Shocking Sydney grandchildren claim if negative gearing continues unchanged
The bombshell call by ACTU secretary Sally McManus will be taken to the Albanese Government's productivity roundtable, which will be held in Canberra in August.
Warning families can no longer afford to buy a home, unions want the Prime Minister and Treasurer to announce a huge backflip that will change the way negative gearing works in Australia.
Under the plan, the tax breaks will be limited to one property only by 2030, which could force a massive sell-off of investment properties.
Negative gearing allows landlords to deduct losses on a property – when expenses exceed rental income – against their taxable income.
It can apply to any type of investment, not just housing. Individuals who are negatively geared can deduct their loss against other income, such as salary and wages, and it's entirely legal.
Critics argue that negative gearing hurts first-home buyers because they don't have access to tax deductibility to subsidise interest payments.
'I just say, we've got to bite the bullet,' ACTU secretary Sally McManus told ABC's Insiders on Sunday.
'Otherwise, we're just saying – too bad young people, you're not going to be able to ever own a home, forget about even thinking about it.
'Since 2019, the problem has just got worse. It's going to continue to get worse unless the government is brave enough to do something about it. We are just abandoning those generations and we think that that is fundamentally wrong.'
Ms McManus said the biggest issue in terms of living standards for younger people in Australia is the issue of housing affordability.
'It's the number one issue. We need to address it,' she said.
'Young people should have the same aspirations as the generations before them. And at the moment, then don't.
'It's been wiped out by the fact that the housing prices have gone up twice the rate of wages over the last 25 years. Twice the rate.
'Now, supply is part of that issue and we've got proposals around that. But we also think that the tax system has to change, too. Because that has fuelled those housing prices and taken it out of reach for young people.'
'We're going to take a proposal that both negative gearing and capital gains tax should be reformed,' she said.
'That they should be limited to one investment property and grandfathered for the existing arrangements for five years to allow people to adjust.
Ms McManus confirmed that under the union proposal, after that, you can only have one negatively geared property.
'Yes. And so, you can have as many investment properties as you want, but in terms of the tax benefit, limit that to one,' she said.
'The issue is that a small number of investors, and we're talking about 1 per cent of investors, own 25 per cent of the investment properties.
'And that has been driving or fuelling the housing prices. And so, I don't think that we ever intended even for this to happen as a result of these tax measures. But this is where we're at.
'Unless we change it, working people can't live where they work.
'They can't live where they grew up. It is causing an enormous amount of pressure on people and a really disturbing thing is that a study in New South Wales said that there will be no grandchildren in Sydney because people between the ages of 30 and 40 can't afford to live there.
Ms McManus also called on the government to 'get behind modular housing.'
'It's quicker and faster and cheaper in terms of producing those houses,' she said.
'Also, the rules around superannuation funds investing in housing are too limiting. And that's holding back investment in housing as well.'
The Treasurer has opened the door to a broader debate on potential tax changes at the government's economic reform summit.
'I expect, I anticipate, I welcome tax being an important part of the conversation,' Mr Chalmers told reporters in an address to the National Press Club.
But Anthony Albanese has repeatedly pushed back on the wisdom of negative gearing reforms, hinting that it could increase rents by not boosting housing supply.
Economists warn that reforms to negative gearing could put modest downward pressure on housing prices, a boost for first-home buyers.
Some experts believe that reducing the incentives for investors could reduce home prices by 2 to 4 per cent in the medium term if negative gearing reforms are combined with capital gains tax changes.
But the flip side is that increasing taxes on property investors could deter investment in new apartments and homes, ensuring that the undersupply of houses that is driving soaring rents only gets worse.
'Well, when it has been looked at, it's been shown that it won't assist supply, and that's the problem here,' Mr Albanese said last year.
'For many people, of course, if you didn't have investment in housing, you wouldn't have private rentals, you would have less supply, and less construction is the concern which is there.
'Look, my view is that the key to housing policy is supply,' he said.
