Tuesday, May 24, 2016

Negative gearing report linked to Morrison ally

Research intended for use in a bid to discredit Labor's negative gearing campaign was commissioned after a meeting between Scott Morrison and a close friend and senior figure in Australia's property industry.

But the draft report contains a series of factual errors and makes bold claims of a "resale price cliff" and "social dysfunction" that have alarmed some in the real estate industry to whom it has been circulated. it has been circulated to in the real estate industry.

An email obtained by Fairfax Media shows Greg Paramor, the managing director of property company Folkestone, discussed the need for a study critiqueing Labor's policy with Brian Haratsis, the executive chairman of advisory firm MacroPlan Dimasi. Mr Paramor, who is a friend of Mr Morrison and former president of the Australian Property Council, made the request after his encounter with the Treasurer.

"Greg recently had the opportunity to meet with The Hon. Scott Morrison to discuss negative gearing," the email notes. "As a result of that meeting, Greg agreed to provide a report to the Treasurer – he asked Brian Haratsis to undertake a study on the impact of the proposed negative gearing changes."

The email, sent from an unnamed person inside Mr Paramor's company, was sent to senior industry figures last week.

It also asks for feedback as "the Treasurer is keen to get the report next week".

Entitled "Short Memory: Negative Gearing and Capital Gains Tax: Foundations of the New Australian Housing Model," the attached draft report is also presented with an alternative title: "Shortened Memory".

It claims Labor's policy would remove 205,000 dwellings from the rental housing stock over a decade, adding to housing stress. Asked why removing dwellings from the rental stock would add to housing stress when the dwellings would still be available for use, Mr Haratsis said the phrase was meant to refer to low-income rental dwellings.

The draft says Labor's policy would both make housing less affordable and create a "resale price cliff" as large numbers of apartments were sold at a loss. Mr Haratsis explained the apparent contradiction by saying the market was bifurcated and that different parts of it would react differently.

Mr Paramor confirmed to Fairfax Media he had recently met with Mr Morrison over the negative gearing issue but denied he had been asked for the research by the Treasurer.

"It [negative gearing] was one of the things we discussed," he said, but he "didn't know" why the leaked email from a member of his staff said the Treasurer was keen to get the draft report this week.

Mr Morrison's office said the Treasurer met with "many people from the community and the real estate industry who are raising concerns about Labor's negative gearing proposal".

The Treasurer's office denied he had asked for a report to be prepared or that he or his office had received copies.

The report also says Australian governments would need to stump up an extra $3.3 billion per year for social housing and rent assistance should Labor's policy became law, more than the $3.2 billion per year it would raise.

The total economic cost of Labor's policy would be $5 billion per year, a reference Mr Haratsis said has since been removed from the document after acknowledging that it was arrived at by adding up payments without subtracting receipts.

"I am writing this as we go, and there are a number of references that you are looking at that won't be there in the final," he said. "I want to go back and recalculate the numbers."

The draft also details unquantified costs including "increased levels of social dysfunction on the urban fringe" and an "increased carbon footprint for low income renters as affordable private rental stock in established areas shifts to the urban fringe".

Prepared in haste with what appears to have been a speech recognition program, the draft at one point refers to Labor's promise to "grandfather" the entitlements of existing investors as a promise to create "ground furthered" properties.

It says the change would result in "market chaos" because Labor had not defined what would be regarded as a new property and exempt from the charges and what would be regarded as an existing property.

"For example, is a refurbished building for residential purposes a new building?" it asked. Mr Haratsis conceded that the definition might be clearer in the legislation.

The leaking of the report potentially blunts another avenue of attack on Labor's plan to restrict negative gearing to new properties only and halve the capital gains tax discount to 25 per cent, which has been the subject of a fierce government scare campaign.

Mr Haratsis insisted it was his decision to initiate the report after his meeting with Mr Paramor, that he would fund the work himself and that it was planned for release next week - at which point "I could maybe give it to the Treasurer".

The report critiques organisations such as the Grattan Institute, which engages in "Robin Hood economics" and chooses to "ostracise high income individuals" instead of focusing on tax efficiency.

In The Age and Sydney Morning Herald