MATT DORAN (JOURNALIST): The Prime Minister announced yesterday that the Government will maintain the status quo on negative gearing which is a position Master Builders is in favour of. Could you outline why you are of that opinion?

WILHELM HARNISCH (CEO of Master Builders Australia): Look the thing about the negative gearing debate is that it has to be looked at based on the facts. The fact is that negative gearing deductions have been a feature of our tax system for more than a hundred years.

It’s applied to housing but it’s also applied to business. It’s very important that the whole issue of negative gearing is seen in that context. The other concern that we have about the negative gearing debate is that it misses the point.

Housing affordability is very important, first home buyers getting access to home ownership is very important, provision of sufficient public housing is very important, the need to tackle our Budget deficit is very important – but none of these challenges are caused by negative gearing.

So changing negative gearing cannot be the solution to the factors that are causing these problems. It is not stopping first home buyers getting access to home ownership, it is not stopping more public housing being built and it is not the cause of our Budget deficit. 
None of those issues can be a reason to abolish or restrict negative gearing.

MATT DORAN: One of the points that Labor is making is that getting rid of negative gearing on existing properties will help with housing affordability. What is it about that doesn’t ring true for Master Builders?

WILHELM HARNISCH: On the issue of housing affordability, Treasury, the Reserve Bank, the Henry Review all agree on the cause of housing affordability pressures and that it is lack of supply. The issue is that lack of supply is causing house prices to go up.

This is the fundamental cause and one of the things that Master Builders has been saying is that there needs to be competition payments made to the states to ensure that structural barriers to increasing the housing supply are removed.

Unless you tackle this problem you are not going to tackle the problem of housing affordability.

The issue of first home buyers is equally important. But let’s look at the factors that are affecting access to home ownership for first home buyers. Much of this problem is to do with deposits which are a problem because of the size of stamp duty so what needs to be looked at is state governments giving stamp duty relief to first home buyers.

If you combine stamp duty relief with increased supply there is your solution. Negative gearing is not causing first home buyers to be locked out of home ownership.

MATT DORAN: So negative gearing, which in its current form allows investors to buy established properties, is not pushing first home buyers out to city fringes?

WILHELM HARNISCH: Look that proposition has been put but there are no facts to back that up. First home buyers only ever make up in any one year approximately 27,000 people. They are an important part of the market and Master Builders is committed to ensuring that young people can realize their dreams and aspirations for home ownership, but when you look at the number of houses that are bought and sold each year, to simply say first home buyers are locked out of purchasing established housing simply doesn’t hold when you look at the facts.

MATT DORAN: The Prime Minister makes the point that what they describe as ‘mum and dad’ investors benefit from negative gearing. Is that right? Do mums and dads benefit?

WILHELM HARNISCH: Look, let’s again get back to the facts. The facts are that the vast majority of investors are mums and dads on middle to lower incomes.

Yes there are some high income earners who own more than one house but let’s not base policy on this because the benefit is for the mums and dads who are building wealth for their family’s future and their retirement.

Let’s not demonise the mums and dads who are trying to have a go, trying to build up their wealth through negative gearing.  It is an entirely proper way for them to invest in property and is no different from buying a business where they have the same deductions in terms of the interest that they pay if they were to buy a business.

This also means in terms of tax equity, to say that there is a bias toward negative gearing for housing simply doesn’t hold.

MATT DORAN: The Prime Minister says Labor’s policy will take a sledge hammer to people’s housing assets, which are nearly always the most significant asset a person holds, those prices would plummet. Is that something that you think would happen?

WILHELM HARNISCH: Look asset price stability is very important, as you say for most home owners it is probably their major asset and base for their wealth, but it’s also broadly important for the financial markets.

You’ve seen overseas when asset prices become unstable it has a terrible effect on the economy, it has a terrible effect on the financial markets and that is something we don’t need to induce in Australia with policies that will destabilize asset prices, particularly in the area of housing.

MATT DORAN: So if Labor was elected and implemented their policy even though there are the grandfathering clauses would house prices plummet?

WILHELM HARNISCH: Look we are concerned about a couple of things. 
One is that negative gearing is the not cause of housing affordability problems or first home buyers being locked out of home ownership so there doesn’t need to be a change. 
Secondly, removing negative gearing would take away one hundred years of tax policy principles and doesn’t make sense when the solution to housing affordability and the budget deficit requires a more complex and comprehensive policy response.

MATT DORAN: You mention that state governments should help out with increasing supply. Is that an easy prospect?

WILHELM HARNISCH: It never is but state governments need to take responsibility because it is affecting people in their state and territories. It is not enough for them to simply say that it is someone else’s problem.