By Crispin Hull

IT WAS a coincidence, but last week Australia’s population hit the 24 million mark  (doubling since 1968) and the Federal Opposition announced changes to the tax system that it hopes will make housing “more affordable”.

Labor argued that increasing the capital-gains tax and abolishing negative gearing for future investment in existing dwellings will cause money to flow to new dwellings. Many more will be constructed. Demand for existing dwellings will fall as new investors leave that market. So prices will level. And the housing crisis will be solved.

They are dreaming.

Negative gearing and capital-gains tax concessions are but a small contributor to high housing prices.

The most obvious and significant contributor is increasing population. While this continues and dwelling construction does not keep up, housing prices will continue to rise and put housing out of reach for many young people.

That does not mean we should go out and build more houses. Rather we should cut immigration – radically. Former Foreign Minister and NSW Premier Bob Carr had it right when he said it should be cut in half.

He should know. As State Premier he had to cope with all the problems caused by the bulk of migrants moving in to the Sydney basin – housing being the primary one.

The easiest way to relieve housing stress is to reduce population growth. But the major political parties are reluctant to do that because their mates who fund them make so much money out of high immigration and the inequality of income that goes with it.

So we continue with a nationally disastrous policy of high immigration levels set by the Federal Government which puts increasing financial pressure on the states to provide infrastructure. And the states in turn put their hands out for federal money to meet that demand.

It was silly of Treasurer Scott Morrison last week to liken the relationship between the state and federal governments as two businesses.

“In no business in this country would anyone just accept someone walking into their office and saying the increase in cost is 8%, give me the cheque,” he said.

False analogy. The two levels of government are intricately linked.

Continued high immigration set by the feds is costing the states dearly.

And federal tax incentives for women to have more babies does not help either.

In many ways the fiscal mess we are in now stems from decisions of the Howard-Costello Government.

They blew the proceeds of the mining boom with tax cuts to buy votes. They slashed the capital gains tax. They slashed taxes on superannuation. They gave a big baby bonus for the third child. They increased the first-home buyer’s grant creating huge housing demand because people did not want to miss out on a “freebie” from the government.

And we wonder why there is a housing affordability crisis. And we wonder why the Budget is in disarray.

By the way, improving “housing affordability” is a silly euphemism for lower house prices. It is a politician’s way of saying one thing to those wanting to buy their first dwelling and another to those already owning their own home.

To the first group they are saying we will bring prices down to make your first home “more affordable”. To the second they are saying, “We know your home is your main asset and we will not let its value fall.”

Five months ago, when Malcolm Turnbull came to power the Australian people were supposedly no longer going to be treated as fools with slogans and simplistic solutions. We were going to be brought into a debate.

But last week he buckled to the trite “will you rule out XYZ” pressure.

He came under pressure from the Labor Party and “ruled out” any increase to the GST.

But it was a good five months while it lasted. There was a debate. There were numerous contributions from an array of honest commentators as well as the usual self-interested rent-seekers.

It is a pity that it was not taken further, by both sides.

So let’s go back to Labor’s proposal. It was a pity it was not just put on the table as an option for testing by those intelligent, knowledgeable Australians.

Any actuary, accountant or Year 12 maths student could have told them of the serious difficulty with their capital-gains-tax proposal.

The better thing to do would be to go back to the position before the Costello idiocy. We should tax all the capital gains with an allowance for inflation.

But no, Labor wants a simplistic policy of a 25 per cent CGT concession to replace the present 50% concession with no allowance for inflation. That seems to give some concession to people who make capital gains while at the same time seeming to hit the rich.

In fact, Labor’s proposal will result almost arbitrary levels of tax rising dramatically the longer an asset is held and dependent on the inflation rate.

For example, let’s assume an ideal inflation environment of 2.5 per cent (the Reserve Bank’s target). Let’s assume someone buys a farm for $1 million and sells it 25 years later. $1 million in 2016 dollars becomes roughly $1.8 million in 2041.

Under Labor’s proposal the farmer would pay 75% of $800,000 ($600,000) upon the sale of an asset which has had exactly zero real capital gain.

How do supposedly educated members of parliament come up with such an obviously asinine policy?

Don’t they think? Don’t they test their policy against some likely examples, like the one I have given, which is not out of the ordinary?

And what of the rest of Labor’s proposal? Under it people holding negatively geared properties will be much more likely to hang on to them until they have a year with no other income, usually retirement. That effect could easily offset the number of investors deterred from entering the established housing market because gearing is no longer allowed.

But in any event, people will still invest in housing because of that other equation. With increasing population there is less land per person available so demand increases. Land -- they are not making any more of it.

Abolishing negative gearing on one class of investment will inevitably have odd consequences. It would be better to tighten it gradually across the board. And we should tax real capital gains not nominal ones with some concession percentage plucked out of the air.

On the Coalition side, please can we have some thought-out proposals which are publicly discussed – not a whole lot of defective rabbits pulled out of the sky at Budget time?

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