New report debunks the negative gearing myth

The tax benefits that investors receive through negative gearing and capital gains tax pushed up property values – right?

No – that’s wrong according to a new report which shows these measures are helping to boost the supply of new homes, put downward pressure on prices and give ordinary Australians a better chance of entering the property market.

The ‘Australian housing investment: analysis of negative gearing and CGT discount for residential property’ report was commissioned jointly by the Real Estate Institute of Australia (REIA) and the Property Council of Australia as part of an evidence-based examination into housing affordability factors.

The research finds that:

  • the provision of negative gearing in conjunction with the CGT discount promotes investment in rental properties and increases supply of new housing;negative
  • around a third of all new dwelling construction is financed by investors every year, debunking the myth that negative gearing does nothing to support housing supply;
  • two thirds of property investors who benefit from negative gearing earn a taxable income of less than $80,000 a year;
  • Those earning less than $80,000 a year claim the majority (58 per cent of total value losses in 2012-13);
  • the 50 per cent discount on capital gains helps to ensure that purely nominal gains are not taxed and in doing so, promotes the incentive for individuals to save and invest; and
  • removing negative gearing of the CGT discount altogether for property will dampen investment, diminish rental supply and make it more likely that in the short to medium term, rents and property prices will increase.

Don’t remove negative gearing

The report warns that:

 ‘the immediate removal of negative gearing without allowing to carry forward losses is likely to result in a portion of the average net rental loss (which was, on average, $9,500 in 2012-13 across all taxable income groups) being added to rental prices’.

Property Council of Australia Chief Executive Ken Morrison said the arguments for removing negative gearing and the CGT discount just don’t stack up.

“Negative gearing and CGT are doing all the right things when it comes to improving housing affordability for Australians,” Mr Morrison said.

“They tick all the boxes by increasing supply, giving people an opportunity to get into the housing market and helping ordinary Australians build wealth for their future.

The reality is that if negative gearing was abolished there would less investment and rents would go up.

It is time to start focusing on the real barriers to home ownership like runaway stamp duty costs which have increased by as much as 800 per cent in the last two decades.”

REIA CEO Amanda Lynch said the report debunks the most common myths around negative gearing and the CGT discount and shows the bottom line benefits delivered to supply.

“Mum and dad investors are overwhelmingly the ones who benefit most for the ability to negatively gear their property investments,” Ms Lynch said.

“This is middle Australia. 66.5% of taxpayers who earn an annual income of up to $80,000 own 80% of negatively geared properties.

This isn’t some tax lurk for the wealthy, rather an incentive for people on low to average incomes.”

And it has benefits for the broader economy, as the report notes ‘The ability for investors to gear and use debt is a crucial part of investing and fostering economic growth’.

“Tinkering with negative gearing would introduce distortions into the tax system and attack confidence, counter to the principles of simplicity and fairness we are seeking to achieve.”

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'New report debunks the negative gearing myth' have 6 comments

  1. July 2, 2015 @ 12:20 pm Hamish

    As I have previously posted here and elsewhere, negative gearing is the ability to offset losses from one source (property investing) against income from another source (e.g. your salary from your job working as an employee).

    If it were abolished, then surely there would still have to be a provision whereby losses were carried forward and offset against any future profits e.g. once the rents grow enough to cover the interest and depreciation, and / or used to increase the cost base on eventual sale (thus reducing the capital gain).

    Capital losses work this way – they can only be used to offset future capital gains, but can be carried forward.
    To consign a loss as black hole expenditure would be ludicrous and increase rents dramatically. The only real alternative is to allow losses to be carried forward, which will fix the budget short term, but will only just kick the can a few years down the road.

    Also – the rate of tax on capital gains in the USA (where you can claim a deduction for your mortgage on your house up to $1m) is only 15%. So paying capital gains tax at a rate of 30% or more on half the gain is at least 15%. Just different ways of getting to a similar result. Seems commentators don’t educate themselves on how other countries’ tax systems work, and then they cherry pick the parts to illustrate the point they want to make.

    Fortunately no-one seems to be blaming the Greek problem on negative gearing (but it does seem to be caused by middle class welfare and lack of tax revenue).


