Everyone seems to be having their say about negative gearing lately.
But that always seems to happen around this time of the year – before the budget and many of the same old arguments are being hauled out.
Today I’d like to do things differently
Let’s look at some of the questions and the facts:
- Currently around 30% of Australia’s population (around 7.2 million people) are either currently tenants or looking for accommodation.
- The government provides only around 4% of public housing for tenants.
- The private sector provides around 96% of the properties for tenants through investment properties.
- The ATO figures shows $13 billion in tax deductions claimed by property investors in FY2013. That represents $4.3 billion lost in revenue to government at an average tax rate of 30 per cent.
- If private investors pulled out of property market and the burden of public housing fell more heavily on government, would it cost the government more than the $4 billion it currently gives up in tax. Where would the government get the funds to build these properties to replace the private investors when they are already in such debt
- The State governments collect millions of dollars in Stamp Duty and Land Tax due to the active trading and investing in all types of properties. Will the removal of negative gearing have a domino effect on the States economy.
- Currently the real estate industry has replaced the slowing down in the mining industry. Do we risk killing off another industry and currently is helping the economy in light of the current government debt levels?
- What happens to industries such as the blue collar industry carpenters, plumbers, electricians etc plus real estate agents and banks etc. if the private investors pulled out of the property market.
- Negative gearing applies to all other investments such as shares, businesses, companies and other investments. Is it legislatively possible to remove negative gearing from only one industry, the property investors and not from other investment like shares and business?
- Negative gearing is simply a fancy term attributed to making losses. If one makes a loss it can be offset against other income.
- This is the same argument put forward by Labor when they introduced the Mining tax on a booming mining industry. Some accused the Labor Government of having a “Tax it till it disappears” mentality. But what happens to economic growth if we tax our most productive industry.
- Is Labor repeating the same mistake with the property industry – Tax it till it disappears?
- Most property investors are not rich. Over 70% earn income at around $80,000pa or less.
- Australia’s population is aging and should we be encouraging people to become self funded by taking risks in investing in real estate and therefore not rely on an old age pension. The governments debt levels are unsustainable.
- The great Hawke/Keating Labor government replaced negative gearing after 18 months when rents went through the roof and the waiting list for public housing doubled as private investors left the property market and created a huge shortage of rental properties.
- Negative gearing means someone is paying out more than they are earning. In other words losing money. Why would anyone do that? It’s in the hope that they can make up the losses and more, due to capital gain of the investment. This occurs not just in property but applies to those who invest in shares as well as in businesses and many forms of investments where there is prospect of capital growth.
So why would someone take such risks because there are no guarantees that the property market will increase greater than the losses suffered. Many property investors have lost hundreds of thousands dollarsIt’s an extremely risky strategy and the risk applies across the board to other investments also.
- It’s made more risky if they cannot claim the losses like every other industry can. How can this be fair when one has to pay tax on capital gains but not the losses from negative gearing?
- It feels like Labor wants it both ways.
- Labor’s wants to reduce capital gains tax concession from 50% to 25%. But what if someone has made a capital loss? One cannot claim capital losses against other income. This has increased the risk to investing in real estate. Will the returns from real estate now be so low that it no longer becomes an attractive investment to put one’s money into and what does the reduction is demand do to prices?
- Is there sufficient incentive to attract investors back into property to help meet the demand for property and in order to keep both rents and prices down.
- Our economy is not healthy. We have head winds coming out of Europe and USA. The global market is unstable. Is this a risk to our only industry that is keeping our economy going. Is this the right time to do this?
- Are Property investors discriminated against when one considers they pay stamp duty on purchase and pay land tax for owning it?
- Share investors do not pay a “share tax” simply for holding the shares or stamp duty on purchase of shares. Share investors still are permitted to negative gear their portfolio.
These are just some of the questions that should be asked by both sides – those for and those against getting rid of negative gearing.