downward spiral and getting the blame.

One way to make the change would be to do it slowly, reducing the capital gains tax discount from 50 to 25 per cent over time. Whether even that is too courageous for ScoMo, we will find out on Budget night.


Tony Abbott’s five point plan to regain voter trust

FORMER prime minister Tony Abbott wants Cabinet to consider his five point plan to reclaim the electorate’s trust, and called on Treasurer Scott Morrison to do more to balance the budget.

Speaking to Ray Hadley in his first spot as replacement to Mr Morrison who was dumped last week by the 2GB broadcaster, the former PM said Australia “is going to go badly” unless it takes urgent action.

“Everyone needs to live within their means government is no different than business and households,” Mr Abbott told 2GB radio.

“Our country has been living on the credit card and sooner or later it is going to go badly unless we take action.

“This budget is better than any time to get on with it.”
Former PM Tony Abbott has a plan. Picture: Hamish Blair

Mr Abbott’s call-to-arms comes as Mr Morrison prepares to hand down the federal budget in May.

Writing exclusively to the Daily Telegraph today, Mr Abbott outlined an alarming diagnosis of widespread voter malaise, saying politicians on all sides have lost the trust and respect of the people.

Mr Abbott says he took the temperature of a broad range of voters during a recent charity cycle ride and discovered that most Australians are sick and tired of politicians on all sides.

People are fed up with MPs saying one thing and doing ­another, he says, warning the situation is so dire, Opposition Leader Bill Shorten “could soon be in The Lodge”.

In a direct attack on Mr Shorten — and a thinly veiled swipe at Prime Minister Malcolm Turnbull — Mr Abbott says: “People are sick of politicians that are more talk than action and are especially sick of politicians who change their policies to suit their political convenience.”

Significantly, he ruled out seeking revenge for Mr Turnbull rolling him as leader and instead called on the government to lift its game.
The former PM said he’s been in touch with Middle Australians as part of his ride around the country. Picture: Ray Strange.

“The best way to keep Shorten out is not to sack an elected prime minister yet again but to ensure that the government does its job better,” Mr Abbott writes.

In what was being seen as a passionate call to arms, the former PM outlined his five-point plan for getting the government back on track, including dumping the Human Rights Commission, cutting renewable energy subsidies in order to reduce power bills and reforming the Senate to end the policy gridlock.

“People aren’t happy. There’s an added dimension of frustration with everyone in politics: with governments that don’t deliver, with oppositions that oppose just to score political points, and with minor parties that are all grievance and no solution.”
The problems with politics — and how to fix them.

Mr Abbott’s most recent attempt to steer the Turnbull government to the right was with a speech in February that was met with vehement criticism from his Coalition colleagues.

Finance Minister Mathias Cormann said at the time he was “flabbergasted” by that intervention, calling it “deliberately destructive” and “completely unhelpful”.

In response to Mr Abbott’s latest article in the Telegraph, some of his colleagues said while he was right about politicians failing to stick to their convictions, becoming more conservative would not work.

“Let Malcolm be Malcolm is ultimately the strategy we should pursue,” one said.

Mr Abbott has also taken aim at Mr Shorten and the “union-controlled, Greens-influenced Labor Party that still thinks Rudd and Gillard had good policies”.

“People seem to be working out that Labor is at least as responsible for our problems as the government,” he writes.

“In fact, not only did Labor create the debt and deficit disaster and the political correctness epidemic, but it’s now making it impossible to fix through its intransigence in the Senate.”


Greens urged to get real and  join farmers in push for quarantine improvement

Feral predators and introduced diseases have done more damage to Australia’s biodiversity than land clearing, fire or habitat loss, and it’s time the environmental movement joined farmers in pressuring the government for better quarantine laws, a new report says.

The study’s author, biologist and writer Tim Low, said green groups that put all their efforts into trying to halt environmental degradation would get more benefit per dollar spent from worrying about stopping the next lantana or cane toad as well.

“Australians think they’ve got the world’s best quarantine system, but really it’s a disaster in slow motion,” Mr Low said. “The conservation movement should be talking more about quarantine, even if that means saying a bit less about habitat loss.”

He pointed to the recent discoveries of myrtle rust (affecting trees) and white spot disease (at prawn farms) and said the Asian black-spined toad (a possible cold-climate cane toad) had been spotted in Australia. “There’s a widespread misconception habitat loss is causing most extinctions in Australia, but evidence doesn’t back that up,” Mr Low said.

He has recently produced a soon-to-be-released report for the Invasive Species Council showing that feral animals and introduced diseases pose a greater threat to Australia’s most vulnerable native wildlife than do most other factors.

