Negative Gearing Plays An Important Role In Our Community

By REIWA President – Hayden Groves  https://reiwa.com.au/

Limiting negative gearing to newly constructed properties and doubling capital gains tax remains a central plank of Federal Labor’s policy platform. It’s argument being that the current legislative rules around negative gearing lead to inequality in the community.

Any plan to change the current negative gearing provisions poses a risk to our economy. Negative gearing is so deeply entrenched in our vast and complex tax system (it’s been part of it for more than 100 years) and is therefore interlinked. Tinkering with one part of the system will inevitably impact other areas in a manner we can’t really accurately predict.

The claim that negative gearing is the main reason for pushing up house prices and affecting affordability is untrue. It is the cost of construction and infrastructure combined with planning issues, that is mostly responsible.

Federal Labor’s policy of allowing negative gearing for new dwellings is a deeply flawed policy that will simply encourage more urban sprawl, deliver hastily constructed housing products and, importantly have the first home buyers competing with investors for homes in these newer areas. This is what ultimately pushes up the cost of house prices.

The idea, therefore, that Labor’s plan helps affordability in newly built suburbs, where all future investors will buy, defies logic. Its plan is actually a disincentive to supply rental accommodation in the established market.

Under Labor’s proposed policy, existing housing stock would be ignored as an investment option, ultimately putting pressure on the supply of rental stock in established areas where most people want to live. As a result, rents would inevitably rise, hardly socially responsible.

The plan actively discourages investment in existing housing stock from the private sector, leaving it to state governments, which are already under pressure, to deliver more affordable housing. The last time a government tried to abolish negative gearing it was back in several months later, as the voter backlash from soaring rents and falling property values in WA and NSW frightened them into a retreat.

About 80 per cent of investment properties are owned by mum and dad types who only have one investment property. Labor’s proposal is hardly a tax on the wealthy and assumes all property investors are seeking to avoid paying tax. Investors are often attracted to property investments that either break even or are positively geared where they pay tax on the income.

If the current format for negative gearing is too generous, then perhaps, we need to consider a cap on the amount of losses that can be claimed against income, or similar tweaks. Either way, a more measured and moderate approach to the issue is needed here.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s