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Negative gearing becomes political football… yet again!
negative gearing

In a move that surprises absolutely no one, the Australian Greens have started kicking around the negative gearing football again in a misguided attempt to win votes with their constituents.

They did the same last year when they tried to strong-arm the Federal Government into somehow instigating rental freezes even though the government has no jurisdiction in state-based residential tenancy matters. They didn’t win that fight either.

Now, I’m not here to disparage or promote any particular political party, but I do want to explain what negative gearing is and what it isn’t – and also why fiddling with the long-held taxation policy will be very bad news for renters in the long run.

Not an investment strategy

First and foremost, negative gearing is not a property investment strategy.

Sure, some investors do record net rental losses during their first years of investment property ownership, which is commonly referred to as negative gearing.

However, negative gearing is not only a taxation policy that applies to income-earning assets such as property, but also businesses and shares, plus, it should never be the only reason someone becomes a property investor.

That’s because, it is capital growth that will make the biggest difference to your financial future, not the ability to offset rental losses against income earned for a few years.

That said, it is fair and reasonable that someone who is investing hundreds of thousands of dollars in an asset that provides housing for 30% of Australia’s population is able to claim legitimate expenses involved with owning that property.

What that also does is increase your cash flow in the first few years, which is often when the expenses associated with an investment property can be higher than the income via rent that is earned.

Over time, as the rent increases, the property becomes cash flow positive – or even positively geared – which means investors start paying tax on this additional income back to the Federal Government, but that is usually not something that is given much exposure by mainstream media or left-leaning politicians.  

Negative gearing last became a political football before the 2019 Federal Election, and it is now widely accepted that its “scrapping negative gearing policy” lost the Australian Labor Party that election.

However, it also scared plenty of potential and current investors, who either didn’t enter the market or exited it. This fundamentally contributed to the rental crisis that we are now experiencing. Thanks for that. 

New investor research 

According to brand-new research from the Property Investment Professionals of Australia (PIPA), tampering with negative gearing and capital gains tax concessions could also cost the Federal Government up to $58 billion over just 10 years and gut the already-stretched rental market of supply.

Modelling by the PIPA shows Labor’s aforementioned (and failed) previous policy of limiting negative gearing to brand-new homes and cutting the capital gains tax discount in 2019 would have huge ramifications if applied today.

As well as driving investors out of the market in droves, that kind of drastic reform by the government would leave a gaping hole in the federal budget.

The Federal Government earns billions of dollars in tax from CGT every year with the ATO reporting some $26.4 billion in individual real estate capital gains in the 2020-2021 financial year.  

And, that isn’t even the worst-case scenario, given 38 per cent of investors indicated in the 2023 PIPA Investor Sentiment Survey they may sell up in the coming year because recent tax and tenancy reforms made investing an unattractive proposition.

“If Anthony Albanese suddenly adopts a draconian policy like the one Labor took to two elections, I have no doubt property investors will be seriously discouraged from buying property,” PIPA Chair Nicola McDougall was reported as saying in the research.

“When it last proposed these drastic measures, Labor claimed it would incentivise landlords to buy new homes, stimulating supply, but our research shows 93 per cent of investors buy established dwellings.” And who will supply all the dwellings required to house those Australians who rent – not everyone WANTs to buy property. Our lifestyles are becoming more and more flexible. People work from home, they move home more frequently, they travel. They don’t necessarily want to be tied down. They rentvest.

“The government’s belief that fewer investors in the market would mean more first-home buyers is also deeply flawed, with the number one barrier to homeownership for young Australians being the ability to save for a deposit and the stamp duty.”

However, with all this noise going on about negative gearing, it is vital to recognise that this time it would be highly unlikely that the Federal Government would tinker with a policy that previously lost them an election and would also deepen and prolong the current rental crisis around the nation.

But let’s not let politics get in the way of solving an actual problem!


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