The government has got its eye in, and been blooded through the odd embarrassment. It needs to ask itself whether it wants to be a two-term government? Of course it does. But what about becoming a four-term government?

Australians like to give their new governments a go.  So if you’re a first-term government all you have to do is avoid really big mistakes, and keep the photo ops coming.  But the second term gets harder. And the one after that?  Well you’re fighting that nagging “it’s time” feeling in the electorate.

The government needs to invest its political capital now doing things that might not please the electorate, but leave it with something to show for having stuck with you.

To embrace a four-term strategy, the government needs to come up with some measures that show it means business.  It needs to find measures that don’t cause a riot but that generate growing dividends in the out-years. And not that they matter in the short term, but the cognoscenti will be even more impressed if the reform takes advantage of the specific short-term circumstances we find ourselves to build for the long term.

There are plenty of such policies around. Here’s one.

With the RBA’s anxious about a housing bubble, now’s just the time to do something about negative gearing.  It’s much more targeted than raising rates and it will raise bucket-loads of revenue.  Here’s how to minimise the political flak.

  1. Don’t abolish negative gearing. Just introduce a cap on it so that it’s targeted at bona fide investment. So you could say that negative gearing will continue but only up to a cap of — say — 20% of the interest payments on any asset (or 30% or 40% if you’re a chicken).With lots of rents at 5% of value and interest rates of 6 or 7 that would be ample for most bona fide investors.  But it would pick up the rorts where huge amounts are written off with interest carry forward and various other tricks.
  2. “Grandfather” all mortgages for — say — five years so that no one’s expectations are upset and in five years rents should have risen to take any reasonable negative gearing into the black.The beauty of doing it right now is that you can’t do it when house prices could start falling as you’ll get the blame. There’s one further snag.  Rents are rising and will keep doing so.  This was the reason the ALP government reversed its original decision to abolish negative gearing in the mid-1980s.
  3. So you also allow unlimited negative gearing for the first five years investment in any new building — channeling investors’ money where we want it — into building new homes.

Voila, you’ve added another string to the bow of your housing affordability strategy.