Associate Director Kathy Lindsay discusses the Federal coalition's potential strategy to stymie Bill Shorten's seemingly unbeatable election position.

Unusually in this country, the next federal election could be decided by a genuinely important economic argument: Labor’s plan to restrict negative gearing on housing investment to new builds and to halve the current 50 per cent discount on capital gains tax (CGT) applying to residential property.

It is uncommon for a governing party to contest a general election on economic policy reform and rarer still for an opposition to choose that arena. The record shows why.

Most recently, though all of 20 years ago, John Howard’s Liberal/National coalition offered voters a goods and services tax (GST) and was punished by a 7.7 per cent primary swing that almost cost it office after one term. Earlier, in 1993, John Hewson staked the Liberal campaign against a tired government on a GST-focused economic reform policy, Fightback! The ALP gained a 5.5 per cent swing, Fightback! became “the longest suicide note in Australian political history” and Paul Keating, once Labor’s keenest GST fan, was returned as the tax’s most savage opponent.

So, it’s reasonable to conclude that Labor’s housing tax policy offers the best chance of survival to Scott Morrison’s knife-edge government.

Why then does public opinion and mainstream news coverage still lean heavily towards victory for the Bill Shorten-led opposition?

Two prime ministerial turnovers in five years and more than 40 consecutive Newspolls with Labor in front obviously matter. But also the property issue has received surprisingly little attention until recently. Presumably, the Coalition parties were previously too busy agonising over their own leaders’ electability to seize an obvious strategic opportunity.

In early October, new Treasurer Josh Frydenberg wrote an op-ed in The Australian asserting that Labor’s policy threatened any prospect of a property recovery, kicking off the debate afresh.

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The atmospherics around Labor’s property proposals are likely to continue assisting the Coalition. The recent velocity of the housing downturn suggests prices and activity will slump lower by April, when campaigning hits high gear. Voters, for most of whom housing is the biggest financial commitment and store of value, could be looking seriously at 15-20 per cent falls in Sydney and Melbourne from the mid-2017 peak and thus more receptive to claims that Labor’s plan will only make matters worse.

ALP finance spokesman Jim Chalmers and shadow treasurer Chris Bowen, who have carriage of the policy, appear unshaken. They do have the advantage of the negative gearing/CGT issue being recognised Labor policy since before the last election and ostensibly affecting only investors. Labor has further defended itself against a property-owner backlash by “grandfathering” current investors from its proposals.

The Opposition needs, however, to guard against complacently assuming its near-win in 2016 (and every Newspoll since September that year) confirms voters have already factored housing tax reform into their voting intentions. The last election was characterised by fear-based campaigning, in which housing tax played a lesser role than, for instance, Labor’s “Mediscare”. Whereas in 2019 the Coalition, with fewer cards to play and presumably no ace up its sleeve, looks likely to rely on growing concerns around the property market.

The Coalition can argue that, even assuming a Shorten government keeps its promise to ring-fence current investors, all residential property will be negatively affected. That’s partly because a Labor win would prolong and deepen the downturn by further squeezing-out investors. Conversely, Bowen argues that most housing investment will redirect to new building while conceding his plan will have a modest downward effect on prices.

Additionally, the Coalition will contend, when a broad housing recovery does take hold, the market will re-set at a lower level than had property taxation remained unaltered. That, after all, is Labor’s implied intent.   

The ALP proposals, and the Coalition’s status quo positioning, mark an important issue affecting most voters, one way or another - be they multi-property investors or renters-for-life. Housing is valued at around $6.9 trillion, against $2.7 trillion for superannuation. Households have more than half of their wealth in residential land and dwellings, according to a June 2016 CoreLogic estimate, and investors own 24 per cent (around $1.7 trillion) of housing stock.  

On the other hand, there is agreement among voters that the cost of home ownership has become prohibitive for many young families, and that it was unhealthy for prices to continue to soar, investor-driven, as they had for five years up to mid-2017.

There are important economic and social issues at stake.  That’s the best reason for putting a significant tax change to the vote.