THE PSYCHOLOGIST : Michael Blythe and the argument in support of negative gearing

Michael Blythe and the argument in support of negative gearing

I used negative gearing in my younger days, when I was a well-paid academic. I doubt that I would have bothered with landlording without the facility it offered.

And if you want lower rents you need more landlords, not fewer. I specialized in offering high quality rental accomodation, using properties that were mostly in poor condition when I bought them but which I had improved. So eliminating negative gearing would chase people like me out of the rental market and hit it hard just when it is dowm.

It's moronic policy if you have the best interests of tenants at heart. But the Greens are led by the unreconstructed Trotsykite, Adam Bandt, so that cannot be assumed

“Negative gearing must be scrapped” is the clarion call from just about everyone hit by a tight property market.

The tax break is cast as the source of all problems, from spiralling prices to rental supply issues. But is this true?

As the pressure builds against this decades-old tax break, the Greens are pushing hard against the policy. There is a clear and present danger the government may up-end current arrangements — despite denials from the Albanese administration.

If you invest in property, or ever wish to do so, then negative gearing is likely to be crucial to your plan. The ability to set losses against your taxable income is the most important tax break (outside of super) for the everyday investor.

Millions of investors have used negative gearing and millions more no doubt have it in their plans, and as Michael Blythe of PinPoint Macro Analytics puts it: “in our market tax arrangements are as important as interest rates.”

As a former chief economist at Commonwealth Bank, the nation’s biggest home lender, few people know more than Blythe about negative gearing and what it means for the wider economy.

The latest wave of speculation surrounding negative gearing has prompted him to issue a case for the defence. Blythe has produced a report which in his own words will “provide ammunition in support of the status quo”.

His paper, ‘In praise of negative gearing,’ will no doubt be greeted with catcalls of derision, but it is worth reading and offers a compelling argument for keeping negative gearing in place.

In his paper, Blythe goes after some of the most common tropes set out against negative gearing — and he knocks most of them flat.

One very important takeaway is despite the understandable assumption negative gearing is only for the wealthy (and parliamentarians), the data does not suggest this is the case.

More than one in ten taxpayers claim rent interest deductions. Among this group are surgeons and dentists.

But, it also includes emergency service workers, nurses, teachers and bus drivers — it’s a tax policy for everyone.

The other key argument it loses revenue for the government is also undermined by simple economics showing investors are only negatively geared at the start of their investment — as years pass they begin paying tax as property owners.

In fact, there have been recent periods where negative gearing was contributing to budget revenue.

As Blythe patiently explains, the Australian residential property market is based on capital gain, not rental income — rental yields are low and owners accept those low yields on the basis that some day in the future they will get a capital gain.

Importantly, investors work on the assumption capital gains will be somewhere near 25 per cent — based on it being at the top income tax rate and discounted by 50 per cent (a process which has now been in place for more than two decades).

The report shows if the negative gearing system was not in place, then rents would be pushed higher. Keep in mind we already have a rental vacancy ratio of nearly 1 per cent in the major cities.

If you remain unconvinced, then Blythe goes back to the one and only example we have in history of what Australia might be like if negative gearing was removed.

The test case was in 1985 — when negative gearing was initially scrapped and then restored two years later,

If we look at what happened during the two-year interregnum: “the national experience suggested that removing negative gearing would reduce rental supply, lift rents and slow house price growth.”

As for the most recent removal attempt — the ALP move in 2019 to limit negative gearing — it “would have been a replay of 1985” says the report.

Of course, the argument for the defence of negative gearing is far from perfect, and it fails one group — first-home buyers.

The truth is if negative gearing was removed, then house prices would fall — and when this occurred more first home buyers could get a start in the market.

For now, we have the current situation where first home buyers are acting as ‘rentvestors’ — they are getting into the market by owning an investment property first and then buying a home later.

The latest ABS data clearly shows the 2 -34 year old age group has raised their share of the investment property market. The argument goes: at least they have got a foothold in the market.

This is true, but it’s a secondary experience to owning your own home.

As an economist, Blythe warns you can’t do tax reform in parts: “the playing field needs to be level,” so if the government removes negative gearing for houses, then it will also need to be removed for shares.

Certainly, investors are getting worried. Blythe’s report shows a telltale surge in google searches around negative gearing ever since the government changed course on the planned stage 3 tax cuts earlier in the year.

As Blythe suggests: “We have a Budget coming up in May, and we have this one-sided debate about negative gearing, because the people that push for changing housing taxation arrangements make the most noise and get the most attention.”

https://www.theaustralian.com.au/commentary/michael-blythe-and-the-argument-in-support-of-negative-gearing/news-story/59aaa92cfb3f6188351490d2bec62f6d

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Background

The essence of conservatism is caution. The essence of Leftism is anger

This blog is written solely by John Ray, who has a Ph.D. degree in psychology and 200+ papers published in the academic journals of the social sciences. It does occasionally comment on issues in psychology but is mainly aimed at giving a conservative psychologist's view on a broad range of topics. There are very few conservative psychologists.

The blog originated in Australia and many (but not most) posts discuss Australian matters. Australians have an unusually good awareness of events outside their own country. Australian newspapers feature news from Britain and the USA not as an afterthought but as a major part of their coverage. So Australians do tend to have a truly Western heart, which is the reason behind the old name for this blog. So events in Australia, Britain and the USA all feature frequently here, plus occasional coverage of other places, particularly Israel.

