Malcolm Deep-Sixed

Malcolm Turnbull is right. It is an exciting time to be alive. Tony Abbott has been white-anting Malcolm's tenuous grip on power, then he likely leaked some classified documents, so Turnbull's people have hit back with the Abbott-Credlin affair claim, which is now being vehemently denied. Meanwhile, the LNP backbench is supporting the bullying of gay students as a way to astroturf against the marriage equality plebiscite that the High Court said we do not need. All of this swirling before our very eyes in the most public of matters. The Coalition is in chaos.

Surprisingly, the catalyst for the current chaos is that most captivating and inspiring human endeavours: taxation policy, an area in which I clearly have no particular skills or interests.

You see, back when the government was riding high in the polls, some of the Coalition bright sparks decided that raising the GST rate might be a good idea because... I don't know. I don't really have an explanation why the same people who profess a love for smaller government and who ran the 2013 election on a platform of repealing a "great big new tax on everything" decided that trying to impose an even greater, bigger new tax on everything was a good idea.

There was an expectedly little amount of support for raising the GST while other fairer and more targeted measures of revenue raising went unexplored. With their single idea shot down however, the Coalition threw its hands up and looked into further tax reform the same way Ned Flanders' parents looked into discipline - they tried nothing and were all out of ideas.

It is at this time that the Coalition's policy of being "sitting ducks" led to them being blindsided and broadsided by that famous admiral of good politicking... Bill Shorten?

While Malcolm Turnbull was twiddling is thumbs like Homer Simpson waiting for a meteorite, the ALP surprised everyone with a coherent and rational policy restricting negative gearing to new houses and reducing the CGT discount.

What does this mean? In a nutshell, negative gearing involves borrowing to invest in property such that the rental income received is less than your rental expenses. This creates a tax loss which can be used to reduce tax paid on other sources of income such as wages.

In Australia, individuals making a capital gain on the sale of an investment property are only taxed on 50% of the capital gain they make. This is the "CGT discount."

It is presently a viable investment strategy in Australia to negatively gear your investment in property (ie make a rental loss) to take advantage of that property's capital growth which is taxed at a reduced rate upon sale. You're effectively betting that the profit you make on the sale of the property at a future point is enough to offset the rental losses you make in the interim (which have the present benefit of reducing your tax bill).

TAX MAN

This tax policy setting encourages speculative investment in property, creating the kind of capital growth necessary for the investment strategy to be viable. It also artificially inflates the value of housing and supports some absurd levels of price increases in places like Sydney.

The proposed change to negative gearing applies restricts it to new properties from 2017 and raises $32 billion over ten years. This is a great policy which will make it easier for young people to eventually purchase their own houses. It's going to take a good deal speculative investment out of the housing market. It's such a good policy that I didn't believe the ALP came up with it.

(Compare the tax policy to Labor's education policy, titled "Your Child, Our Future." I don't know what the policy means. I don't know what it accomplishes. I think it means restoring the planned Gonski funding, but I'm not entirely sure. All the hallmarks of a policy the ALP came up with itself.)

The fact is that The Greens actually came up with the negative gearing reforms before the 2015 budget (the CGT discount appears to be an ALP original concept, albeit one that I've talked about for years, but I repeat myself). But no matter, good policy is good policy. The smart move for the government was to itself copy what is widely regarded as a sound policy proposal. Alternatively, they could have attacked the plan by saying that the policy doesn't go too far enough, and proposing to legislate a more forceful solution. After all, the Coalition has spent years talking up how much repair the federal finances need.

This in fact was the initial response from Turnbull and Scott Morrison to Labor's policy announcement. It was said that Labor's proposal didn't raise enough money, and maybe that's true. After all, government net debt has increased from $161.1 billion in 2013 (under the Rudd government) to $254.8 billion as of a couple of months ago. Indeed, the Mid Year Economic and Fiscal Outlook projects that government net debt will increase to $300 billion in 3 years. In such circumstances, maybe the CGT discount should be lower, and maybe negative gearing should be removed from all houses.

