The Opposition proposed negative gearing reform to help first home buyers, but the Turnbull Government blocked it. Funny that. (Meme via @Elias_Hallaj )

We should completely abolish negative gearing, says Frank O’Shea — and let the chips fall where they may.

The young couple have done all their sums and visited their bank. They know their limits and turn up with fingers crossed at an auction for a house in the suburbs. It is a pathetic sight: they manage a few bids and then have to shut up as the price climbs way past their hope, and the property is eventually sold to someone who may not even be at the auction. Probably a third or fourth or nth property.

The buyer does not need to worry, because the interest he is paying on the loan can be written off against earnings. It will be a plus if he can rent out the property, without worrying about how much he gets because the government will cover the difference. Anyway, he has an accountant who will look after the whole thing for him — a person whose main job is to devise clever schemes so that the social uses to which money can be put – schools, hospitals, roads, public safety – take second place to investor greed. This is capitalism, Australian style.

It is tempting to digress here to wondering how accountants sleep at night, given the cruel deviousness to which they devote their narrow talent, but I want to concentrate instead on the negative gearing caper that is the basis of so much of what they do every day.

The Government says the problem with housing is at the supply side: release more land and the problem will disappear, a convenient excuse because the states can be blamed. Unfortunately, the sea on one side of Sydney and the mountains on the other make it problematic there. In Melbourne, there are fewer obstacles — plenty of land beyond Melton and Macedon, two hours from the city on a good day. Meanwhile, the deputy PM has his own suggestion: move to Tamworth or Toowoomba where house prices are much lower.

Now there are clever folk suggesting that the solution is to remove stamp duty and replace it with a land tax: all fine until multiple exceptions are made and we finish up with a mishmash like the GST. But the main problem is that if you take $30,000 off the cost of a house by removing stamp duty, that will merely encourage sellers to add half of it on to the price and within a few years we will be back to where we started.

The suggestion that there be a charge on unoccupied houses or flats is certainly a positive one, but those accountants we met earlier would have no trouble dealing with that — how many days a year does a place need to be "occupied"? We have a group of students who could easily cover that problem for us. No rent required because negative gearing will take care of it.

So here is my suggestion: bite the bullet and remove negative gearing. No ifs or buts, no exceptions. They don’t have it in Canada or Britain, or most OECD countries.

What will happen? There will be an immediate collapse in the housing market. A place valued at $1.3 million today will be struggling to fetch $800,000 tomorrow, with similar reductions in all price ranges. Is that a bad thing?

The owner, of course, will still be stuck with the mortgage at the original price. Too bad, mate, our hearts bleed for you. The PM thinks you are a teacher, or a nurse, or a police person — you should have stuck to your career and left the speculation to the big boys. You can’t pay the mortgage from your police wages, so eventually the banks will foreclose and try to sell at the best they can get. They will lose in the transaction too and if the rest of us give a raucous cheer at their discomfort, I hope you won’t blame us.

Some of the banks will, in fact, be so heavily leveraged that they may go to the wall. And again we enthusiastically applaud. They have had the country by the short and curlies long enough. And be assured that they are somewhere in the dark background, agitating to get a hand on your super.

Spare a maudlin thought too for those who have shares – perhaps negatively geared – in the banks and who will find their investment is barely worth the paper it used to be written on before they saved even more money by going paperless.

All of this will, of course, lead to a recession, so the bank shares are not the only ones that will hit the floor. Again, our hearts bleed for the people who play in that field. Unfortunately, super funds will be hit and innocent people who never speculated on shares or property will suffer also.

We are reminded of Paul Keating because this too is a recession we have to have. The country survived that problem just as Ireland has thrived after their recent collapsed-bank recession.

Unchecked, unregulated negative gearing has created a two-tier society in Australia. Is that what we want?

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