The 20-page document, entitled “Invasive Species: a leading threat to Australia’s wildlife”, obtained by The Weekend Australian, summarises the work of dozens of authors. It shows that introduced feral animals, weeds and diseases pose a severe risk to more than three-quarters of all amphibian, mammal and bird species on the threatened species list and to more than half of all types of threatened plants, fish and reptiles.

Australia has lost more mammal species than any other country; feral cats and foxes are considered mostly to blame. The study points to only one extinct animal (the toolache wallaby) for which habitat loss is considered the primary driver of its demise.

Invasive Species Council CEO Andrew Cox said the danger was “not just ongoing, it is increasing”.

“The size of the threat is far bigger than what most people had believed. It is largely invisible and slow moving. As a result, government responses have been poor and often misguided, long after it is too late,” he said.


WHAT’S the most transgressive, the most dangerous thing a teenage girl can do in 2017? Have a baby — and want to take care of it herself

These kids knew enough to be rightly afraid of authoritarian social workers

In an era when teenagers are piercing and inking and Snapchatting and live-camming their naked bodies, there is one young western Sydney girl who chose to go ahead with a pregnancy nearly everyone else in her situation would have terminated.

Jenifer Morrison, 15, gave birth to baby Aria in hospital, and then — apparently motivated by terror of having her baby taken away by authorities — she ran away with her child and the ­father, an almost shockingly young-looking 14-year-old boy named Jayden Lavender.

Jenifer and Jayden are engaged and wanted to marry before the baby’s birth, but were legally unable to wed because they are both under 16.

Together with their tiny infant, they camped in the bush on a cold autumn night and, when police found them the following day, they said they were heartbroken at the prospect they would not be allowed to take their baby home.

There’s something deeply troubling about all this.

What is really best for baby Aria? To be shuffled between a dozen homes for the next decade? Even in the best-case scenario, to be adopted by strangers and to wonder for the rest of her life what would have happened if she’d been able to grow up with her own mum and dad — is that best? To be denied the chance to be with her mother and father — the two human beings with whom she has an unbreakable biological connection — ­because they happen to be young?

Aria has two parents who love her and want her. That makes her richer than a lot of children born in Sydney’s eastern suburbs.

I have no doubt that the officials who want to take Aria from her parents are motivated by the best intentions, and I’m not for a moment arguing they should have been simply left to look after Aria by themselves.

Jayden and Jenifer are, of course, still legally children. They removed the child from the hospital and took her into the freezing night air, which reflects about the level of commonsense you’d expect from a couple of young teenagers. There is no way they are capable of caring for a tiny baby without some serious adult intervention.

But don’t they get a chance to try?

I think it’s safe to say, without harming anyone’s reputation, that Jenifer and Jayden have not been the beneficiaries of outstanding parenting, given the fact they fell pregnant in the first place.

But someone has to break the cycle of slack parenting. And so why shouldn’t it be a 15-year-old girl and her 14-year-old boyfriend?

I think the desperate motivation to try, indicated by their terribly sad attempt to take Aria from the hospital, should earn Jayden and Jenifer a little credit.

There’s a reason we don’t hear these kinds of stories very often. It’s not because Jayden and Jenifer are particularly wicked or wild. In fact, it’s the opposite. Most young girls who get pregnant have abortions. Their babies get no chance at life whatsoever.

And the children born to dysfunctional or chaotic households — the ones who are taken away — are so often re-victimised by a care system that fails to give them the stability or the protection they deserve.

We let little children down all the time. It looks like more than a few people have let Jayden and Jenifer down. And now, when all they want is to live up to the opportunity they’ve been given in the snuggly pink form of baby Aria, we’re going to let them all down again.

I hope with all my heart Jayden and Jenifer get the chance to learn how beautiful and how hard parenting can be, with the support of people who know what they’re doing.

Surely, if our gleaming safety-net state can achieve anything, we can support these two and their baby to be safe, happy and together.


Posted by John J. Ray (M.A.; Ph.D.).    For a daily critique of Leftist activities,  see DISSECTING LEFTISM.  To keep up with attacks on free speech see Tongue Tied. Also, don't forget your daily roundup  of pro-environment but anti-Greenie  news and commentary at GREENIE WATCH .  Email me  here

1 comment:

PB said...

If he does balance the budget, the Free-Shit Army (FSA) will get upset and vote Labor and these days that's enough to get them in, and the media will declare him cruel and heartless. If he doesn't balance the budget the media stenographers are all over him for economic incompetence, and Labor gets in because Shorten continues to conceal Labor's abject culpability in destroying Australia's economy, something most voters seem to thick to remember.