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News report: The federal court found Johnson & Johnson had been negligent and driven by commercial interest and ordered them to pay compensation. Anne Connolly: There's many, and they're very varied. Sam Hawley: Yeah, and you found during your Four Corners investigation, this is a billion dollar industry, but it's not always in favour of the individual victims. So to explain this further, why don't we look at a recent case, Anne, a legal fight between more than 8,000 Australian taxi drivers and Uber. Anne Connolly: Well, I mean, I think most people remember when Uber entered the market, obviously the taxi industry was absolutely decimated. They just couldn't compete any longer. One of the taxi owners I spoke to is a man called Stephen Lacaze. He said he had a licence in Queensland, which was at the time valued at about half a million dollars. It went to being virtually worthless once Uber came along. Stephen Lacaze, taxi owner: Oh, it was devastating. People virtually went into shock. Anne Connolly: So when Maurice Blackburn, which is one of the biggest class action firms in Australia, came along and proposed a class action, he was very keen to sign up. Stephen Lacaze, taxi owner: We were friendless. And here comes Maurice Blackburn with their Bradman-like batting averages, and their 'we fight for fair' banner, and we're there with bells on. Sam Hawley: OK, so Stephen was keen to fight this. Maurice Blackburn lawyers take it on, and they get a third party, a litigation funder, to pay the costs. Just explain how that works. Anne Connolly: Yeah, so what happens is Maurice Blackburn doesn't want to go this alone. So what they do is they engage somebody called a litigation funder. And litigation funders, they pay the lawyers' fees, they support them, and if they lose, they pay all of the costs, so there is some risk. But in return for taking that risk, they want a percentage of any payout that they win. So in this case, with Maurice Blackburn, they had a partnership with an offshore firm called Harbour Litigation Funding, which is actually registered in the Cayman Islands. It's a tax haven, and there's quite a few litigation funders in tax havens. Under this deal, they said, we want 30% of the proceeds. And Stephen signed up for that, as did most of the taxi drivers. Stephen said he did that because he thought they were going to get a payout worth billions because that's how much they'd lost. Sam Hawley: So in this case, Maurice Blackburn, the law firm, ends up settling this class action. So just tell me what happens then. Are the taxi drivers elated about this? Anne Connolly: Well, the night before the trial was due to start in March last year, Maurice Blackburn brokered a deal with Uber. That would be that Uber would pay $272 million in compensation. Now, once Harbour took its commission, that came out at $81.5 million. Maurice Blackburn took its legal costs, which came to $39 million. It means that the drivers were left with just over half the payout. Now, we don't know what individual taxi drivers will get. Stephen Lacaze believes he'll get about $20,000 once all of these fees and commissions come out of his payment, which he says is nowhere near what he lost. Sam Hawley: What did Maurice Blackburn have to say about that? Anne Connolly: They said the federal court had approved the settlement as fair and reasonable, and Harbour, the funder, said that the case was long-running and there were significant risks. Sam Hawley: Hmm, OK. So, Anne, that's the case of the taxi drivers against Uber, and we're going to talk about another really concerning case in a moment. But before we do, let's just look at the system more deeply. The worry here is that the whole class action system is set up to make profits for the law firms and the funders, but not deliver the justice to the victims, right? Anne Connolly: Well, there's some people who are concerned about that. I mean, the lawyers and the funders will say, without us, people would get nothing. The problem is that what's happening now is most people think a class action begins with a group of victims, but that's not really the case anymore. Now everything has changed because litigation funders have now entered the Australian market. So what happens is, it's the law firms and the litigation funders getting together and seeing, what are these issues that we could launch a class action on so that they can make money and then they can sign up the group members? So the concern is, are they really seeking justice for people or are they actually just finding a business opportunity so that they can make as much profit as they possibly can? Sam Hawley: Anne, let's now look at another case where the victims are left with, in comparison, petty change. Just tell me about Minnie McDonald. Anne Connolly: So Minnie McDonald is a woman in her 90s. She lives in Alice Springs and she was approached by Shine lawyers to become what's called the lead plaintiff in a class action in the Northern Territory for stolen wages of Indigenous workers who worked on cattle stations and missions for little or no money. Minnie McDonald, lead plaintiff: No shoes, get up in the morning, go to work. Come back afternoon, cold. Anne Connolly: So this case relates to the treatment of people like Minnie who, along with a lot of other... ..thousands of other Aboriginal men, women and children worked for little or no pay between the 1930s and the 1970s. Look, I just think, you know, one of the things I want to say about this is if ever there was a class action needed, perhaps it was in this particular case. I mean, there's questions about why the governments didn't just actually pay people what they deserved instead of being forced to court and forced to pay out compensation. But in any case, what Shine says and what the litigation funder says is we were doing our very best to get right a particular historical injustice. Sam Hawley: So the law firm Shine takes on this class action along with the litigation funder, Litigation