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Transcript of interview with Barrie Cassidy: ABC Insiders: 14 February 2016: Labor's plan to fund health & education - and balance the Budget; Scott Morrison's bad week



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CHRIS BOWEN MP SHADOW TREASUER MEMBER FOR MCMAHON

E&OE TRANSCRIPT TV INTERVIEW ABC INSIDERS WITH BARRIE CASSIDY SUNDAY, 14 FEBRUARY 2016

SUBJECT/S: Labor’s plan to fund health & education - and balance the Budget; Scott Morrison’s bad week.

BARRIE CASSIDY, PRESENTER: Now we'll go straight to our Sydney studios where we're joined by Shadow Treasurer Chris Bowen. Good morning, welcome.

CHRIS BOWEN, SHADOW TREASURER: Good morning, Barrie.

CASSIDY: As it stands at the moment, 7 per cent of negative gearing applies to new homes. So, in effect, you're wiping out almost all of the negative gearing investment?

BOWEN: No, what we're doing, Barrie, is saying if you want to grow your wealth through negative gearing, if you aspire to do that we embrace that but all we ask is you work with us to ensure we can build the housing supply.

The answer to housing affordability, which is at crisis levels, is to have more houses and apartments being built. Now, the proponents of the current arrangement say negative gearing increases housing supply. It doesn't. It’s a falsehood. 93 per cent goes into existing properties and that means, in effect, if that's your policy objective you've got a failure rate of 93 per cent. So we want to see negative gearing continue but we want to put it to work for the economy to create jobs, 25,000 construction jobs a year, but even more importantly than that, to be creating new supply. We'd work with states and territories to ensure that new supply comes onboard to meet the increased activity which would result from our policy.

CASSIDY: Let's look at some of the impacts then and first of all on rents. Now the housing industry, and they're not alone, some economists have been saying this, they've been warning for a long time that it will lead to increased rents and it makes sense in this sense, I suppose, because landlords, if they can access negative gearing, then they will accept lower rents?

BOWEN: Well, Barrie, that's a complete fallacy based on a complete misunderstanding of what happened in the 1980s. You will hear this myth that when negative gearing was abolished in the 1980s rents went up, that's a fallacy. They

went down in many capital cities, they stayed the same in others. They only went up in Sydney and Perth for reasons completely unrelated to the negative gearing policy.

Now in relation to the impact of this policy, of course we want to grow the housing supply, that is the best answer for housing affordability both at rental and purchasing level and we have grandfathered every existing investor, so there's no incentive for them to leave the market and even if some did, even if some landlords sold their properties as the Grattan Institute has pointed out, one less land lord means one less renter as renters move into the home ownership category.

CASSIDY: Well the Housing Industry Association says 78 per cent of those that use negative gearing now on rental properties earn less than $100,000. They're your ‘mum and dad investors’, so you will be hurting the middle income earners, that's their argument.

BOWEN: Again, two points. Fallacies. Two points: firstly, people will be able to continue to negatively gear. We just invite people after 2017 to work with us and buy new houses and apartments to build supply, and secondly, we know that half the benefit of negative gearing goes to the top 20 per cent of income earners. The idea that somehow it's cleaners and nurses who are getting the huge benefit out of negative gearing is just not right. Of course many people do it right up and down the income scale but the vast bulk of the benefit goes to high income earners. Now we want to see negative gearing remain but we want to put it to work.

CASSIDY: That's fine for middle income earners now who are already into negative gearing but it blocks it out for the next generation.

BOWEN: No, that's not right, Barrie, because you find new houses and apartments right up and down the price scale. You see, sure, expensive houses being built, you see affordable houses being built, people can invest in apartments which are cheaper than houses so it will still be available. What we want to do is see new housing stock come on.

This is a big, bold policy reform which puts first homebuyers on a more level playing field. At the moment, first homebuyers turn up at an auction with very little government support. People buying their second, third and tenth home have negative gearing and the capital gains tax discount which combined are the most generous tax incentives in the world.

When you have sort of Budget pressures we have, when you have the housing affordability crisis we have that's not fair, it's not sustainable.

The capital gains tax discount is one of the fastest growing concessions in the Federal Budget. We're the only party with a policy to get it under control.

CASSIDY: Is there a risk people will rush out and buy established homes before July 2017 and that will lead to a bubble and the bubble will pop after 2017?

BOWEN: Well obviously Barrie, we considered in our policy development, we've been working on this now for 12 months, it was around this time last year I first flagged that this would be on Labor's policy agenda. We looked at all sorts of options. Of course, we could have announced a retrospective tax, we could have

announced it's effective from today or from election day. Both Bill Shorten and I have a strong view against retrospective taxes, that we're giving plenty of lead time to allow for the market to respond and for people to think about the implications for their own personal circumstances, plenty of lead time for supply to adjust for property developers to think about the increase in demand for new stock. That's the right thing to do.

