Via Business Insider comes some more modelling on negative gearing reform this time by Macquarie of the modelling done by Cadence Economics for Master Builder’s yesterday:
Based on the evidence offered below from Macquarie Bank, it suggests the policy changes may not have that much of an impact on the broader Australian economy, even in the worst-case scenario modelled by Cadence Economics.
The first chart shows the impact on GDP growth over five years.
Based on the worst-case scenario, the total drag on GDP growth is very small — less than 0.2 percentage points in the first year after implementation before reducing to 0.1 percentage point five years after the changes are introduced.
Nor is the expected drag on construction output expected to be all that large over the same period in an adverse scenario, reducing it by just over 0.2 percentage points in the first year and less than 0.15 percentage points by year five.
The declines in dwelling starts are expected to be a little larger than total construction output given the proposed policy changes are aimed at the residential sector, ranging from just under 5% in the first year to around 3% by year five.
Given investors tend to favour apartments rather than houses, the declines are expected to be more acute for the former under an adverse scenario.
While the reduction in residential building will drag on construction employment in a worse case scenario, annual declines of less than one percentage point of total construction employment are forecast in the five years following implementation, with the largest decline seen in the first year.
And with construction sector employing around 10% of the Australian workforce, the impact on broader employment growth is expected to be negligible at less that 0.1 percentage point per annum.
Crucially, the modelling conducted by Cadence Economics does not include and redistributive effects from the tax savings proposed by Labor.
In short, the Master Builder’s drivel is classic “partial analysis” that ignores everything else going on when you change something.
