Government is still dithering over laws slated to come in 16 years ago, which would make Australian property more affordable. Michael West reports on the (lack of) progress on AML-CTF reforms to address the deluge of Chinese money in Australian property.
As sure as Christmas and New Year come around in regular fashion, once a year, this reporter calls the government, whichever stripe it may be, once a year to ask when the promised anti-money laundering laws will be introduced to Parliament.
Seeing as they were slated to be made law in 2007, that is 16 years ago, this endeavour has transcended the normal business of journalism into something more akin to an Odyssean quest.
In the meantime, the value of Australian residential property has tripled, outperforming almost every rival country in the world, and home affordability has sunk to such low levels as to lock a generation of young Australians out of the property market. Inequality is now a thing, more than ever.
What is the connection? During these 16 years of dithering, all due to ‘stakeholders’ complaining to politicians – ‘stakeholders’ being lobbyists for lawyers, accountants and property developers – a deluge of foreign money, much of it illegally siphoned out of China, has drenched Australia’s residential property market, whipping up prices and making home ownership, as well as renting, less affordable.
In Canada, Vancouver in particular, they experienced this Chinese property bubble too, but a few years ago moved to address it, and now home ownership is more affordable.
And so it was that we again touched base with the Attorney-General’s people yesterday, alas to no avail. The portfolio, money laundering, has been juggled around many ministers and departments over the years. And now it sits with A-G Mark Dreyfus.
The usual response is ‘we are in a process of stakeholder engagement’. We are yet to hear back from Mark’s department, but we will keep you in the loop.
It would be wrong to say that Australia’s property rental and home ownership crises are the result of this failure of governments to introduce Tranche II of the AML-CTF Act (anti-money-laundering and counter-terrorism financing). Yet it plays a part, and here is why.
Driving up property prices
The billions of dollars each year invested in Australian property by the Chinese and others drive up property prices at the top end. This drags up the whole market and has been fuelled by the government’s decision to remove capital gains tax on the family home. So it is that prices have gone crazy at the top end, sparking a ‘mansion flipping epidemic’ as there is no CGT on the family home.
Routinely, investors in the leafier suburbs are flipping their family homes for large tax-free profits, then doing it again, and again, tax-free.
For the Chinese and other foreign buyers, the principal objective is to diversify their wealth and park their money somewhere safe. Often they don’t even bother to rent the properties out, leaving less stock on the market for renters, driving prices higher. Of course, other factors play a part in this crisis of affordability: developers withholding stock in order to profiteer from this failure of government policy, negative gearing (which makes property investment more attractive and puts first home owners in competition with investors), Airbnb tax rorting and the rise of the short-term rentals market.
Yet AML-CTF is an easy fix. And a necessary fix because global money-laundering authorities are cranky with Australia for dragging the chain on AML reform; particularly FATF (the Financial Action Task Force) which has been on the record explicitly rebuking authorities here for being laggards. When it comes to combating money-laundering and terrorism financing, Australia is up there, or down there, with Djibouti and Madagascar. Pakistan has done more.
All because of lobbyists and the craven inaction of successive governments who can’t stand up to the lobbyists of the Law Council of Australia, the Big Four – EY, Deloitte, KPMG and PwC, and the property lobby such as the Australian Property Council.
You see, the First Tranche of AML-CTF legislation, passed 16 years ago with an immediate promise to pass the Second Tranche, compels banks, fund managers, bullion dealers and casinos to disclose the source of their funds above a $10,000 threshold. Accountants, lawyers and property developers, however, do still not have to disclose.
Australia is truly a paradise for white-collar criminals. At the other end of the laundering operation are, for instance, the Chinese who are proscribed from taking much money out of the country to invest overseas. They do it through businesses and various broking activities anyway.
We reported last August:
“Mark Dreyfus’ Attorney-General’s department is currently undertaking round tables with industries expected to be covered under new anti-money laundering regulations, which is the next stop on Australia’s 17-year commitment to introduce the new regulations.
While the guest list for these roundtables hasn’t been released, a spokesperson from the department told MWM that it included “national peak bodies of affected sectors and bilateral engagements with industry members and government stakeholders”.
The industries expected to be covered under the new regulations are lawyers, accountants and the real estate industry. Australia, alongside Haiti, Madagascar and China, are the only holdouts for introducing the Financial Action Task Force’s recommended anti-money laundering and counter-terrorism financing regulations.
Following a consultation paper expected to be released next month, the department will go back to the industry’s peak bodies before finally delivering its advice to the government.”
The clock is still ticking and we can only presume that these nameless ‘stakeholders’ are getting the upper hand in negotiations, negotiations which no doubt do not feature ordinary Australians battling to get set in the property market.
The department has declined to provide a timetable for this advice, or when Australians can expect these new regulations to take place.
As the beneficiaries of this dithering and failure to act are property owners enjoying the frenzy of the mansion flipping epidemic, and as politicians themselves tend to own multiple properties, it is no wonder they are reluctant to act on AML. Sadly, ordinary Australians, particularly younger Australians, are the victims of this political malaise.
The brutal irony of this farce of lobbyists and governments is that low-income Australians are struggling to put a roof over their heads while wealthy investors are rorting the CGT relief on the family home and merrily flipping their mansions for million-dollar profits entirely tax-free.
Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.