Government leads 52-48% in Fairfax-Ipsos poll as tax battle turns to negative gearing

Fairfax-Ipsos' first poll of 2016 has the government ahead 52-48% on the two-party vote and Malcolm Turnbull leading Bill Shorten 64-19% as preferred prime minister.

While the numbers for the Coalition and Turnbull have notably come off since the honeymoon levels of the last Ipsos poll in November – then the two-party vote was 56-44% – they are broadly in line with Newspoll a fortnight ago, when the government led Labor 53-47% and Turnbull was ahead as better prime minister 59-20%.

In a result now much less relevant than it would have been a few weeks ago, when the government was floating a rise in the GST to finance big income tax cuts, 57% oppose such a tax mix switch while 37% would support it. The poll also showed very strong opposition to an early election – 74% believe the government should go full term.

The polling messages are clear and consistent. The Turnbull government remains in a solid position although, in voting terms, its ascendancy is not overwhelming, with a 1.5% swing against the Coalition compared with the last election. In their head-to-head popularity, Turnbull and Shorten are in different leagues.

Polling apart, however, Labor is starting to give the government a tougher run for its money.

Not so long ago, Shorten was being ridiculed for not delivering a great deal in policy while heralding 2015 as Labor’s “year of ideas”. Now, especially but not only on the central issue of tax, Shorten has bundles of robust policies out while the most notable policy story on the government’s side has been Turnbull walking away from a big GST-based tax switch.

At the weekend Shorten released Labor’s plan to limit negative gearing to investments in new housing from July 1, 2017. An ALP government would also halve the capital gains discount (from 50% to 25%) for assets purchased after July 1, 2017. With both measures, there would be full grandfathering for arrangements in place before the start date. The policy would raise an estimated A$565 million over the forward estimates and $32.1 billion over a decade.

The government, without any aspects of its tax plan out, is being caught short. Unlike the Abbott government, Turnbull and his treasurer, Scott Morrison, have both negative gearing and superannuation “on the table” for tax changes, but Shorten now has policies for each.

The government cannot afford to underestimate Labor on tax. Shadow Treasurer Chris Bowen and Shadow Assistant Treasurer Andrew Leigh, formerly an economics professor at the Australian National University, are proving a formidable team. Morrison increasingly will have to engage on the detailed ins and outs in disputing their policies.

Morrison responded to Shorten’s negative gearing initiative by saying it would raise “very little revenue” in the forward estimates period. He also said it “could also have some very nasty consequences for everyday mum and dad investors”.

“I have always believed that negative gearing gives hard-working Australians a chance to build some wealth they would not otherwise get,” he wrote in the Sunday Telegraph. But he went on: “The government is keeping an open mind on this issue as we prepare this year’s budget”.

Morrison’s attack will be subject to a discount factor until he has his own option in the public arena. On the other hand, the fierce reaction from industry stakeholders to Labor’s announcement provides a gauge of the backlash to doing anything in this area.

Chris Richardson, of Deloitte Access Economics, believes that the cut in the capital gains discount, which he favours, is the more important of the two Labor measures and makes unnecessary the negative gearing proposal. “I wouldn’t have done [the latter] but it is not a disaster,” he says.

Likening the current tax debate to a chess game, Richardson says that “it would be nice if the government moved a chess piece on the capital gains discount, now that Labor has given them wriggle room”.

On Wednesday Morrison appears at the National Press Club. He will give an update on the tax reform process, outlining the consequences now the GST-based plan has been kiboshed.

For Morrison, who has had some bad publicity lately, it is a highly important outing.

While a major tax switch is now not on, Morrison is still heavily focused on the challenge of bracket creep. When the government released its modelling last week revealing the negligible growth dividend from the switch, Morrison concentrated on another aspect. This showed the average personal income tax rate is set to be 24.4% in 2016-17, rising to 26.6% by 2020-21. Without countervailing action, this would reduce growth by 0.35%, according to the modelling.

Dealing with bracket creep would cost about $5 billion a year, in contrast to the big structural switch that would cost more than $30 billion. But it would still require a suite of significant changes in the tax area to find funds as well as perhaps some spending cuts.

Labor wants its tax changes to finance its expensive spending programs for schools and hospitals. Morrison wants whatever is done on tightening aspects of the tax system to pay for (now modest) income tax cuts. The political equation is whether the popularity of the varying positives that both sides offer will be greater than the unpopularity of the assorted measures proposed to fund them.