BIS Shrapnel’s dodgy report into negative gearing, which was slammed by several reputable economists last week, has taken another hit today, with Fairfax’s Peter Martin revealing that the report’s author, BIS consultant Dr Kim Hawtrey, once wrote a report opposing negative gearing when he was an academic at Macquarie University more than 20 years ago:
“Deductibility of interest payments on debt creates a tax advantage for debt over equity,” he wrote. “Negative gearing ensues by way of combining debt interest deductibility with concessional tax treatment of capital gains, encouraging over-investment in property and related asset inflation sectors”…
Dr Hawtrey said then that negative gearing created a more highly leveraged economy than would otherwise prevail.
While Dr Hawtrey is entitled to change his tune, it does once again raise some red flags.
Economic consultants in general are often used as “hired guns” to produce a result that meets the client’s objectives, sometimes for lobbying reasons. We still do not know the identity of the “confidential client” that paid BIS Shrapnel to produce this “research”, therefore, we cannot ascertain the report’s underlying motivations.
This isn’t the first time that we’ve seen economic consultants flip-flop to meet their client’s needs.
In June last year, the Property Council and the Real Estate Institute of Australia (REIA) enlisted ACIL Allen Consulting to write a report arguing the case for retaining negative gearing and the 50% capital gains tax discount. This report was thoroughly debunked by MacroBusiness.
It was later revealed that in a 2006 report commissioned by the Victorian Government, Allen Consulting Group had called for negative gearing and the CGT discount to be removed in order to “reduce effective marginal tax rates across the income spectrum, but especially at very low income levels”.
As I and The Australia Institute argued last week, there needs to be some kind of ‘code-of-conduct’ or ‘hippocratic oath’ applying to economic consultants, so they act in the national interest, not just as a ‘hired gun’ for lobbyists. It is quite possible to model the moon being made of cheese to protect the dairy lobby, if that is what a client wants, using tailored assumptions and a limited scope. This is called partial analysis in both the sense that it does not take account of the entire picture and is biased.
At a minimum, BIS Shrapnel should have disclosed who funded their modelling so that Australians could ascertain the underlying motivations of the reported results.
