The government’s attack on Labor’s negative gearing proposal was an “extraordinary abuse of economic modelling” says the Australia Institute, who are now calling for an economic modelling code of conduct to be established.

On Thursday, treasurer Scott Morrison had referenced a report by BIS Shrapnel predicting billions would be wiped off Australia’s GDP if negative gearing was abolished, touting it as proof of the damaging effects Labor’s proposed limits to negative gearing would cause.

“[The BIS Shrapnel modelling] says, under Labor's proposals, it is bad if you own a home, it is bad if you invest in a home and it is bad if you rent a home,” Morrison said later in Question Time.

However, it was quickly revealed after that the report, commissioned by an unknown independent interest, predates the release of Labor’s policy proposal, with BIS Shrapnel confirming to the Australian Financial Review that “the assumptions were set several months ago, and the analysis done late last year, well before Labor announced its policy.”

“Therefore the assumptions do not align with Labor’s policy.”

However, Ben Oquist, Executive Director of the Australia Institute, said by then the damage was already done.

“While the startling allegations in the BIS Shrapnel report have been quickly torn apart by many economists, it has nonetheless misinformed and mongered fear among the public,” Oquist said.

He added that despite not truly reflecting Labor’s proposal, the “flawed and ridiculous report” was “being used to make important policy decisions that have the potential to affect all Australians.”

“We don’t know who this was produced for, but even more importantly, it’s not even clear how the key assumptions were selected.”

The Australia Institute is therefore pushing for a code of conduct for reports that inform the government. This code will ensure the disclosure of who commissioned a report and the assumptions that underpin it.

An explanation of the choice of model used along with an assessment of alternatives would also have to be included, while the report itself would be made publicly available and the authorship made clear.

“We call on the government to develop a code of conduct to ensure the standard of all economic modelling used to inform Government is transparent and of a high standard,” Oquist said, noting that auditors and actuaries were already bound by similar codes.

Negative gearing allows an investor to deduct any short-term losses on an investment (usually in property) from their taxable income, with the intention of making capital gains in the long term.

Labor’s proposal involves limiting negative gearing to new houses starting in July, 2017, relegating the investment property market to newly-constructed homes.

Their policy is intended to mitigate the effects of speculation on the housing market and encourage new homes to be built.

The BIS Shrapnel report explored the effects of limiting negative gearing, and based on economic modelling and assumptions it had set out, found that claimed that annually, Australians would see rents increase by up to 10 percent, new home construction shrink by four percent, and a GDP reduction of $19 billion or 175,000 potential jobs.

While the Coalition has acknowledged that the economic modelling of the BIS Shrapnel report was not fully accurate, Prime Minister Malcolm Turnbull insisted the potential impact of Labor’s proposal was worse than had been suggested.

“The Labor policy is so much more extreme, so much worse than that contemplated by BIS Shrapnel,” he said. “No-one could have imagined such a reckless assault on Australians' economic freedom as this.”

Treasurer Scott Morrison also conceded the report did not reflect Labor’s policy proposal, but refused to back down against Labor’s proposal.

“Not in their wildest dreams could BIS Shrapnel have predicted that Labor would not only smash negative gearing in the way they propose to do but on top of that would actually put up the capital gains tax by 50 percent on those same investments—they could not even imagine a policy that would be so daft.”

Deputy Prime Minister Barnaby Joyce added: “In my previous life, my previous role, as an accountant, I never came across an alternative policy quite like this one.”

“This one truly is Zoolander economics.”

Shadow Treasurer Chris Bowen meanwhile noted that the report also confused the annual GDP of Australia with that of New Zealand, resulting in a discrepancy of $1 trillion.

“Everyone knows that when it comes to modelling; garbage in, garbage out,” Oquist added.

With the political debate surrounding potential changes to negative gearing policy focusing on the accuracy of BIS Shrapnel report, Oquist concludes that governmental economic modelling must be made more transparent.

“It’s not too much to ask for a consistent standard,” he said. “There is absolutely no reason why all sides can’t at least agree on the minimum rules.”

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