5 Reasons Why The Government Shouldn’t Change Negative Gearing

Federal Opposition Leader Bill Shorten has unveiled plans to change negative gearing rules for property purchases if they win the next Election.

The changes under a Shorten government would not affect the tax arrangements for investment properties purchased before July 2017. gearing negative

A Labor Government would also reduce capital gains discounts from 50 per cent to 25 per cent .

Mum and dad investors who have a house or apartment that is negatively geared right now will keep the deductibility, but after 1 July 2017, negative gearing can only be accessed for new houses.

With pressure on the current Governments to reduce the growing Budget deficit and the Treasurer Mr Scott Morrison’s refusal to rule out any changes in policy across the board, negative gearing would seem to be the one area squarely in the sights of both the Government and opposition especially when you look at the statistics.

Currently 1.2 million people negatively gear and most of these are middle class Australians.

Australian Tax Office statistics show negatively geared property investors claim over $13 billion in losses and the average loss per negatively geared investor is over $11,000, but this loss doubles for those earning more than $180,000 to over $24,000.

Should our Governments look beyond the numbers, and is it a false economy just to think that by tinkering with negative gearing it will solve the budgetary problem?

Here are 5 reasons why the Government shouldn’t change negative gearing.

1. Growing Population  

With Australia’s population set to grow significantly over the coming decades our Governments should be asking ” how will we house these people”.

The Government does not have the capacity nor the finance to provide public housing for the growing population so this is left to the private sector.

Negative gearing allows more Australians to invest in property as the tax benefits assist with the cash flow to invest and hold onto the property.

If negative gearing is changed  and Capital gains concessions reduced it will mean less investors, less demand and less houses, and it will place further pressure on Government to fund and provide for housing.


2. Pressure on the cost to fund the aging population

1.2 million middle class Australians invest in property in Australia to generate capital gain and increase their asset base for retirement and subsequently to ensure that in their retirement they can maintain a standard of living and not rely solely on the aged pension if at all.

If the Government creates a blockage into entry for property investment by chipping  away at the tax benefits or reduce capital gain concessions property investment becomes less attractive and  we will see more Australians reliant on Government pensions meaning less self funded retirees therefore placing  further pressure on future budgets.

The Government has to take a long term view and look beyond today.

A change will only make matters worse in the future.


3.Drop in property prices house price tag market property cost save home growth data statistics trend

Will a change in negative gearing and capital gain  concessions disincentivise investors and if so what will the impact be on property prices?

In the short term we may see a dip in prices due to lower demand and increased supply which will have an impact on the economy across the board.

State Governments will miss out on a large chunk of revenue via loss of stamp duties and a loss in this revenue can mean less to spend at a State level on things like education, hospitals and infrastructure.

The Federal Government will then have to fork out more to the States to compensate ….could it be that  the Government are simply  robbing Peter to pay Paul with no great saving?


4. Knock on effect to the economy

Will the changes in Negative Gearing policy and capital gain concessions  disincentivise people to invest in property.

Due to the loss of the tax benefits people will not be able to fund the cash flow of the investment,  they will stop buying property and we will see a knock on effect similar to what we have seen in the Mining industry after the boom.

 It could mean a rise in unemployment in the building sector and associated industries such as white goods, electrical and service related industries like real estate and everything that goes with it.

As previously mentioned, State Governments will be impacted with less revenue from stamp duties to spend on State infrastructures which could means less jobs.


5. Short term thinking which is just plain dumb whentopurchaseproperty

For all the reasons above…. yes I can understand why our Government might look at the numbers in front of them and think short term for budgetary reasons, they need to take a deep breath sit back and carefully consider what impact this would have on the economy long term.

Any change may increase revenue today but they or should I say we, could be paying for this ten, twenty, thirty years down the track …. short term gain for long term pain and that is not good business .

With 1.2 million Middle Australian property  investors impacted it would be highly unpopular and could be a game changer for either political party …….to put it simply, it is just plain Dumb.


