The federal government’s revision of the Stage 3 Tax cuts has re-enlivened debate for a comprehensive tax review, with negative gearing and capital gains tax settings once again part of that discussion. The ability for investors to claim property-related expenses against other income (normally their taxed wages) has been a key part of Australia’s housing spectrum for generations, underpinning the supply of affordable rental homes for millions of tenants.
Governments, unable to supply enough taxpayer funded rental homes has relied on property investors to supply property to the market at a ratio of 9:1. Calls from teal independents and others to remove negative gearing in order to address housing affordability fails to consider the impact this would have on supply, rents and the budget.
With 27 percent of all homes in Australia rented, the estimated value of this asset class is $2.835 trillion; nearly three times annual GDP. The burden on taxpayers in Australia is already substantial (as a measure of overall tax take, only Denmark collects more tax than we do from wages), so without investors supplying the market (which would surely diminish if negative gearing was disallowed) how can government afford to supply the rental homes?
The 2019 election campaign featured proposed changes to negative gearing with then would-be Treasurer, Chris Bowen saying, “Don’t worry if your property value falls.” I cannot imagine how the community could possibly think such a comment is okay given household consumption makes up about 45 per cent of the economy and if housing values fall, so does their spending and so does, therefore, the economy. Bowen’s comment back then is telling because it paints property investors as being aspirational and therefore on the wrong side of certain political agendas. If he’d said, “Don’t worry if your rent goes up,” he’d have been in trouble, but the brutal truth is that both comments are the same. Abolish negative gearing on established homes and prices will fall and rents will rise.
Any plan to mess with the current negative gearing provisions is fraught 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.
We know about 80 percent of investment properties are owned by mum and dad types who only have one investment property. Proposals to remove negative gearing is hardly taxing the wealthy and ignores the fact that not all investors choose to buy property to avoid tax otherwise payable. A loss is a loss and pressure on families to meet their daily expenses means investors are often attracted to property investments that either break even or are positively geared in order to maintain cash flow.
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 plunging property values frightened them into a retreat. If Labor once again wades into the negative gearing morass, the Opposition will be one step closer to winning government.