The Politics    Friday, June 12, 2015

Long memories

By Sean Kelly

Whatever happened to the Henry review?

Sometimes memories in politics are too long. The other night I heard a conservative commentator refer to the current Labor party as – I can’t recall the exact phrase, but it was something like “old, old Labor”. In other words, Whitlam Labor, taxing and spending. I thought: is a reference to the way an organisation acted 40 years ago really a useful way to understand its behaviour today?

More often, memories in politics are too short.

There is a burning discussion right now about housing affordability. One of the positive offshoots of Joe Hockey’s Tuesday gaffe is that we’re still talking about the issue. That conversation is slowly morphing away from the politics towards policy. What, exactly, should the aim of housing policy be? To ensure everyone can buy a house? To drive up house prices? To give everybody access to affordable housing, be that rental or owned? To free up money invested in housing for other, more productive areas of the economy?

That, in turn, is part of a broader discussion the government wants to have – or says it wants to have – about taxation. I question their sincerity a little because they’ve already ruled out talking about superannuation taxation, the GST, negative gearing, or capital gains tax. Those are four pretty big levers to sideline.

I also question their sincerity because it’s not that long since taxpayers paid for a comprehensive review of taxation – the Henry review, released just five years ago. Now, I can understand the Coalition thinking “well that was under Labor – we want something with a Coalition slant to it”. But that attitude also shows a pretty significant disrespect for the ability of Treasury, which conducted the review, to examine policy without partisan shading.

That point has been made before. The reason I bring it up today is that I’ve been surprised that, in all the public discussion of what might be done about negative gearing and capital gains tax concessions, the Henry review gets barely a mention (with some exceptions).

There was a very good paper released by Labor think-tank the McKell Institute this week, authored by one of Australia’s pre-eminent young economists, Richard Holden. (Holden, according to his CV, was also the convenor of the World Record Marathon Debate, which came in at 682 hours and 15 minutes.)  It wasn’t a partisan report. The PM has been making a lot out of the potential for rents to rise should negative gearing be wound back, and Holden’s paper didn’t blindly seek to dispute that – after a detailed discussion, it very reasonably concluded that we simply don’t have enough evidence either way. Anyway, I recommend taking a look – to paraphrase Abraham Lincoln, people who are interested in this sort of thing will find this paper the sort of thing they’re interested in.

But even there I couldn’t find reference to Ken Henry’s work.

In essence, Henry recommends removing the distortions in the current system that privilege investments in housing, in order to make investing in other areas similarly attractive. Without getting into the details, essentially what the report suggests is bringing concessions on interest income, rental income, and capital gains into line with each other.

One of the beauties of the Henry review was that it was prepared to admit complexity. The solutions it proposed were complex – and so were their implications. For example, the review made clear that, should its recommendations be implemented, other policies on housing supply would have to be pursued first, in order to mitigate any potential impacts on the rental market. It went on to conclude:

While these reforms will address significant biases that the tax system introduces into the housing market, the overall impact on housing affordability depends on other factors, such as interest rates and land release policies … Though the Review’s proposed reforms to taxes, in particular stamp duty and land tax, could play significant roles in addressing housing affordability, other policies are likely to have a more pronounced impact on the responsiveness of housing supply.

Anyway, Ken Henry himself probably isn’t too bothered by being sidelined. Before 2010, the last big tax review was the Asprey review of 1975, largely ignored by both Whitlam and Fraser. Despite its early insignificance, the ideas within played a major role over the course of the Hawke, Keating, and Howard governments. Henry said, therefore, that the effectiveness of his own work should be measured “not in months or years”, but in decades. Which, given the government’s intransigence on housing at present, is probably right.


Today’s links

  • I challenge you to find a better opening paragraph to a news article anywhere on the internet than this one.
  • Tony Abbott was asked if Australian officials were paying people smugglers to turn their boats around. He wouldn’t answer. The Greens have said this would be akin to participating in people smuggling activities. The PM has previously suggested we are at war with people smugglers – now we’re paying them? Indonesian police are investigating the claims. And my favourite tweet of the day on this issue.
  • Mogul news: James Murdoch is expected to take over from Rupert Murdoch as chief executive of 21st Century Fox. Twitter’s CEO is also stepping down, to be replaced in the short term by Twitter co-founder Jack Dorsey. Incidentally, there’s a fantastic profile of Dorsey here.
  • The PM is attempting to raise the pressure on Bill Shorten over allegations he dudded workers while he was a union secretary.
  • Why one woman won’t be inviting this anti-gay-marriage protester to her wedding.
  • Mark Kenny says George Brandis might be for the chop. During Abbott’s last reshuffle, I said he’d be wise to get rid of both Brandis and Hockey. My view hasn’t changed. Hanging on to Hockey may now be riskier than getting rid of him.
  • Will the Abbott government’s vindictiveness extend to the Reserve Bank?
  • Gillian Triggs won’t resign.
  • More brands – McDonald’s, for example – have backed gay marriage. 

Sean Kelly

Sean Kelly is a columnist for The Sydney Morning Herald and The Age, and was an adviser to Labor prime ministers Julia Gillard and Kevin Rudd.


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