I await with interest the Hansard transcript of Treasury Secretary John Fraser’s testimony before Senate Estimates in Canberra yesterday, because in his reported comments he appears to be saying that any housing price bubble that may exist in Australia isn’t an issue for the Treasury, but rather for the RBA and APRA (see Brisbane Times coverage). However, the Treasury is responsible for policy settings relating to negative gearing and the (concessional) tax treatment of capital gains that have a large impact on the property market by encouraging households to take on “too much debt and risk”, according to the Henry tax review (see p. 73 of Part 2, Volume 1).

The Henry tax review was clear about the need to reform policy settings for taxing assets that yield capital gains, such as property and shares, and it’s odd that the current Treasury Secretary doesn’t appear to see any issues the Treasury needs to address regarding the property market.

Negative gearing and the tax treatment of capital gains are thus very topical issues and it’s fantastic that the Young Economists will be discussing these issues at its June Coffee Connections morning Friday next week at the Gresham Bar in Gresham Lane, Brisbane CBD:

Coffee Connections – Friday 12th June – Special Edition

I will start the Coffee Connections discussion off with a short presentation on the public finance and macroeconomic issues relating to negative gearing and capital gains taxation. I will consider impacts on the housing and rental markets, as one of the major objections to reforming the current system is that changes would affect the supply of rental housing, possibly increasing rents. Indeed, the Henry review (p. 74) acknowledges negative gearing “may place downward pressure on rents though it is poorly targeted to this purpose.”

I’m hoping for a lively discussion on these issues Friday week. While I don’t think there is anything wrong with negative gearing as a principle, it is becoming increasingly obvious that current tax policy settings are less than optimal and need reform. The exact nature of that reform is open to debate.