LIBERAL PARTY SILENT AS IMF SOUNDS ALARM ON HOUSEHOLD BORROWING

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16 Nov 2016

The IMF in its annual review of the Australian economy [IMF Concluding Statement of the 2016 Article Mission] has raised concerns about the risks from the housing market for macroeconomic stability and the need for urgent policy reform.

The IMF in its annual review of the Australian economy [IMF Concluding Statement of the 2016 Article Mission] has raised concerns about the risks from the housing market for macroeconomic stability and the need for urgent policy reform.

The IMF statement says:

“With more acute risks concentrated in a few specific housing market segments, policies should focus on further strengthening resilience to housing market and other shocks with macro-financial implications.

“The macro-financial resilience of the economy to housing market shocks could be enhanced through tax reform. The tax system provides households with incentives for leveraged real estate investment that likely amplifies housing cycles.”

We have seen a similar sentiment on the risks posed by the housing market and associated taxation arrangements expressed by the Government’s own Financial Systems Inquiry, the Reserve Bank of Australia, and the Grattan Institute.

The first responsibility for a Prime Minister and Treasurer is to ensure the Australian economy is well positioned to deal with any economic shocks and financial risks, particularly when these risks are well known and have been canvassed for years by international and domestic economic institutions.

Labor is the only major party that has a policy to reform negative gearing and the capital gains tax discount – a policy package that is well-calibrated, is gradual and fully grandfathered.

Ordinarily, the IMF's report would serve as a wakeup call to a Government asleep at the wheel on housing affordability and on the economy and jobs more broadly.

The IMF has not for the first time raised the red flag on negative gearing and capital gains tax arrangements because they encourage household leverage and undermine Australia’s macroeconomic stability.

But we know the Prime Minister and Treasurer got rolled in Cabinet earlier this year on reforms to negative gearing, so we clearly face a Government where the Prime Minister panders to the right-wing of his party, and so he both opposes and is incapable of genuine reform to help make the Australian economy more resilient.

While the Prime Minister likes talk about ‘jobs and growth’, the IMF also highlights the major challenges of high underemployment and stagnant wages, which are felt acutely by many Australians

The IMF has called on the Government to do more to support growth through productive infrastructure investments, instead of leaving all the heavy lifting to monetary policy.

The Turnbull Government should take heed of the world’s pre-eminent economic institution, stop playing politics and immediately look to reform negative gearing and capital gains which would improve macroeconomic resilience.

WEDNESDAY, 16 NOVEMBER 2016