I am just staggered by the ignorance and laziness of very many journalists. So many prefer to write unsubstantiated and personal opinions, while various rent-seekers get in their ears.
But I am particularly staggered by the quality of business reporting. I see that Ian Verrender, having taken a redundancy payout from FauxFacts, has popped up at the ABC as its Business Editor. Is this some kind of joke?
Verrender hates business with a passion and he never lets facts get in the way of his arguments. His view of business people seems to be that they are rapacious and immoral, many of whom should be in jail.
And here is a little policy tirade from Business Spectator:
Actually, there are major holes in the existing tax regime that serve no policy purpose and which, if plugged, would benefit the budget bottom line by billions of dollars. The three main offenders are: negative gearing, superannuation tax concessions, and the salary packaging of vehicles owned by people who do not use them for work purposes.
The first, negative gearing, was introduced to increase the housing stock and thus to keep rents and house prices down. It has comprehensively failed to do that, and is thus just a way to shift tax burden from those who choose to invest in dwellings, to those who invest in other assets such as shares, bonds or gold.
Yep, it’s an utterly pointless and unfair tax break that benefits some tax payers, and not others. And the last Labor government chose to ignore reform of this market-distorting tax because, well, it’s a political nightmare to correct.
Wow, where do you begin? This guy knows absolutely nothing. The ability to deduct the cost of investing applies to all classes of investment and always has. Without it, there is double taxation – taxation of the revenue received by the lender and taxation of the cost of the encumbrance borne by the borrower. Eslake and the Grattan Institute are completely wrong on this point.
(And on the author’s other two points, again, knowledge or insight have not got in the way. For example, it was Assistant Treasurer Shorten who changed the FBT rules to those currently in place and argued they were a great reform.)
The argument about negatively gearing was set out beautifully by one of Australia’s finest economist, Professor Bob Officer:
House prices attract everyone’s attention; we are all involved one way or another. On many measures Australian house prices are high relative to other developed economies. Many are arguing they are too high and threaten to collapse; some of these people have been arguing that way for almost a decade and still they have risen.
Among those in the too-high camp have been proponents of removing “negative gearing”, as at least a partial solution to their perception of a problem of a resource misallocation with adverse wealth distribution effects. It would be a big mistake, theoretically and practically, to target property with such an action.
One of the basic principles of optimal resource allocation in an economy is to treat all asset classes the same way when applying a tax.
Removal of negative gearing effectively double-taxes debt capital since the interest is taxed in both the hands of the borrower and the lender. In a similar vein, we have been there with a classical tax system that double-taxes dividends, but fortunately Australia has removed that flawed tax system.
To remove negative gearing on property that would result in a double tax on interest on debt is going backwards.
It is sometimes asserted that negative gearing does nothing to increase the supply of housing because most investment property is for established dwellings.
What causes negative gearing to suspend the laws of supply and demand? To the extent that negative gearing increases the demand by investors for housing, causing house prices to rise, resources will be attracted into housing, thus increasing the supply of housing.
There are studies suggesting that our relatively high house prices are a supply issue: that is, the lack of the release of land and the associated tax and regulatory cost of development cause the supply to be restricted because of the greater cost to adequately compensate for these imposts. But this has nothing to do with negative gearing. It is a separate set of issues.