Roundtable was a rare chance for reform. Instead we got small ideas
The three-day economic roundtable was the perfect opportunity to pave the way for genuine reform. Instead, we have been treated to vague calls to reduce red tape, writes Matt Grudnoff.
The three-day economic roundtable is over. After all the colour and movement, what did we get?
Artificial intelligence is good and red tape is bad.
Really? Wasn’t this a chance to deal with the big issues? To pave the way for genuine reform?
Maybe more will filter out in the coming weeks. After all, the roundtable was conducted behind closed doors. Maybe I’m an old cynic, but I have my doubts.
In the lead-up, we were treated to lots of ideas. Some great, some good, and some thinly disguised self-interest. Yes, I’m looking at you business lobby groups who want to cut the company tax rate.
As it got closer, the push was on to confine it to deal only with small things. After decades of successive governments dodging real reform, all that had been achieved was making all the big problems progressively worse.
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And small things are what we got, including the call to reduce red tape.
If people truly want to reduce red tape, then they should come up with specific proposals on what should be changed. Vague calls to reduce red tape are meaningless.
This is exemplified by the call to freeze the National Construction Code. Not only would such a freeze stop good changes from being added, it would also stop bad regulations from being removed or modified. But this was all justified as part of a push to speed up housing approvals and construction times.
The federal government has little to do with building approvals. But it has been out telling everyone who will listen that the problem is housing supply. You know … that thing it has almost no control over but is instead controlled by state governments.
It should also be noted that there was only one representative from state governments at the roundtable, the Treasurer of NSW Daniel Mookhey.
To be very clear, increasing supply will make housing more affordable, but that is not the easiest and simplest way to fix the housing crisis.
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House prices have rapidly increased. They have increased by 75 per cent in the past 10 years.
Over those 10 years, the population has increased by 16 per cent. To house all those extra people, we would need to increase the number of dwellings by 16 per cent. But over that same 10 years, the number of dwellings has increased by 19 per cent. We have been building dwellings at a faster rate than the growth in population.
The massive growth in house prices has not been caused by a lack of housing supply.
If it’s not a supply problem, then what has caused the increase in house prices? It is down to a big increase in demand. Specifically, an increase in investor demand. Lots of investors have flooded into the market, outbidding owner-occupiers, particularly first-home buyers, and pushing up prices.
This is being driven by the combination of negative gearing and the capital gains tax discount that has made buying investment properties so tax effective. Rapidly rising house prices are music to the ears of housing speculators.
The good news is that we can easily fix this. We just need to reform negative gearing and scrap the capital gains tax discount. This will close the huge tax loopholes being used by housing speculators to push up house prices. Fewer speculators mean more houses would be bought by first-home buyers, and home-ownership rates would rise.
It is extremely strange that the federal government is so focused on building houses, which it has little control over, when it could help solve the problem by reducing investor demand, which it can do something about.
If only there was a roundtable where these kinds of issues could be discussed.
We know that some in Labor understand the housing problem and want to reform negative gearing and the capital gains tax discount. They took these kinds of policies to the 2019 election. They need to stop avoiding the issue and crack on and make the changes.
The economic reform roundtable was the perfect opportunity to do exactly that. Instead, we have been treated to vague calls to reduce red tape. Reviewing regulations should be an ongoing activity of government. It can improve productivity, but it is not the main issue. There are plenty of other reforms that would have a much bigger impact on productivity.
Political capital fades away unless you use it. The thumping majority that Labor won at the last election is the perfect moment in time to make real reform. It would be a shame if that was wasted.
Matt Grudnoff is senior economist at the Australia Institute
