Here’s another reason why negative gearing will stay

Call me cynical!

neg gearDespite the continual call from various lobbies to abolish negative gearing, it’s here to stay.

You see…the property industry has become a tax cash cow for all levels of government.

New research released by the Property Council of Australia has revealed the industry contributed 16 per cent of all taxes paid to the three levels of government in Australia, handing over more than $72 billion in taxes every year.

Property Council of Australia chief executive Ken Morrison said it was now time for government to ease the tax burden on the industry by abolishing some of the most “distorting taxes’’ such as stamp duty.

He also called for planning processes to be better streamlined to make housing more affordable for everyone.

Who pays these taxes?

Not surprisingly New South Wales contributed the highest amount of tax.

It’s booming property markets delivered $23 billion in taxes paid by the industry in 2013-2014.

Victoria contributed $16 billion, followed by Queensland ($13 billion), Western Australia ($10 billion), South Australia ($4.849 billion), Tasmania ($1.148 billion) and the Northern Territory (a measly $814 million.)

The Government is counting on property

It’s no secret that the government has been counting on the property industry to take over from the mining investment boom to buoy our economy.

And our low interest rate environment seems to be working, with the property industry now  the second biggest employer in Australia, behind the health care and social assistance sector.

The report by the AEC group for the Property Council of Australia said the property industry directly created 1.1 million jobs — more than mining and manufacturing combined.

Mr Morrison said one in four Australians drew a wage from property, either directly or indirectly.

What about negative gearing?

Recently Property Council chief executive Ken Morrison called the Greens’ plan to scrap negative gearing “dangerous” and a move that will “only make housing affordability worse”.

“The Greens’ policy risks our current record 200,000 housing construction starts for the provision of only 3,125 extra dwellings a year, it just doesn’t make sense.”

Morrison says scrapping negative gearing would put the brakes on housing supply, driving prices higher for both renters and home owners.

The 2012-13 taxation statistics released by the Australian Tax Office earlier this year contradicts claims that negative gearing’s impact on the federal budget is spiralling out of control – with a $2.35 billion decline in cumulative net rental loss recorded over the period.

“This decline is a result of the lower interest rate environment, but also points to negative gearing being used overwhelmingly at the lower end of the property market where it is a key source of affordable rental accommodation.”

Morrison says it is untrue that more than half of all people with negatively geared rental housing investments are in the top 10 per cent of taxpayers.

“The actual ATO data clearly shows that at least two thirds of Australians who declare a net rental loss earn around $80,000 a year or less.

That includes 42,000 nurses, midwives and aged care workers, 62,000 teachers and child carers, 12,300 emergency service workers and 83,000 clerical staff all earning around or below this amount.

“These are not property barons – they are ordinary Australians saving for their future,” Morrison says.

The Property Council calls on politicians to solve the housing affordability crisis by focusing on planning blockages and housing taxes which make the supply of new housing lower, slower and more expensive than it should be.

“The property industry wants housing to be affordable – and that’s why we have been a strong advocate for real policy solutions rather than cheap headlines that don’t address the underlying issues.”


If you want to read more I’ve asked: Why be so negative on negative gearing



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'Here’s another reason why negative gearing will stay' have 3 comments


    June 16, 2015 George

    Interesting in reading opposing remarks made by Morrison on the effect of removing negative gearing..
    1st para under negative gearing
    “Recently Property Council chief executive Ken Morrison called the Greens’ plan to scrap negative gearing “dangerous” and a move that will “only make housing affordability worse”…hence my take is that property prices would CORRECT and so ADJUST DOWNWARDS as a result. Not sure how that makes housing affordability worse as it would actually improve for each and every home buyer as well every one of those $80,000pa small investors.
    3rd para under negative gearing
    Morrison (same person as above) says scrapping negative gearing would put the brakes on housing supply, driving prices HIGHER for both renters and home owners.
    Well logic suggests that you cant have property becoming more unaffordable and property prices going higher.
    These 2 opposing comments prove that Morrison only says what suits him as an advocate of property. Its not based on fact nor logic.
    The real and undeniable truth is that Property is a market that is heavily exaggerated by the govts negative gearing tax laws. As many commenators have said: negative gearing helps push up prices when the market is rising but it also helps push down prices when prices are falling! Thats not good for anyone and particularly investors!
    So on balance removing negative gearing would simply remove the booms and busts from the property cycle and so smooth out prices so they are less volatile (and more predictable) ….cant be a bad thing really.
    And from the federal govt’s point of view, property tax deductions would decline so increasing the revenue take over time, regardless of whether interest rates are going up or down.



    June 15, 2015 Hamish

    I am trying to find a link to the ATO stats on negative gearing. Most investors only own one property, and the loss claimed is around $10k per annum to the best of my recollection. Michael – can you please provide a more accurate link?

    So, if negative gearing was scrapped, I presume any losses (i.e. the $10k per annum noted above) would be carried forward and be able to offset against any future profits or capital gains on sale? Hopefully over time, as the value of the property grows, so too does the rent, meaning the losses diminish over time, and eventually the property becomes positively geared. Same issue – the losses would be carried forward and offset against future profits.

    All this would do is defer the ability to claim, not eliminate it. As usual be suspicious of anything the Greens put forward as policy!

    Oh, and in the USA for example, you can claim a tax deduction on your principal place of residence (up to $1m), and the rate of tax on dividends and capital gains is only 15%. No franking credits or CGT discounts, but a lower rate of tax applied.
    Any reform to the tax system needs to be holistic and cover all the parts.



      June 16, 2015 George

      You are exactly right on how the removal of negative gearing would be applied and its effects on tax revenue except that it would only apply to purchases of property from when the law was announced (ie Not retrospective). However one point you overlook is that investors would not be so inclined to borrow heavily and pay exorbitant prices because thier view would be that property purchases are no longer be subsidised by the tax man. Hence borrowings and the extent of negative gearing would significantly diminish, with property expenses overall eventually moving to the point of being cash neutral, if not cash positive as they were in the 50s, 60s and 70s. This is because property investment would be viewed more as a business proposition. So property tax deductions would actually remain much lower without negative gearing.
      Furthermore taking a tax deduction today under negative gearing provides an investor an immediate tax benefit at their marginal tax rate of around 37c.
      However rolling property losses over until the time of sale and offsetting against the capital gain only delivers a tax benefit of 18.5c (50% x 37c) and that is before discounting the “future” benefit.
      End result is that the federal government would become significantly better off by removing negaive gearing starting from day 1.


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