A decade ago in a speech titled The Way Ahead, Malcolm Turnbull labelled negative gearing "tax avoidance". Tellingly, he observed that "every tax deduction, once created, develops a constituency which will fight to defend it".
What a long way he's come.
This week, he became a spruiker for the tax-subsidised end of the real estate industry. He even repeated its lines. The Property Council is pushing around a blackmail sheet listing the number of negative gearers in each electorate and how many votes it would take to change hands. In Parliament Turnbull used it against Labor's Chris Bowen. "There are nearly twice as many people in his electorate who are negatively geared as there are votes needing to change hands for him to lose his seat," he warned. "He should think about that."
Turnbull feels able to decisively side with the property industry against Labor in part because he has finally narrowed his options. He was right when he said "increasing capital gains tax is no part of our thinking whatsoever". He and his inner circle have narrowed their options to, not much, really.
Superannuation. They've carefully considered and rejected the radical concept of taxing super contributions at the marginal rate minus a discount. The change would have meant that instead of paying the 15 per cent tax on super contributions, most high earners on the 45 per cent rate would have paid 30 per cent, if the discount was 15 per cent. The accounts of low earners on a zero rate would have received a 15 per cent top up. It's a measure of how far the tax debate had moved under Turnbull that the super industry had embraced the concept, arguing only over the size of the discount. Turnbull sought a briefing about the idea from one of its authors, Chris Richardson of Deloitte Access.
Turnbull and his senior colleagues baulked at the idea because it would have made some middle earners (slightly) worse off. Australians on the 32.5 per cent tax rate would have found themselves paying 17.5 per cent. The small increase would have been visible on their statements when the funds paid the extra 2.5 per cent after their salaries had been reported at the end of the tax year.
They took the view that complex change was a bad idea in an election year, all the more so if it could be portrayed as an extra tax on ordinary Australians.
Instead they have decided to tighten the caps on how much an individual can contribute to super at the subsidised rate. The present very high cap of $30,000 per year ($35,000 past the age of 50) troubles exceptionally high earners only. The Grattan Institute wanted it cut to $11,000, an amount it said would still allow comfortable retirements while improving the budget bottom line by $3.9 billion a year. Turnbull and colleagues are looking at a less severe cap of around $20,000.
They will also wind back the separate outrageously high annual cap of $180,000 on so-called non concessional contributions that still get access to a low or zero rate within funds.
The earnings of funds won't be touched. Payouts for most retirees and earnings within their funds will remain untaxed.
Capital gains tax. The existing concession whereby half of each capital gain is exempt from tax (and three quarters for small businesses) is safe. Turnbull and colleagues know that it makes little sense when other types of saving are fully taxed (including bank interest, as pointed out by their tax discussion paper) but they've decided against a more level set of concessions on the ground that it would create losers as well as winners.
Negative gearing. They plan to curb only "excesses", limiting either the number of investment properties a taxpayer can negatively gear (one MP owns 32) or the total loss that can be claimed in any one year, perhaps picking a figure like $50,000. Limiting the financial loss is fairer and also easier to administer than limiting the number of properties, but less simple to sell...
Tax deductions. Although Turnbull and colleagues are about to receive the report of a House of Representatives inquiry into tax deductibility, they have formed the preliminary view that the rules are so complex (and popular) that they would make enemies if they tried to simplify them, even in order to fund a tax cut.
Bracket creep. Treasurer Scott Morrison wants to deliver a tax cut to the 25 per cent of workers earning more than $80,000 and paying at least 37 cents in the dollar on the ground that an extra 300,000 will join their ranks over the next two years. He will attempt to move the threshold a bit beyond $80,000 using the extra tax that should flow from the tighter caps on super contributions and negative gearing. While he will face criticism for attempting to redress bracket creep only for high earners, he will be able to rightly point out that it will be extremely high earners who will fund the attempt by losing concessions. He and Turnbull will have delivered on their promise to make the tax system (a bit) fairer.
Company tax. Turnbull and Morrison may yet announce a target for cutting the 30 per cent company tax rate, but it wouldn't bite for years. It would serve as a signal to overseas investors.
They will have lived up to nothing like the ambition of Tony Abbott who in opposition promised a comprehensive tax white paper saying it would finish the job the Henry Review started and Labor squibbed.
Turnbull and colleagues have squibbed it themselves partly because they've discovered that people are much better able to understand who wins and who loses than they used to be. Even though for two years their Coalition has withheld from the Budget the table that shows who wins and who loses, the details are easy to find. Turnbull and his colleagues are terrified of offending the public and they certainly don't want nasty details discovered in the lead-up to the election.In The Age and Sydney Morning Herald