Negative Gearing Must Stay

Disclaimer: These comments are the writer’s own and do not necessarily reflect the current opinions and policies of the Real Estate Institute of Western Australia.

Limiting negative gearing to newly constructed property and doubling capital gains tax remains a central plank of federal Labor’s policy platform, their argument being that the current rules lead to inequality in the community.

Any plan to mess with the current negative gearing provisions poses a threat to our economy because it is so deeply entrenched (it’s been part of our tax system for more than 100 years) and therefore interlinked with our vast and complex tax system. Tinkering with one part of it inevitably impacts on others in a manner we can’t really accurately predict.

Claims that negative gearing is the main reason for pushing up house prices affecting affordability is untrue. It is the cost of construction and infrastructure and planning issues that is mostly responsible. Labor’s policy of allowing negative gearing for new dwellings is deeply flawed policy and will simply encourage more urban sprawl, deliver hastily constructed, crap housing products and, importantly, have first home buyers competing with investors for homes in these newer areas, pushing up the prices. The idea, therefore, that Labor’s plan helps affordability in newly built suburbs where all future investors will buy defies all logic.

Labor’s plan acts as is a disincentive to supply rental accommodation in the established market. Existing housing stock would be ignored as an investment option 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. Labor’s plan grandfathers the rules so investors holding existing property are discouraged to sell putting pressure on supply in these areas, forcing families to the outer-reaches away from the developed parts of our cities. The plan actively discourages investment in existing housing stock from the private sector, leaving it to state governments 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 percent 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 consider a cap on the amount of losses that can be claimed against income or consider similar tweaks. Either way, a more measured and moderate approach to the issue is needed here.

by Hayden Groves
REIWA President
REIA Deputy President

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