Treasury told the federal government more than a year ago that it didn’t agree Labor’s plan to reform negative gearing would definitely lower property values.
The government has argued staunchly against Labor’s proposals, claiming they will “smash home values with a sledgehammer”.
But documents obtained under Freedom of Information laws by the ABC show the government asked Treasury in January 2018 to check its statements about the impact of the policy.
Treasury told the Coalition that it should not even claim home values “will” fall under Labor’s proposed changes – which include increasing capital gains tax and maintaining negative gearing only for people buying new homes and those who already use the tax break.
“We did not say that the proposed policies ‘will’ reduce house prices,” the department told the office of then-acting treasurer Kelly O’Dwyer in an email released on Wednesday.
“We said that they ‘could’ put downward pressure on house prices in the short-term depending on what else was going on in the market at the time.
“But in the long-term they were unlikely to have much impact.”
Negative gearing allows investors to deduct rental losses from their income tax bill. Labor estimates its planned reforms would add an estimated $3 billion to the budget each year.
In February, Prime Minister Scott Morrison, Mr Frydenberg and Assistant Finance Minister Zed Seselja held a “housing industry round table” in Canberra to “hear first-hand their serious concerns about Labor’s housing taxes“.
Attendees included the Real Estate Institute of Australia, Property Council chief executive Ken Morrison, Master Builders Association chief executive Denita Wawn, and Wizard Home Loans founder Mark Bouris.
Among those who were not invited were leading housing academics and economists from Australia’s universities and representatives of the one-third of Australians that rent.
Despite Treasury’s official advice from January 2018, Treasurer Josh Frydenberg has consistently argued that anyone who owns their own home will see its value fall under a government led by Labor leader Bill Shorten.
On Wednesday, Mr Frydenberg argued the department had underlined problems with Labor’s policy, especially if it was rolled out at a time of weakness in the housing market.
“At a time when we are seeing 10 per cent falls in key markets like Sydney and Melbourne, the Labor party is promising to put in place a $32 billion housing tax,” Mr Frydenberg said.
Labor’s plan to abolish negative gearing is a shambles.
They can’t even say when their signature policy will start & their frontbench can’t agree if it will send house prices up or down!
No wonder voters have turned off their big new housing tax. pic.twitter.com/TpojGb3Dxj
— Josh Frydenberg (@JoshFrydenberg) December 16, 2018
But shadow treasurer Chris Bowen said Mr Frydenberg had been caught out lying – and the government had been caught red-handed” misrepresenting official advice.
“Our negative gearing policy is carefully designed,” he said.
“It spurs investment in new construction by limiting negative gearing to new construction. All existing investments are grandfathered.
“It’s properly designed to ensure that it can be implemented in a way that is positive for the economy.”
Former senior public servant Andrew Podger told the ABC that Treasury’s advice would have been “very carefully” prepared and he praised the department for its “pushback”.
“Treasury’s main concern would be that it should not be misrepresented, and it should not itself be drawn into the partisan battle,” he said.
Treasury first told Mr Morrison, the then-treasurer, in early 2016 that it did not expect Labor’s negative gearing and capital gains policy to have a significant impact on house price.
“Previous changes to negative gearing … and the introduction of the [capital gains tax] discount … had little discernible impact on the market,” officials wrote three years ago, according to the ABC.
“[But] the housing market itself has been highly cyclical and it is possible that uncertainty arising from the policy change itself could compound upon a cyclical downturn that may be underway at the time.”
The national median cost of residential property has peaked and started falling in that time. However, the median is still higher than it was three years ago.