Following on from Malcolm Turnbull’s blog today and the Grattan Institute’s report, let’s weigh into the debate on negative gearing.
So many opinion holders out there see negative gearing as a tax advantage enjoyed by the rich.
They also think that this tax advantage is a real reason as to why property prices in some cities have soared and thus property becoming “un-affordable” – another great evocative word for the headlines. We assure you all that this is not the case, that these opinions ignore some fairly basic fundamentals AND show a real ignorance of how the Australian housing markets work. But then that’s what often happens when you consult Economists on matters relating to the property market. No offence to all Economists out there of course, but really, consider what makes property markets move. The media assumes that property investors are determined to buy every property on the market and will always be able to pay more than owner occupiers because of the tax breaks they receive. This is nonsense of course.
We put these points to you for consideration :
- Investors only own around 1/3 of Australian housing and not all of these have mortgages.
- The government still gets lots of tax revenue from positively geared properties and stamp duty is also a huge source of infrastructure funding for the state governments.
- Dramatic increase in house prices has been neither widespread nor ongoing at length. As we have noted in previous blogs, Sydney, Brisbane, Adelaide, Melbourne, Perth have all experienced totally different growth rates over the past few years and will continue on their own trajectories. It all comes down to supply and demand.
- Negative gearing against income applies to loans for shares (margin lending) and business loans too, so tax breaks to a huge sector of economic investment (other than property) would be adversely affected if it were to be abolished. It is also entrenched in SMSF investment lending.
- The cost to the government in providing affordable housing would be enormous compared to the amount of tax breaks given to individual landlords.
- Considering Australia’s ageing population and declining tax base, the future of the age pension is uncertain. The government does not want to remove any incentives for people to be self-funded in retirement and property is the preferred investment vehicle for many Australians. It reduces the burden on the government to provide pension support.
According to ATO figures there are over 1.2 million landlords claiming negative gearing benefits in Australia.
These are mainly the “normal” mum and dad investors that have featured in this week’s news releases, nurses, teachers, law enforcement officer, tradies etc, the list goes on, dare we say it … property investment advisers and buyer’s agents …. And about 80% of these investors are earning $100K or less.