The argument about Negative gearing never seems to go away does it?
The Australian newspaper reports that Labor proceeded with its controversial policy to limit negative gearing to new homes despite opposition Treasury spokesman Chris Bowen being warned last July that such a move would push down house prices and hit economic growth and put 70,000 households into rental stress.
Accounting and financial advice firm Bongiorno & Partners last year commissioned BIS Shrapnel to analyse the effect of limiting negative gearing to new houses and it communicated its findings to Bowen’s staff and then Labor financial services spokesman Bernie Ripoll.
Apparently the BIS Shrapnel’s report found limiting negative gearing to new houses could lead to lower house prices, rent rises of up to 10 percent, cost the budget more than it saved and cause unemployment to rise.
If elected into government Labor plans to limit negative gearing to new dwellings from July 1 2017, with existing investments grandfathered ( in other words, anyone who currently has negatively geared properties will still be able to claim tax deductions as they can now.)
After that date existing houses and share income could be offset against investment income but not against wages and salary income.
It also proposed halving the capital gains tax discount on assets held for more than 12 months from 50 per cent to 25 per cent.
The Australian reports:
The BIS Shrapnel report assumed the change was restricted to limiting negative gearing to new houses and assumed a start date of July 1, this year. It did not factor in the capital gains tax change.
The BIS Shrapnel report predicted higher rents would push 70,000 households into “rental stress’’, where they are paying out more than 30 per cent of their incomes on housing costs.
Median rents of $510 a week would need to rise by $73 a week in Sydney to provide an investor who had lost the benefits of negative gearing with an equivalent return.
Melbourne’s median rent of $370 would have to rise $56, Brisbane’s ($375) by $32, Adelaide’s ($280) by $29, Perth’s ($415) by $30, Canberra’s ($375) by $28, Hobart’s ($280) by $10 and Darwin’s ($465) by $20.
BIS Shrapnel found limiting negative gearing would result in “a short-run correction in real prices due to lower investor demand”.