Alas, the housing industry made known its displeasure, and Malcolm decided against coming up with a more effective policy than the ALP. Instead, the Coalition came up with a series of increasingly desperate and farfetched reasons to pour cold water on what is widely regarded as a sound proposal. In the process, Turnbull and Morrison have absolutely shattered whatever was left of their credibility handling economic matters.

• Scare Campaign No. 1: "The housing market will crash" WRONG

The housing market won't crash because there is strong underlying demand in major population centres. The proposed reforms discourage speculative investment, but the continued availability of cheap credit, growing population and infrastructure in major urban centres will support prices for some time. Prices are unlikely to rise at the insane rate of the last five years, which is good for young prospective buyers, but the market won't crash, which is good for owners and the building industry.

• Scare Campaign No. 2: "House prices will go up" WRONG-ISH

This is what Kelly O'Dwyer said after completely misreading the LNP talking points. It is indeed possible that in the run up to say July 2017, speculators cause a short-term rise in the price of existing dwellings to take advantage of the grandfathering provisions. But then they fall. Suffice to say, this strategy was quickly swept under the rug.

• Scare Campaign No. 3: "Businesses will stop investing" SO WRONG IT HURTS

The last, desperate ploy tried on by Malcolm was to try and link the removal of negative gearing of housing to businesses no longer negatively gearing their business assets. This is a ridiculously dumb argument because companies don't negatively gear as an investment strategy because they can't take advantage of the CGT discount. When Malcolm is talking about businesses "negatively gearing," he actually means "making a fucking loss." That's an insane business strategy and a testament to what kind of a shambles the government is in.

Remember why this issue became prominent in the first place. The proposed reforms are a means of addressing the housing market, which many young people feel locked out of. It's also a means of addressing a structural problem in the budget.

But what would the Coalition know about economic management? Since taking power, the Liberal government has added $90 billion to government net debt. This is a debt-and-deficit disaster of their own making.

This is a government which wanted to charge for doctor appointments, but didn't want to fix negative gearing or other tax lurks for the wealthy.

This is a government which, stealing a policy idea directly from the Simpsons, introduced a "temporary budget repair levy" which remains in effect for two years. Yet they won't fix negative gearing.

The Simpsons called it a "temporary refund adjustment."

This is a government which wanted to have a greater, bigger new 15% GST rate on everything, but won't cut subsidies to multinational fossil fuel producers.

Even when the government was contemplating measures to raise revenue, it was simultaneously looking to fritter that money away. Scott Morrison, a man who somehow makes Joe Hockey look like Ross Gittins, proposed that the extra revenue from an increased GST be handed back to wealthier Australians by making higher income tax brackets kick in later. This would be done ostensibly to reduce "bracket creep."

The problem with this proposal is that bracket creep is absolutely not a problem right now. Inflation has stalled, wages have stalled, people's incomes are growing at one of the slowest rates in history. Bracket creep isn't the problem, the government having zero clue and zero credibility on economic management is the problem.

The policies the government wants to enact are garbage and won't be tolerated by the public. The policies they should enact would make the economy fairer and won't be tolerated by LNP donors. Malcolm Turnbull has this painted himself into a corner. It has nothing to offer except empty platitudes which sound "exciting" or "agile," while the government remains the complete opposite.

AGILE

In fields such economics, health, infrastructure, industry, communications - the government lacks any kind of accomplishment.

I guess we're getting some submarines we probably don't need, but even the government's own members can't agree on how these should be acquired.

Surely Malcolm is the right man to steer the government through this maelstrom. After all, so many people on the left professed to like Malcolm despite the party he belongs to.

Your trust is misplaced. Malcolm Turnbull is a loser. He has a long history of losing. He lost the republic debate. He lost as opposition leader. He lost the ability to improve the NBN. He lost the argument to legislate marriage equality in his own party room. He has lost all claim to being a good economic manager.

The L is for Loser

For reasons which include more luck than skill, he may yet hold on at the coming election. But he has lost the fig-leaf of competence and his veneer of authority. All that remains is a run-of-the-mill conman, a smooth talker in a leather jacket.