Why A Labor Government Won’t Destroy The Economy

As all politicians know, everybody wants cheaper house prices, as long as their own is not one of them of course (as impossible a notion as that is in reality). So Bill Shorten and Labor know they are on a vote winner with their promise to send property prices tumbling by removing the ongoing structural support of negative gearing from around 95% of the properties that currently qualify and doubling capital gains tax.

The cold hard reality though is any resultant wholesale drop in property prices will ultimately affect everyone, with Sydney and Melbourne particularly in the firing line given their recent massive price gains that has left them very stretched and exposed.

The mere threat of the policy changes has already sent markets into a spin and were they to actually be adopted and cause values in Sydney and Melbourne to fall back another 10 or 20% (or more – remember they are up an average 80% on 3 years ago) that would wipe out the retirement nest eggs of millions of Australians and trigger our very own Sub-Prime crisis.

That very real and present threat is why Labor will ultimately likely abandon the policies, and most likely the negative gearing deconstruction side of it.

The unions will certainly be urging them to do so. As much as they want power, they own houses too and these mostly in the two capitals most threatened by the policies. Already they would be feeling uncomfortable with the erosion of their property values they have seen in the short time since the structural reform policies were announced.

Beyond personal financial interests, the unions would also be very aware of the policy’s direct threat to the construction industry, Australia’s largest employer and responsible for 1 in 4 jobs. Were the policies to be implemented unchanged, that would see the jobs of 10,000’s if not 100,000’s of ordinary Australians wiped out in a heartbeat. Even a watered down version of either would still be a disaster.

Therein lies the gamble and the dilemma for Labor and why they will likely find reasons to fold their election winning hand either just prior to the election if they believe they can still win without it or just after if they believe they can’t. Finding face saving reasons to do so won’t be the hardest thing they have ever had to do.

If they don’t, just having another recession we never had to have might be the very best outcome anyone could hope for.