A primer in American politics for non-Americans:

SCOTUS is the Supreme Court of the United States, the highest court in the land

The "GOP" stands for "Grand Old Party" and refers to the Republican party. The GOP is at present center/Right, while the Democrats have been undergoing a steady drift Leftwards and now have policies similar to mainstream European Leftist parties.

The ideological identity of both parties has however been very fluid -- almost reversing itself over time. In the mid 19th century, the GOP was the party of big government and concern for minorities while the Democrats advertised themselves as "The party of the white man" -- an orientation that lasted into the mid 20th century in the South. The Democrats are still obsessed with race but have now flipped into support for discrimination AGAINST whites.

Was Pope Urban VIII the first Warmist? Below we see him refusing to look through Galileo's telescope. People tend to refuse to consider evidence— if what they might discover contradicts what they believe.

Global warming

Calibrated in whole degrees. Larger graph here

Climate scientist Lennart Bengtsson said. “The warming we have had the last 100 years is so small that if we didn’t have meteorologists and climatologists to measure it we wouldn’t have noticed it at all.”

The term "Fascism" is mostly used by the Left as a brainless term of abuse. But when they do make a serious attempt to define it, they produce very complex and elaborate definitions -- e.g. here and here. In fact, Fascism is simply extreme socialism plus nationalism. But great gyrations are needed to avoid mentioning the first part of that recipe, of course.

Two examples of Leftist racism below (much more here and here):

Beatrice Webb, a founder of the London School of Economics and the Fabian Society, and married to a Labour MP, mused in 1922 on whether when English children were "dying from lack of milk", one should extend "the charitable impulse" to Russian and Chinese children who, if saved this year, might anyway die next. Besides, she continued, there was "the larger question of whether those races are desirable inhabitants" and "obviously" one wouldn't "spend one's available income" on "a Central African negro".

Hugh Dalton, offered the Colonial Office during Attlee's 1945-51 Labour government, turned it down because "I had a horrid vision of pullulating, poverty stricken, diseased nigger communities, for whom one can do nothing in the short run and who, the more one tries to help them, are querulous and ungrateful."

Defensible and indefensible usages of the term "racism"

The book, The authoritarian personality, authored by T.W. Adorno et al. in 1950, has been massively popular among psychologists. It claims that a set of ideas that were popular in the "Progressive"-dominated America of the prewar era were "authoritarian". Leftist regimes always are authoritarian so that claim was not a big problem. What was quite amazing however is that Adorno et al. identified such ideas as "conservative". They were in fact simply popular ideas of the day but ones that had been most heavily promoted by the Left right up until the then-recent WWII. See here for details of prewar "Progressive" thinking.

R.I.P. Augusto Pinochet. Pinochet deposed a law-defying Marxist President at the express and desperate invitation of the Chilean parliament. He pioneered the free-market reforms which Reagan and Thatcher later unleashed to world-changing effect. That he used far-Leftist methods to suppress far-Leftist violence is reasonable if not ideal. The Leftist view that they should have a monopoly of violence and that others should follow the law is a total absurdity which shows only that their hate overcomes their reason

Franklin Delano Roosevelt was a war criminal. Both British and American codebreakers had cracked the Japanese naval code so FDR knew what was coming at Pearl Harbor. But for his own political reasons he warned no-one there. So responsibility for the civilian and military deaths at Pearl Harbor lies with FDR as well as with the Japanese. The huge firepower available at Pearl Harbor, both aboard ship and on land, could have largely neutered the attack. Can you imagine 8 battleships and various lesser craft firing all their AA batteries as the Japanese came in? The Japanese naval airforce would have been annihilated and the war would have been over before it began.

FDR prolonged the Depression. He certainly didn't cure it.

WWII did NOT end the Great Depression. It just concealed it. It in fact made living standards worse

Joe McCarthy was eventually proved right after the fall of the Soviet Union. To accuse anyone of McCarthyism is to accuse them of accuracy!

The KKK was intimately associated with the Democratic party. They ATTACKED Republicans!

People who mention differences in black vs. white IQ are these days almost universally howled down and subjected to the most extreme abuse. I am a psychometrician, however, so I feel obliged to defend the scientific truth of the matter:

The average African adult has about the same IQ as an average white 11-year-old and African Americans (who are partly white in ancestry) average out at a mental age of 14. The American Psychological Association is generally Left-leaning but it is the world's most prestigious body of academic psychologists. And even they have had to concede that sort of gap (one SD) in black vs. white average IQ. 11-year olds can do a lot of things but they also have their limits and there are times when such limits need to be allowed for.

America's uncivil war was caused by trade protectionism. The slavery issue was just camouflage, as Abraham Lincoln himself admitted. See also here

Did William Zantzinger kill poor Hattie Carroll?

Did Bismarck predict where WWI would start or was it just a "free" translation by Churchill?

Leftist psychologists have an amusingly simplistic conception of military organizations and military men. They seem to base it on occasions they have seen troops marching together on parade rather than any real knowledge of military men and the military life. They think that military men are "rigid" -- automatons who are unable to adjust to new challenges or think for themselves. What is incomprehensible to them is that being kadaver gehorsam (to use the extreme Prussian term for following orders) actually requires great flexibility -- enough flexibility to put your own ideas and wishes aside and do something very difficult. Ask any soldier if all commands are easy to obey.

A good article on Leftist hate

The real history of social Darwinism

Some personal memoirs

Memoir highlights

THE PSYCHOLOGIST

Michael Blythe and the argument in support of negative gearing

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