An internal RBA document from December 2014 was recently released under freedom of information legislation, suggesting that limiting negative gearing could have positive implications for the economy.
The document states, “Any change which discourages negative gearing may be a good thing from an FS (financial stability) perspective.”
It also notes that discounts on capital gains taxes “might encourage leverage speculation, particularly in combination with negative gearing provisions.”
Treasurer Scott Morrison has snubbed the information, stating that it is outdated, not official advice and predates APRA’s (Australian Prudential Regulation Authority) suggestion to banks to introduce stricter investor lending.
The document also says that changes to negative gearing policy could potentially increase rents, with money lord Morrison citing a recent paper by credit rating firm Moody’s when advising these changes would provide a “negative shock to the property market.”
He also argues that the high cost of housing is not a nation-wide problem, but confined largely to the Sydney and Melbourne markets. The best way to combat this, he says, is to boost the supply of new homes, going on to give NSW premier Mike (Casino) Baird a big pat on the back for his upcoming “supply pipeline” of new property.
The Labor party has proposed limiting negative gearing to new properties only, starting July 2017. This would leave current negatively geared properties unchanged, or ‘grandfathered.’ The RBA document says that failing to grandfather these changes could lead to a mass-selling of properties.
Mr Morrison again used the sensitive economic transition to justify the Turnbull Government’s stance on the issue.
“This is a very sensitive environment and why it’s so important to have a strong economic plan to drive jobs and growth.”
The issue of housing affordability is sure to be a hot topic item in the upcoming federal election, with both sides fiercely adamant in their views. And with Bill Shorten claiming massive budget savings from the limiting of negative gearing alone, it looks set to be a very interesting battle.
Sources: RBA, News.com.au