‘Crowding Out’ Evidence-Based Policy: The Case of Negative Gearing
by Isla Pawson for the Tax and Transfer Policy Institute.
25th January 2019

There is evidence that the reform of negative gearing as proposed by the Australian Labor Party (ALP) would have only a small deflationary impact on house prices. Indeed, one could argue that these modest reforms, coupled with grandfathering the owners of all existing investment properties, strike a pragmatic balance between reducing house price inflation and limiting macroeconomic fallout. But the point here is to emphasise that macroeconomic concerns have historically played an unduly significant role in shaping negative gearing and housing tax policy, often ‘crowding out’ overwhelming evidence on housing market outcomes.

For housing analysts, the message is clear: to realign housing policies with housing goals, we must interrogate and take on those economic arguments that strongly resist evidence-based tax reform, where the ‘preservation of housing market stability’ is invoked as a bar to even phased action as embodied by current proposals. We must also aim to provide policymakers with the tools to implement gradual reforms, while preventing an unmanaged and destabilising fall in house prices which carries a raft of social and macroeconomic risks. Ultimately, it is vital that we engage with the wider economic case for housing tax reform in order to neutralise our unhealthy yet pervasive macroeconomic dependence on over-valued real estate.


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