05 Mar PIPA called on to explain negative gearing fears – Peter Koulizos
Further to concerns that Labour may just win the next federal election and then fulfil their promise, or threat, of fiddling with negative gearing, there was a round table held in Canberra recently. The PIPA chairman, Peter Koulizos was invited to attend and he joins me to talk about what was discussed.
Kevin: Further to concerns that Labor may just win the next federal election and then fulfil their promise of fiddling with negative gearing, there was a round table held in Canberra recently. The PIPA chairman, Peter Koulizos, who’s a regular contributor to our show, was actually amongst those at the meeting. He joins us to talk about that.
Kevin: Peter, thanks very much for your time. What was behind the meeting? Who called it?
Peter: The Liberal Party did, more so the Assistant Minister to the Treasurer. The Treasurer was there, the Prime Minister also popped in for about five to 10 minutes and spoke to the people in the room.
Peter: Now, the people in the room included the CEOs of the Property Platform of Australia, the Master Builders Association, Real Estate Institute, Urban Development Institute of Australia, so some of the big property heavyweights. There was a couple of CEOs of property research companies there as well such as Louis Christopher, he was there. They just wanted to get a better understanding of the impact of the proposed changes by the Labor Party to negative gearing and capital gains tax.
Peter: So you got input from people that were involved in building, you got input from people like ourselves who are more focused on the investor, and then you also got people that provided input on a general basis as to what it will do for housing starts, property prices and so on.
Kevin: Well, we’ll get to what you believe were some of the outcomes of that meeting in just a moment, but it occurs to me that it probably wasn’t the best audience for you to be called to. I mean, surely you should’ve been talking to the Labor Government, or the labor Party.
Peter: Unfortunately I didn’t send out the invitation, Kevin. We would love to. We would love to have the same opportunity with the labor Party to give them our impression what the impacts will be if they were to introduce these changes.
Peter: But we take what we can get. We were more than happy to meet with the Prime Minister, Treasurer, and Assistant Minister to the Treasurer to give them our point of view.
Kevin: Do you think they’ve got it all? Have they got enough to put a convincing argument to the people of Australia as to why it could be a dangerous move?
Peter: Yeah, well, look, just two simple examples that I brought up, just to give you an idea of what happened. Almost exactly the same thing happened in 1985 when the labor Party fiddled with negative gearing and introduced capital gains tax. The two years from the introduction of those initiatives, property prices dropped by 10% and housing starts dropped by 27%. Now, I’m not saying exactly the same thing’s going to happen, but it’s like history repeating itself. We don’t know how bad it will be, but it was certainly bad 30 years ago.
Peter: The other explanation that I gave was, if you only encourage investors to buy new property, then you’re going to have the opposite effect that you want so far as the federal budget is concerned. What you’ll be doing is you’ll be handing out more tax benefits to investors, because new properties have a greater depreciation benefit, but because generally new properties don’t appreciate as well as established properties, you will be earning less in capital gains tax. And overall, when everything is included, Federal Government makes money from property. Yes they dish out some in negative gearing benefits, but they earn far more in capital gains tax revenue.
Peter: So the point I tried to make to the group was, you are far better off keeping the 50% discount and getting a 50% tax on a huge amount of capital gain than getting a 75% tax on a very small capital gain. Certainly the people in the room understood that. Whether the decision-makers in the labor Party [inaudible] understand, that’s a different story.
Kevin: There was some powerful minds in that room, in that meeting. Were there any comments made by other groups or other parties that maybe hadn’t occurred to you that you thought were really good points?
Peter: Yeah, look, Louis Christopher mentioned the drop in housing starts from 1985 to 1987, which I wasn’t aware of. I just focused on what happened to property prices. There were a few gems provided by some of the big organisations, ’cause they’ve got their own little research departments who can focus on their particular area, whether it’s a building start, housing finance, but Mark Bouris was there, for example, and he talked about how the lenders would react to this.
Peter: So, yeah, look, it was a great discussion. Everyone got an opportunity to have their say, and now we all have a much better idea because everyone gave their perspective of what the possible impact could be.
Kevin: Well we can certainly hope that you get the same opportunity to have a talk to the labor Party, maybe enlighten them a little bit as well.
Kevin: But Peter, thank you very much for joining us. Congratulations on your work and please keep us in touch.
Peter: Will do. Thank you very much, Kevin.