Want more of this type of information?

David Naylor


David Naylor was a founder of Chan and Naylor, accountants, is a leading property tax specialist. As a seasoned property investor he shares his unique understanding of the relationship between property investment and tax.
Visit www.Chan-Naylor.com.au

'5 Reasons Why The Government Shouldn’t Change Negative Gearing' have 11 comments

  1. February 28, 2016 @ 8:41 am Dean



  2. February 28, 2016 @ 9:39 am Scott

    “It’s just plain dumb”

    What a dumb statement. I can’t believe people like this man and all the vested interests don’t want to see how damaging the current state of Australian affordability is and what NEGATIVE impacts it has on the economy.

    Do you not realise that ever increasing house prices (out pacing income by a country mile) are not good?

    Do you not realise with the population rising, that investment in existing housing does not increase housing supply?

    Do you not realise that if people can’t afford housing, or that those who choose to take on mountains of debt via a mortgage have no expendable income to keep other businesses or funds to invest in other mediums that can actually improve our standard of living?

    Housing is a ponzi scheme for the haves to bleed the have not’s dry. With the current state of the worlds economy, good luck with the dream of doubling house prices every 7-10 years moving forward, That ship has sailed.

    20+ years recession free….. never again mining boom that got us through the GFC…

    Were in for a massive adjustment soon and like many younger people wanting a fair go. Bring it on.

    1.2M investors vs how many people priced out of a place to live??

    Australia’s different, housing never goes down.



    • February 28, 2016 @ 1:43 pm Dean

      I’m a truck driver and earn far less than the average Australian wage but I have 6 properties… I guess that makes me one of the ‘haves’ in this supposed ‘ponzi’ scheme… As in ‘have’ the work ethic and discipline to save and invest.

      It’s fairly simple, if house prices drop artificially due to the changes to negative gearing all the people complaining about house prices being too high still won’t be able to afford them as the banks are not going to lend to people for an asset that will not increase in value over time. That means no one can get credit. That means grows stalls. That means no ones income increases as day to day expenses increase. That means people go out of business. That means people need money from the government. That means taxes need to be increased. It’s a vicious cycle.


      • February 28, 2016 @ 2:06 pm Michael Yardney

        well said Dean


        • February 28, 2016 @ 4:36 pm Dean

          Actually Michael I have some questions and thoughts to run by you if you don’t mind?

          I tend to think that if negative gearing is only applied to new properties another problem may well be that people won’t be able to get finance for those sort of properties either.
          I mean If you’re purchasing a property that is open to offers from 100% of the market (being owner occupiers and investors) that would most likely only be sold to owner occupiers essentially in the future (as a large portion of investors would only look at properties they can apply negative gearing to) then why would a bank lend to you knowing that at the time of purchase you were competing against 100% of the market but at the time of sale the property is essentially only open to 30 – 60% of the market? I can’t imagine they would be jumping at that opportunity too quickly.
          That is, of course, is to say nothing of the fact that many new properties are already overpriced at the time of sale leading to negative equity at the time of exchange. This already means many leaders are cautious about lending to people for off the plan purchases. This of course would only be exacerbated by the fact so many new investors would be crammed into the new housing market artificially inflating prices even more so….
          So in my mind, smart investors would still be steering clear of new properties as they are in undesirable locations and are going to be even more overpriced… Banks will look at the prices of these new properties which developers will have lifted the prices on even further and say ‘wait a minute, that’s overpriced we’re not lending to you for that’ and even more to that point the banks will look at these new properties and ask the purchaser ‘what’s your exit strategy?’ ‘Who are you going to sell it to in the future?’ seeing as at the moment you’re competing against investors for this property but when you go to sell there will be next to no investors interested in buying your property as negative gearing cannot be applied.

