Malcolm Turnbull has elevated trust and economic competence as the key requirements in a changing economy just as real estate overtakes mining to become Australia’s most profitable industry.
Real estate produced $8.6 billion of taxable profit in a quarter, ahead of the old mainstay of mining, which produced just $3.6 billion.
Speaking at a Canberra-based, hi-tech defence company, CEA Technologies, the Prime Minister returned to his favoured territory of agility and innovation, in a noticeable change of rhetoric after a week in which he had been widely criticised for being too negative about Labor’s negative gearing plans.
“You see for us to succeed in the 21st century, we have to transition from an economy that has built around a mining-construction boom, to a new economy. That is an economy based on innovation, on technology, on opening markets,” he said.
But he did not entirely leave Labor’s policy alone, continuing to deride its implications for an economy still looking for all of the growth available.
The latest figures, from the Bureau of Statistics, came as Mr Turnbull called for the transition away from mining to “technologies of the future”.
“We have seen the biggest mining boom in our history,” he told Parliament later in the day. “The economy has been driven by a massive level of mining construction investment. That is tailing off.
“What is Labor’s tax policy going to do? Undermine confidence, undermine the value of the largest asset class, the family home. ”
The figures show rental, hiring and real estate service companies made $14 billion before tax in the second half of 2015 while mining companies made only $9.8 billion.
Real estate profits were twice those of the retail and construction industries and way in excess of those of the finance and insurance industries, which recorded a combined loss.
Two years earlier, mining profits were five times those of real estate.
The turnaround means the fortunes of the real estate industry are now more important to the budget than those of the mining industry.
In Parliament, Treasurer Scott Morrison said Labor’s policy of halving the amount of each capital gain exempt from tax would lift the tax rate on capital gains by 50 per cent.
“At a time when we’re trying to encourage investment in the transition of our economy, their policy is one big fat tax on investment.”
As both men wrestle with tax reform options, including a possible crimping of negative gearing tax breaks, at least one backbencher, John ‘Wacka” Williams, believes the facility should be expanded to encourage wealthier Australians to invest in productive assets in the bush.
The straight-talking NSW Nationals senator believes that losses of investors incurred on interest payments on farms should once again be claimable against all primary income for wealthier Australians – that is, those earning gross incomes above $250,000, a group that includes federal MPs.
Currently, under the Higher Income Superannuation Charge, all income is assessed as relevant and once that income exceeds $250,000, then the deduction of losses against taxable income – ie, negative gearing – is not allowed.
The little-known provision was inserted by Labor treasurer Wayne Swan in the 2012 budget and commenced as at January, 2013.
Citing his own experience of purchasing a hobby farm that year, Senator Williams said the acquisition had revealed an anomaly in which he could have negatively geared a relatively unproductive asset, such as an existing house, claiming its interest payments against his income, but not his farm because it is classified as a business.
“Labor always says we got to have open slather to let foreigners buy our farms, they were critical when we tightened those regulations up, but they don’t want Australians to buy farms, obviously,” he said.
He said the rule meant in effect there was no incentive for doctors, dentists, politicians, or anyone else who was well paid, to buy a business in the country, thus taking investment to those regions.
Senator Williams has raised with his colleagues the idea of scrapping the $250,000 salary cut-off, in a move that would amount to widening negative gearing, just as Mr Morrison is believed to be searching for ways of narrowing what he has termed “excessive” use at the top end.
Labor probed the Prime Minister and the Treasurer on what constituted “excesses” in Parliament on Monday but to no practical avail.
The government, however, is now set to release its tax plans prior to the Budget, due to political pressures.
Meanwhile, a backbench group of economic dries remains cautiously hopeful that any negative gearing changes aimed at reducing its use would not pass muster in the Coalition party room.