Now of course there will be changes in investment activity for all sorts of reasons, not least of which tax but the general property market, the general economy, but we’re flagging our intentions very early and clearly so they can be taken into account in a proper way. And of course so that the Australian people can vote on competing plans at the next election. So far we're the only side turning up at the election with any plans.

CASSIDY: But still, do you accept that there could be a rush for existing homes and that could create a bubble?

BOWEN: The word bubble was first used by the Secretary of the Treasury about current settings. What I'm pointing out is people will obviously be able continue to invest in existing homes after 1 July 2017, they will be able to continue to invest in those for rental purposes, but if they want to claim their losses on their property against their salary, then they will need to invest in new houses. I think that will lead to an increase in supply in new houses and apartments. That makes sense, that's sensible, I think people will continue to make investment decisions based on the fundamentals. Of course tax will be just one of their considerations.

CASSIDY: They will make investment decisions but isn't it riskier to invest in a new home rather than an established one?

BOWEN: I don't think so, Barrie. There's an ABS definition of a new home. It's one that's been built in the last 12 months and where the taker out of the loan is the first owner of the property after the developer. That's not in any sense any more risky than buying an existing property.

There's an element of risk to any investment. So some people think property never goes down, sometimes it does, but that applies to existing properties as well as new.

CASSIDY: Scott Morrison, in the column that Katherine referred to, under the headline ‘It's a silly idea’, one of the criticisms he makes of it is there's not a lot of revenue, not in the first four years anyway. You talk $30 billion over 10 years but he points out $600 million over the first four years.

BOWEN: A couple of points. Firstly, we look at structural saves over the long term which do take a while to build up but the Budget needs long-term repair and so this is a change which doesn't have a huge impact in the first four years, we want it to build up. The reason for that is because we have grandfathered everything, now Scott Morrison in his consideration is not going to grandfather. If he's going to get bigger returns to the Budget in the first four years by whacking into existing investments he should say so. He should rule out doing that because that's the clear implication of his criticism.

But I almost feel sorry for Scott Morrison this week, he's had a shocker. He's had the GST taken away, he’s had his best mate Stuart Robert sacked against his wishes, and now he's reduced to a pathetic response in the papers saying ‘this is a bad idea but I'll think about it’.

CASSIDY: And he will think about it. He says he's keeping an open mind on the issue as he prepares the Budget. Do you think in the end they will go down a similar track?

BOWEN: They will be all over the place, just as they were on high income super. When we announced a high income super policy last April, Scott Morrison led the charge against it, said it was an outrageous attack on the incomes of Australian, he wouldn't stand for it, he'd be the last man at the barricades defending super and now he's going to do that as well.

This is the problem for you as commentators, Barrie. Frankly when you've got a Treasurer who has no economic framework, who doesn't stand for anything, it's very difficult to predict what he will do because he will condemn us for a policy one day and then within the year, adopt that policy or go further.

All I can do, with Bill Shorten, is lead the debate. That's what we've been doing. High income super, multinational tax, tobacco, emissions reduction fund, opposing them on the baby bonus and yesterday's very significant announcement, the biggest economic policy announcement from an Opposition in a generation, I think, that shows we are prepared to go to the election with a big, bold policy agenda and Scott Morrison and Malcolm Turnbull are engaged in an ever lengthening talkfest where they fail to come up with any costed detail plans.

CASSIDY: And part of yesterday, and briefly, running out of time but it was on capital gains concessions and those concessions are there to encourage investment. Have you just reduced that incentive to invest by half?

BOWEN: We've looked carefully at its fairness and sustainability. Look at the Murray Inquiry into financial systems. That recommended reviewing these concessions with a view to reducing them because they were very worried about the impact on financial stability, of over-investment in some sectors of the economy. Any sensible or prudent government or opposition will look at that very carefully. That's what we've done. Secondly, it's not fair. 70 per cent of the benefit of the capital gains tax discount goes to the top 10 per cent of income earners.

I'll say that again. 70 per cent of the benefit goes to the top 10 per cent of income earners. It's not fair, it’s not sustainable and as David Murray pointed out in his review it's risky.

CASSIDY: Can I ask you finally about you trail significantly in the opinion polls in an election year, on average 47-53, two-party preferred. Governments have come from behind and won, oppositions rarely do. You have a lot of work to do.

BOWEN: We're going to do it by leading the policy debate, as Bill Shorten did yesterday. He showed great courage yesterday in leading the debate, going out with an idea that many would say was courageous. We don't shy away from that. We embrace it and we are looking forward to the next election because Malcolm

Turnbull, we will be showing, is all talk, no action and he leads a scandal-plagued government which has a fortnightly reshuffle focused on themselves, while we're focusing on the big picture, the big issues and the big reforms.

CASSIDY: Chris Bowen, thanks for your time.

BOWEN: Nice talking to you, Barrie.

ENDS