Lending Services, and Minnie becomes the lead plaintiff. But the thing is, Anne, we know with legal cases, there's a lot of paperwork and Minnie had to sign a lot of that and she can't read or write. Anne Connolly: That's right, she can't read or write. So Minnie had her granddaughter Elizabeth to help her. However, Elizabeth does say, you know, it was complicated. It was difficult to understand at times. So Minnie did sign one document which said that Shine's costs had increased by $10 million and she signed off on that. I asked her about it and I asked her granddaughter if they remembered it. They didn't. I asked Shine, did they check that Minnie had the capacity to understand the complex legal and financial issues around class actions? They said being unable to read or write is no indication of intelligence and that they had an Indigenous barrister who helped to cross these cultural barriers and explain the process to them. Sam Hawley: So tell me what ended up happening with the case. Anne Connolly: So there were two class actions in WA and the NT and they both settled. So they didn't go to court. In Western Australia, there was a settlement for $180 million. In the Northern Territory, it was $200 million. Which sounds, you know, really positive. But what has to come out of that are the legal costs and the commission for the litigation funder. So they're not going to end up with that much. They'll end up with at least $10,000 and some will end up with more than that. Minnie McDonald, lead plaintiff: So somebody might... get a car and just take me for a picnic somewhere, you know, have a feed. But... I didn't get enough. Anne Connolly: You didn't get enough to buy a car? Minnie McDonald, lead plaintiff: Yeah, yeah. Nothing. Not enough. Anne Connolly: On the other hand, what's happened is Shine Lawyers is going to get about $30 million for its work. And the funder, Litigation Lending Services, they will take a commission of about $57 million. Sam Hawley: And you've had a really good look, haven't you, also, at the amount the law firm Shine was actually charging. Anne Connolly: Well, that's very interesting because Shine was roundly criticised in both WA and Northern Territory courts by the judges there. In one instance, Shine was charging for law clerks, charging them out at $375 an hour, even though many of them were unqualified uni students. They hired at least a dozen barristers that cost almost $3.5 million. One of those barristers charges almost $5,000 an hour. So, you know, the legal costs are the things that's really interesting. Sam Hawley: All right. So, Anne, the law firms and the funds are making a lot of money from these class actions in many cases. They do argue, as you mentioned, that they're actually giving people a chance to have these cases heard. What has Shine told you? Anne Connolly: Well, Shine said we were the only ones who were willing to take this on. We have given Aboriginal workers a chance to tell their stories. They've received compensation and they're being acknowledged for the historical injustices that they've suffered. And they said that these cases require experienced and well-resourced lawyers. And Litigation Lending Services, they said that they're proud of their involvement and that their commission was lower than the standard market rates because they wanted to reflect the social justice nature of these claims. Sam Hawley: And you spoke to the head of the Association of Litigation Funders. So this is a group that represents the firms that financially back these class actions, the funds. Its head is John Walker. So what's he had to say? Anne Connolly: Well, he said, look, you know, this is a market. This is a financial market that they operate in. They're trying to get some justice for people, but at the same time they're trying to make a profit and they don't shy away from that. John Walker, Association of Litigation Funders : We underwrite the project. We'll pay everybody if we lose, but in return, if we win, then we get a share of the recovery. We don't see it as gambling. We see it as investing. It's a market, and I don't step away from that. Anne Connolly: He essentially says, look, what we're doing is we're trying to correct the bad behaviour. Even if these class members are not getting enormous sums, it's sending a message to the big end of town that you can't operate in this way any longer. John Walker, Association of Litigation Funders : I'm absolutely proud of what's happened with class actions in Australia. They're absolutely essential to create accountability in respect of the big companies and governments. Sam Hawley: But, Anne, it does sound like a system that's not really working as it should. That is for the everyday people who need it. Anne Connolly: Well, I think what happens is a lot of people look at a class action sum and they believe that the sum that's been publicised is what people are getting. They don't realise that up to half of it can disappear in fees and commissions. The other point being the only class actions that actually get funded and get run are those that turn a profit. So when you're talking about others that might be very worthy, they won't get up if the bottom line doesn't look good. I think the problem arises when you're talking about people who have really suffered, such as these Aboriginal workers in the stolen wages cases who thought that they were going to get some proper compensation and what they're getting is simply a fraction of what they really deserve. And when they do see litigation funders and lawyers walking away with tens of millions of dollars, it makes it difficult for them to understand and sometimes it can feel like they've been exploited all over again. Sam Hawley: Anne Connolly is an investigative reporter with the ABC. You can see her Four Corners report on ABC TV tonight at 8.30pm or you can catch it on iView. This episode was produced by Sydney Pead. Audio production by Sam Dunn. Our supervising producer is David Coady. I'm Sam Hawley. Thanks for listening.
