Australian PM decries ‘sledgehammer’ tax plan

Sydney / Bloomberg

Australia’s government ruled out curbing a tax break for property investors as it woos homeowners ahead of an expected July election.
Prime Minister Malcolm Turnbull confirmed there will be no reform of so-called negative gearing, which allows investors to deduct the costs of owning a rental property, including mortgage interest payments, from their taxable income. That counters the opposition Labor party’s proposal to remove the break on existing properties from 2017, which the government says will savage the entire housing market.
Turnbull is betting that Australians will recoil at the prospect of any threat to their house values, in one of the world’s most privately indebted nations. With his governing coalition neck-and-neck with Labor in recent polls, and his own popularity on the slide, the Prime Minister has mounted a campaign warning homeowners that removing negative gearing will be a significant blow to their personal wealth.
“Labor’s housing tax plan will deliver a reckless trifecta of lower home values, higher rents and less investment,” Turnbull said in a joint statement with Treasurer Scott Morrison on Sunday. “Labor is taking a sledgehammer to the ambitions of mums and dads who want to invest — whether it’s established houses and apartments, commercial property, shares in listed companies or shares in their own business.”

Delayed Reaction
The government has taken more than two months to announce its official stance on negative gearing, following the release of Labor’s policy in early February. In a television interview later that month, Morrison said there were “excesses” in the current rules.
House prices have jumped almost 55 percent in Australia’s capital cities in the past seven years as mortgage rates dropped to five-decade lows. Prices in Sydney have since fallen after a regulatory clampdown led to a slowdown in mortgages to landlords and the first increase in borrowing costs in five years.
Turnbull has seen his government’s lead in opinion polls over Labor dissipate since seizing the Liberal Party leadership from unpopular predecessor Tony Abbott in September. He’s now seeking to overcome voter perceptions that the coalition lacks direction, and has little in the coffers to offer as pre-election sweeteners when the government announces its budget plans on May 3.