  2. July 3, 2015 @ 3:46 pm Peter Ralph

    This report goes well beyond the farcical and those who commissioned it and those who endorsed it are about as independent as the ABC is when it comes to the Liberal party. Truly it is beyond absurd and does the industry no credit at all.

    I far prefer the qualifications, professionalism, views and independence of Saul Eslake which are diametrically opposed to that espoused in the above article. I am all in favor of negative gearing for new housing and I’d even add an investment allowance as a bonus. As far as negative gearing goes for older properties it is a monumental rort that is now totally out of control and neither of the gutless major political parties will do anything about it for fear of voter backlash. Not unlike guns and the NRA in the US…

    Oops, I’ve just received an email from Nigeria about picking up a lazy thirty million dollars…it’s about as believable as thinking that negative gearing doesn’t inflate property prices. But worse, the cost to national revenue is huge and is right up there with oldies getting superannuation benefits free of tax. Another rort.

    I really feel sorry for the 30yo single tax payer working his/her guts out while being taxed out of existence. He’s paying for negative gearing, oldies super, pensions for those with residences worth millions, the unmarried mothers allowance, Newstart and a heap of other government benefits. Yep, I know what the answer is. Get him/her into a few negatively geared old houses and his problems are solved. It is a sad state of affairs when governments endorse and incentivise rorting.


    • July 20, 2015 @ 7:27 pm George

      @Peter Ralph. Spot on with absolutely everything! Except superannuation. You forget that your super belongs to you. This is part of your hard earned savings. If you take money out of your bank account why should you be taxed on it? And dont forget that tax deductions on superannuation contributions is overshadowed by the up front 15% contributions tax. Havent you have paid enough tax throughout your life without the govt taking away part of your hard earned savings? Anyway see my post below. I am even more cynical about negative gearing and perplexed as to why Joe Hockey wants to maintain it and its certainly not to favour the property investor!


  3. July 20, 2015 @ 7:16 pm George

    What a load of hog wash promoting ones self interest and existance and nothing more!
    FACT 1: Negative gearing definitely makes buying a property much more affordable for investors.
    FACT 2: Improved affordability (via low interest rates) promotes price growth and even more so when the govt pays 40% of your interest bill.
    FACT 3: We no longer have true investors in this market but rather greedy speculators financed by low cost of finance and negative gearing.
    FACT 4: Removal of negative gearing will NOT result in a reduction in rental stock…Not at all! Rather the opposite. Why? Because investors who are privledged to have a negatively geared property will do everything to keep that privledged property and that means NOT SELLING! So rental stock will NOT fall, rather it will remain more stable than in previous cycles.
    FACT 5: Removal of negative gearing will result in significantly reduced affordability for investors and so demand and prices will fall. Existing investors will avoid selling and incurring a loss, rather wait for prices to rise again. So again, rental stock will NOT fall, rather it will remain stable.
    FACT 6: Reduced property prices will make home buying much more affordible for owner occupiers and so renters will become owners thus reducing demand for rental stock. So it is much more likely that rents will FALL instead as they did when negative gearing was removed in 1987 and THATS A FACT!
    I am so sick of all this hog wash about negative gearing. The history and the TRUTH is there back in 1987. There is no need to invent lies and scare-monger people with doom and gloom.
    Lets face it. Govts at all levels have a vested interest in maintaining high and ever increasing property prices because of all the taxes based on property values. Banks too have the same vested interest as rising property prices boost thier loan portfolios. Dont forget that Banks too pay a huge amount of tax.
    Agents too whose commission is based on the property price have a vested interest in maintaining high property prices and thus so do those organisations that support them and who commissioned this misleading report….hohumm…exposed!
    Negative gearing is a conspiracy to keep the coffers of all levels of govt and the banks lined with cash. They would be the loosers if negative gearng was removed and it would certain but a dint in their revenues.
    The only loosers are those buying property right now at the top of the property cycle. Buyer beware!


    • July 20, 2015 @ 7:26 pm Michael Yardney


      Clearly I disagree with you, but I appreciate the time you take to explain your arguments


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