What should be on Julia's budget table?

In Who cares about the budget? I said it was silly to get too hung up on the budget figures when they had a likely error factor of plus or minus $50bn. Turns out this year it's looking like a $12bn miss on revenue forecasts, a few holes covered with efficiency dividends, some chopped superannuation concessions, delayed promises and an assortment of other revenue and expenditure changes to get things as close as possible to the erroneous forecasts.

Not that the forecasters are to blame. What human being can possible tell what the future holds for a complicated, globally connected economy? The blame lies with the whole silly idea of thinking that economic forecasting is anything other than incredibly detailed guesswork.

Our Prime Minister, Ms Gillard, has now come to the realisation that she and her team have guessed wrong and, according to reports, any reasonable measures are 'on the table' to plug the hole. When a commitment to 'never remove tax-free superannuation payments for the over-60s' can't be taken at its face value and promises are things made in light of the circumstances at the time, it's somewhat pointless trying to work out what the Government means by a 'reasonable measure'.

But let's have some fun with it and ask the open question 'what should be on Julia's table'? From discussions we've had around topics of this nature previously, it's obvious that our members are far more honest, thoughtful, insightful and reasonable than the bulk of our political leadership. So if one of us were randomly handed the leadership baton (which, as an aside, would probably be a good outcome) what changes would we make?

Negative gearing will no doubt get a mention. It's number one on many people's list for axing but has long been off the table for both our political parties. Generally this is attributed to fear of lost votes from property investors but I'm not so sure.

The removal of negative gearing would need to be done fairly, without affecting those who have long term investment decisions based in good faith on the law as it stood at the time. So removal should only apply to future purchases, not previous ones, and the deductions of existing property investors should remain unaffected (noting, for completeness, that negatively geared share investors would also be affected going forward).

I find it difficult to see many investors changing their votes on the basis of a rule change which doesn't affect them directly. Whilst I suspect, ultimately, it might reduce the upward pressure on prices, given the faith property investors seem to have in demand and supply factors I can't see them deciding in advance that the availability of negative gearing for future purchasers is that much of an issue.

But the people that would be an issue are those in the property industry. It's hard to see the real estate agents, property developers, property valuers, mortgage brokers and mortgage lenders of Australia not running a heavy-handed advertising campaign against any party which dares take on the negative gearing bogey man. No doubt, they'll regurgitate the 1980's 'escalating rents from removal of negative gearing' myth. So it's understandable (politically speaking) that our major parties haven't dared touch it. Perhaps this is another item for Tony Windsor to add to his referendum at the September election?

The other problem with removing negative gearing is that it won't (done fairly) raise money in the here and now, it will just help ease the structural deficit problem we have. So it will fix a problem, but it won't raise immediate cash and will risk a fight with a powerful vested interest. It should be on Julia's table, but it's hard to see that it will be anywhere in the building in which the table sits.

So I've put negative gearing on my version of Julia's table as the main course, with sensible changes to the superannuation tax exemption (along the lines discussed in Super: A promise that was meant to be broken) as one of the entrees.

There are a few others I'd have on my list but I'll hand the suggestions over to you. What should be on Julia's table?

 

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