Labor ignored property negative gearing warnings

The argument about Negative gearing never seems to go away does it?negative gearing investment finance

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”.

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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit

'Labor ignored property negative gearing warnings' have 6 comments

  1. April 13, 2016 @ 12:10 pm Dean

    It’s a very poorly thought out idea. Anyone who thinks making millions of Australians poorer by reducing the value of their biggest assets is a good thing has no understanding of the basic principals of economics.


    • April 13, 2016 @ 12:18 pm Michael Yardney

      Well said Dean


    • April 13, 2016 @ 1:18 pm Fred

      Correct Dean. And considering Australia has a progressive tax system (i.e. the more you earn the more tax you pay)…as opposed to regressive, means incentives need to be offered to middle and high income earners to keep them being middle and high income earners – NG is one of these.
      If all we do is tax the backside out of high income earners and offer them no incentives, then the motivation to better one’s self is reduced. Why better yourself if all it means is your efforts are going to get taxed away from you. This is all the more important considering 10% of our population (the evil rich) pay approx 60% of all tax. The same tax that typically left leaning pundits want more of to pay for govt funded ‘stuff’.
      The alternative regressive tax model (including increasing the GST) is hounded down every time is raises its head for discussion. People screaming for the abolition of NG cant have it both ways. You cant remove incentives for the ‘rich’ and on the flip side expect them to keep being rich and paying the lions share of tax that supports the majority.


    • April 14, 2016 @ 3:26 pm Paul

      Abbott/Hockey/Turnbull/Morrison have no understanding of the basic principals of economics.
      They can’t even run a consistent scare campaign. The claim that house prices will go down and rents will increase is just ridiculous.

      BIS Shrapnel’s report is one of the worst pieces of analysis that I have ever read, chock full of erroneous assumptions and completely lacking in logic. It was debunked not just on this site, but also by a conga-line of respected economists. These include:

      Saul Eslake:
      The BIS Shrapnel report (and a recent opinion piece by its author on these pages) asserts that rents will rise significantly and property values will fall if changes to negative gearing are made. There are serious issues with the logic of these assertions. They are internally inconsistent, fly in the face of evidence, and contradict basic economic principles…

      The scare campaign against changes to negative gearing ignores key facts about the housing market, ignores the compelling available evidence, and is logically flawed.

      Maher also conveniently fails to mention that BIS Shrapnel didn’t even model Labor’s policy, and that its chosen assumptions were different.


  2. April 13, 2016 @ 12:45 pm Fred

    Its a shame the complexities of changes to our tax or economic system are not fully assessed, analysed and explained by our politicians. Most likely because they, and the average Jo has no understanding of the how the economy really works. In most instances it simply descends into a left vs right class debate about how the rich are rorting everyone else through tax avoidance, or how the poor are unfairly paying more per unit than the evil rich.
    This negative gearing changes Labor is peddling is another case of labor bumbledom.


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