For decades, negative gearing and capital gains tax reform was politically toxic. It was backed by the Greens, but neither major party wanted to go near it for fear of a scare campaign from their opponents, even though the case for reform was compelling — as even Joe Hockey admitted in his valedictory speech, as even Scott Morrison acknowledged when he referred to “excesses” of negative gearing. Then Labor went there in an act of policy bravery unseen from an opposition for several parliamentary terms.
Fortune favoured the brave. The resulting Liberal scare campaign was crueled from the start by over-the-top claims from senior ministers, the government’s own abandonment of meaningful tax reform and a decision by Turnbull to avoid negative campaigning in the 2016 election. After the election, we found out Treasury had given Scott Morrison very different advice to what he claimed about Labor’s policies. You wonder what would have happened if Tony Abbott, the master of cut-through negative messaging, had still been Prime Minister.
But ultimately, the problem for the government was that, despite its efforts to portray the beneficiaries of negative gearing as battlers living hand-to-mouth on Struggle Street (with an investment property round the corner on Tough Terrace), most of the people affected by Labor’s policy were middle and high-income investors who don’t vote Labor.
Now Labor’s trying again, fixing the refundability in the dividend imputation system introduced by the Howard government at a point when Howard was in deep trouble with his political base. There are some similarities with the negative gearing and capital gains tax reform: we know the government has already itself looked at this exact issue — its 2015 tax reform discussion paper devotes a section to refundability. And very few of the beneficiaries of refundability, wealthy shareholding seniors and self-managed super fund holders, would vote Labor even if you pointed a gun at them — in contrast to the Liberals, which descended into internal warfare over relatively modest proposals to curb the abuse of super tax concessions by the wealthy.
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On the other hand, the targets are a more tightly defined group. And they have their own media — the people affected by the changes are basically The Australian’s readership — old middle and high-income retirees. The Oz has already swung into campaign mode, although some of its economic commentators have offered half-hearted support, and Simon Benson invoking “class war” in his very first piece perhaps doesn’t leave a lot of room for dialing up the hysteria in coming weeks. The ABC, too, with is older, wealthier audience can be expected to provide a sympathetic ear to the complaints of seniors grumpy that their hundreds of thousands of dollars of shares won’t deliver quite as much tax-free income. And you can bet that at the next election campaign, all that high-minded restraint about negative campaigning will be long gone.
But, unusually, The Australian is correct. This is about class war. It’s a war waged by wealthy older Australians on lower-income Australians and younger Australians, and it’s one they’ve been winning for decades courtesy of their political power. They’ve won on the housing front, forcing up prices through tax subsidies and NIMBYism. They’ve won on the superannuation front, turning our retirement incomes policy into a colossal vehicle for tax avoidance. They’ve won on private health insurance, with massive subsidies for themselves and the threat of punitive taxes for young people if they don’t sign up. They’ve won on the education front, enjoying high-quality free or subsidised higher education while imposing expensive, poorer-quality higher education on their kids. Traditionally, both major parties have fallen over themselves to look after them. But Labor has decided to slightly reduce the massive benefits that flow to this class. They did it in 2016 with negative gearing and capital gains tax reform. They did it last year with taxation of trusts (another area Joe Hockey flirted with). Now they’re doing it again.
The result will be fascinating for those of us concerned about the broader direction of politics and the sense of disempowerment that is driving populism around the world. This will be a bare-knuckle brawl between a very powerful interest group in the electorate and a major political party, an intersection of policy virtue and raw power politics. Buckle up.