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Treasury told Liberals to stop lying about Labor’s negative gearing policy

Josh Frydenberg has said homeowners will see their property values decline if Labor introduces its negative gearing policies. Images: Getty

The Coalition’s claims that property prices will definitely fall under a Labor government are inaccurate, the federal Treasury has said, in an extraordinary rebuke to the incumbent government.

Documents obtained by the ABC under a freedom of information request reveal Treasury disagreed with the government’s claims that Labor’s negative gearing policy would lead to price falls for all homeowners.

The Coalition has told Australians that Labor’s policy would be like a “sledgehammer” for the housing markets.

However, Treasury wrote in the documents: “The … statement is not consistent with our advice.

“We did not say that the proposed policies ‘will’ reduce house prices.

“We said that they ‘could’ put downward pressure on house prices in the short-term depending on what else was going on in the market at the time, but in the long-term they were unlikely to have much impact.”

The federal Treasury was responding to a fact check request from the former Minister for Finance, Kelly O’Dwyer’s media team.

Her media team wanted to fact check future claims that Labor’s policy to limit negative gearing benefits would “reduce house prices”.

Wait – what is Labor’s policy, exactly?

Negative gearing is a tax arrangement where the rental income on an investment property is less than the outgoing costs like mortgage repayments. Negative gearing benefits allow the investor to offset the loss-making investment against their income tax bill.

Negative gearers generally bet on the likelihood that their property will raise significantly in value so they make a profit when they sell.

Labor wants to limit negative gearing benefits to investment in new dwellings, but current investors’ arrangements would be grandfathered.

Labor argues this will take some of the sting out of Australia’s expensive housing market by encouraging investors to invest in newly built homes, and will open up the property ladder for first home buyers.

But the Coalition government has argued it will prompt landlords to raise rent or exit the housing market entirely, which would take too much wind out of the property market’s sails.

So why does Treasury disagree with the Coalition’s statements?

According to the documents obtained by the ABC, Treasury forecast that house prices “could” go down, but that Labor’s policy manoeuvres were unlikely to have the long-term impact predicted by the Coalition government.

The majority (90 per cent) of taxpayers don’t use negative gearing. And according to Grattan Institute researcher, Danielle Wood, limiting negative gearing benefits will help the government’s budget bottomline.

In fact, the Parliamentary Budget Office predicts Labor’s policy will raise the government $32.1 billion over 10 years.

Shadow Treasurer Chris Bowen responded today by describing the Coalition as a “desperate government that will say and do anything”, and argued that this is the “latest in a long line of corrections to the dishonest scare campaigns by Josh Frydenberg and the Liberals”.

Frydenberg last month described Labor’s policy as its “big new housing tax”.

“Everyone who owns a home will see it be worth less, and under that policy, everyone who rents a house will end up paying more,” the Treasurer said at the time.

The elected official also quoted Property Council of Australia research to describe Labor’s plan as “economy wrecking”.

“The findings show that not only will Labor’s housing taxes not work as they claim, but they will have the opposite effect – driving down new housing supply and construction.”

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