          To me I just really see it all stalling. As I said earlier in spite of what many people may think a property market stalling in Australia right now is not a good thing at all. ‘Just because houses become cheaper it doesn’t make them more affordable’
          The housing market is based largely around financing as most people do not have a spare $400,000 in cash laying around to buy a house. So they borrow it. The banks are happy to lend for a property they see as growing in value over the years to come but if they think the property won’t grow in value then they won’t lend. If they don’t lend they don’t make a profit. The banks make less money. If the purchaser doesn’t purchase, the broker doesn’t get their commission. The broker makes less money. If the bank doesn’t lend the developer doesn’t sell their property. The developer makes less money. If the developer doesn’t sell, he doesn’t develop as many properties. If he doesn’t develop as many properties the builder doesn’t get as much work. If the builder doesn’t make as much money he doesn’t buy a new ute which means the car salesman doesn’t make as much money… And on and on it goes and in the end somewhere along that chain someone doesn’t make enough money to keep paying all their staff and someone loses their job. That means that person needs assistance from the government… Which is to say he needs assistance from the other people still in the workforce…. Which has now shrunk due to people making less profit and losing their jobs.

          I’m sorry to spell all this out so slowly and simply but I really feel that people who think this is a good idea don’t understand the fundamentals here. Real estate currently represents about 10% of Australia’s GDP stalling all of that is not good for anyone because the people who say they can’t afford houses now still won’t be able to afford them because for lack of a better term there will be credit squeeze.

          Your thoughts…?


          • February 28, 2016 @ 4:44 pm Michael Yardney

            Dean – I’ve given my thoughts in detail in this video here: http://realestatetalk.com.au/what-negative-gearing-changes-could-mean-to-you/

          • February 28, 2016 @ 5:07 pm Dean

            Thanks mate,
            Must’ve missed that one.

          • March 1, 2016 @ 5:41 pm Scott


            “people who say they can’t afford houses now still won’t be able to afford them because for lack of a better term there will be credit squeeze”

            That’s a bit of a out there statement. Please correct me if I am wrong, though credit would still be available to people with a higher deposit posing less risk of defaulting? And when the smoke cleared, housing would look more attractive to renters on an average wage?

            So if housing was cheaper, the people sitting just outside of having more than a 20% + deposit could still borrow money.

            “Just because houses become cheaper it doesn’t make them more affordable” Not if the interests rates went to 10%. No , but overall ?

            I agree in part that a housing correction will be painful and people will get burnt if they over extended themselves, though I cannot fathom how people thinking that ever rising prices aren’t harmful also?

            Again, all good if you own plenty, not so good if you don’t. It’s a real eye opener that the younger generation now require close to what our parents paid for the whole house just as a deposit. I’m not talking Mc Mansions either, basic, simple housing 50+kms from the city.

            Maybe apart of the problem is there is not enough incentives to invest in other mediums, you are talking like housing is the only way to make money through investment….Can’t lose .

            The best part was the “prices drop artificially due to negative gearing” – in my opinion it’s skewed opposite. That’s why they are artificially inflated! Common sense on fair value form a home has long gone, never ending price growth…equity maaaaate…..

            Australia’s different!

            Apologies Micheal. my original post was not visible when i returned. And yes I do respect you posting my clashing view.


          • March 1, 2016 @ 6:16 pm Michael Yardney

            You make some good points Scott

  3. February 28, 2016 @ 12:14 pm Scott

    Why didnt you post my last comment Micheal?



    • February 28, 2016 @ 12:20 pm Michael Yardney

      The reason your original comment was mot published immediately Scott, was because I was out enjoying a walk with my family – I don’t sit at the computer moderating comments over the weekend.

      Clearly I don’t agree with your point of view, but I have no issue publishing them as long as they are not rude or insulting.


Would you like to share your thoughts?

Your email address will not be published.



Michael's Daily Insights

Join Michael Yardney's inner circle of daily subscribers.

NOTE: this daily service is a different subscription to our weekly newsletter so...