Treasurer Joe Hockey is “flying blind” on the topic of negative gearing, amid revelations the Treasury has not modelled on the impact of federal taxes on house prices, Labor MP Jim Chalmers says.
Treasury officials today told a parliamentary inquiry that although house prices across Australia had grown strongly, the surging demand “doesn’t stand out particularly” when compared with historical data.
Jenny Wilkinson, the acting deputy secretary at Treasury’s macroeconomic group, stood by Treasury Secretary John Fraser’s evidence last month that there was “unequivocally” a housing bubble in Sydney and parts of Melbourne. However, she said, the evidence suggested “some pressure (was) coming out of the market in both Sydney and Melbourne”.
“Sydney house prices have gotten a lot of attention in recent years. If you look over Australia over all, and if you look over a long period, it’s not unusual to have cycles in house prices,” she told the House of Representatives inquiry into home ownership.
“Growing prices have always exhibited a reasonable degree of cyclicality, so this cycle doesn’t stand out particularly compared with previous cycles.
“Growth over the year to I think the middle of 2014 peaked at around about 12 per cent, that’s certainly a lower peak than a couple of the previous cycles, and it’s come down and is currently siting at about 9 per cent.”
Dr Chalmers questioned the officials about Treasury’s modelling on negative gearing, noting ratings agency Moodys’ estimate that negative gearing added 9 per cent, or $44,000 to the cost of a typical Australian home.
The officials advised that Treasury had no modelling on the impact of the negative gearing on the housing market.
Dr Chalmers asked: “So when the Treasurer … is providing advice to his state colleagues about what they should do, and they ask him what his analysis is of tax treatment including negative gearing, he doesn’t have any Treasury analysis to lean on? He’s just relying on anecdotal and other things he picks up around the place?”
Jenny Wilkinson, the acting deputy secretary at Treasury’s macroeconomic group, answered: “The Treasurer could always ask to do a piece of work on that but … Treasury hasn’t done any work on the impact of negative gearing on house prices.”
Dr Chalmers asked: “Right now, there is no Treasury analysis of the impact of the tax system on housing affordability?”
Ms Wilkinson replied: “Not to my knowledge.”
Labor is preparing an election policy on negative gearing although Mr Hockey has resisted the call for reform, citing fears it would cause “an increase in rents … that hurts lower income Australians who may be renting those homes”.
Dr Chalmers said it was “extraordinary” that Mr Hockey had not ordered such “fundamental” modelling from his department.
“This (government) tax paper has been out for some time, he’s been having conversations with his state colleagues, it’s been in the front of mind of policy debate in this place and around the country, and we’re flying blind on the impact of federal policy settings on the conversation,” Dr Chalmers said.
Ms Wilkinson said house prices had grown consistently across Sydney and were not concentrated in any particular sub-region of the city.
Building approvals increased more than 16 per cent in the year to April 2013. Government forecasts point to a 6.5 per cent increase in dwelling investment this year and next and 4.5 per cent in 2016-17.
“This is going to be a period of quite significant increase in supply in the Australian market,” she said.
The ratio of dwelling price to household disposable income increased in the late 1990s and early 2000s, coinciding with low inflation and deregulation of the financial markets. Since 2002, that ratio too had been broadly stable.
“This ratio has picked up a little over the last year but it remains around the average level it has been sitting for the last decade or so,” she said.
Dr Chalmers, who is Bill Shorten’s parliamentary secretary, was chief of staff to Wayne Swan as treasurer. He was also deputy chief of staff to Kim Beazley as opposition leader, and a senior adviser to NSW premier Morris Iemma.
This article first appeared in The Australian Business Review