Negative gearing decision 'hard but fair'

tryagain on 13/02/2016 - 11:40

http://www.skynews.com.au/news/top-stories/2016/02/13/shorte…

I am not a "Labor Person" but I think this isn't really hard but more so common sense, the only downfall I can see is a spike due to people trying to get in before its implemented. I also think it would make sense for the Turnbull government to grab it and implement it this year while there would be bipartisan support, Hockey was once attributed as saying that the easiest savings to implement are the ones the opposition has proposed, doing it for the coming financial year would also limit the time to a point where the a spike would be unlikely. I am interested to hear what the arguments against it would be both from a policy and politics point of view and what people think about it in general.

Poll Options

  • 195
    I think this is a good policy.
  • 97
    I think this is bad policy.
Financial

Comments

  • Zanadar on 13/02/2016 - 23:11
    +11

    I am so sick of reading this "negative gearing should be scrapped or reduced" bullshit.

    The name "negative gearing" makes it sound like some special thing… it's not!

    There is nothing special about it… it's simply tax deducting your cost of doing business / losses.

    They have it in most other countries but they don't give it a stupid politicised name like "negative gearing".

    The reason some people can't afford a house is because they are aiming too high to start with. Simple as that. Everyone wants new and now. Well with houses that costs money. Suck it up.

    • tryagain on 13/02/2016 - 23:27
      +17

      I were going to write out something then decided it would just be easier to quote from an article linked above "Australia’s approach to negative gearing differs from normal practice in one simple but important way: we allow losses made on property to offset any form of income.

      By comparison, most countries only allow losses made on assets, such as property, to be offset against profits generated by the same asset class.

      The difference might appear minor but Australian property investors face very different incentives compared to investors in other countries. These incentives encourage speculation, elevated housing prices and increasing indebtedness."

      If property losses can only offset rental profits, then negative gearing only has value if you have a profitable investment property. By comparison, in Australia, negative gearing has value as long as you earn an income sufficient to exceed the tax-free threshold."

      • SteatoLegato on 14/02/2016 - 11:09
        +3

        Other countries also have caps on negative gearing, to prevent property speculation. Capping allowable tax deduction for property investments to say maximum of $50K per year will be more than fair for the "Mum and Dad" investors but will prevent the Trumps of this world from writing down their income to below tax threshold…

        • tryagain on 14/02/2016 - 11:30

          Yeah, I think a cap is the way to go as well, introduce straight away the new construction requirement but legislate to start in 12-24 months time a Cap with no Grandfathering so as to give people who need to get out of a property investment have the ability before it kicks in. I'd probably look to start it high (say 50k) but also legislate a drop every couple of years to bring it down a lower level in time.

        • Ace26 on 14/02/2016 - 17:21

          @tryagain: Getting out of property should be unto the investors, if you apply new laws to the existing investors how that fair?

        • tryagain on 14/02/2016 - 18:07
          -1

          @Ace26: Yes it would be the investors who choose if it would negatively affect them to the point where they would need to sell, the vast majority would probably be impacted minimally but there are some who game the system that may need to sell some of there portfolio.

        • Ace26 on 14/02/2016 - 19:21

          @tryagain: funny you talk about fairness by negatively affecting someone which positively affects you.
          Those who invested today did so as per law and if law were to change then it shouldn't penalise them.

          Also simply changing negative gearing rules won't solve the affordability problem, market movements smooth over a period of time. Most capital cities have seen heavy increases in property prices but that's part of property cycle. To solve the problem govt should make it easy to enter market and they already made it harder for investors.

        • tryagain on 14/02/2016 - 23:56

          @Ace26: But it in no way positively affects me, It would actually be a fairly negative affect for me but would differ somewhat person to person. Excluding the grandfathering clause more than likely wont happen for political reasons but from a theoretical point of view I think it would be fair, why should some people have access to uncapped NGoo but not others. I would view it more not as penalising but removing a reward that shouldn't really have been there in the first place while allowing a couple of years for people to make any changes to there situation if required.
          Yes, this in isolation wont solve the affordability problem but that doesn't in any way mean it cant make a positive contribution towards it and isn't worthwhile.

      • Zanadar on 14/02/2016 - 21:57

        Well they need to choose… they either leave negative gearing the way it is or change it AND get rid of our ridiculous capital gains tax.

        Because I can tell you there is little money to be made in property without negative gearing given the current capital gains taxes.

        • tryagain on 16/02/2016 - 09:25

          Why do they have to chooses? a part of reducing the cost of housing to income ratio involves reducing the amount of speculative investment. This means they don't want existing housing to be the overly attractive investment that it is now.

        • Zanadar on 16/02/2016 - 10:02
          -1

          @tryagain: Because they need to not stuff over the whole of australian home owners lol

        • tryagain on 16/02/2016 - 10:20
          +1

          @Zanadar: I think it would be dumb to introduce policy that makes the housing market crash, but have no issue with policy that makes it tread water for a long time to allow incomes to increase and reduce the income/cost ratio. Property is either habitation in which case the value in peoples homes will remain relative to the rest of the market or its a speculative investment in which case there was never a guarantee that prices would continue to rise as they have historically have and it should have been apparent that historical price rises are unsustainable to any investors.

        • JohnHowardsEyebrows on 16/02/2016 - 10:26
          +2

          @tryagain: And the grandfathering policy should definitely help smooth out the deflationary effect. The big question is whether those who have benefited/are benifiting from negative gearing will acknowledge they've had their go and allow this to happen, or they're so selfish that they demand the right to take money off young taxpayers and first homebuyers forever.

    • freakatronic on 14/02/2016 - 20:42
      +2

      There aren't many other places on earth where the public are forced to pay property investors' losses. Doesn't matter what you call it. It's a manipulation of the market and it serves the already rich, while keeping the poor, poor.

    • FatBlanket on 16/02/2016 - 22:09
      +1

      Yes people need to toughen up and commute 1.5 hours and accept that even as a skilled professional they need to be born into wealth to live anywhere half decent.

  • caramellokoala on 13/02/2016 - 23:57
    +4

    How about people invest in something that isn't loss making and contributes to society in a productive way, why should we subsidise your poor investment choices? Do you think that you're providing some public service by renting at a loss to someone? All you're doing is draining taxes from where they could be used productively(I.e roads, hospitals, innovation) and into your little world where you hope to make a capital gain. Don't act like your doing this from your own charity it's for your own selfish benefit.

    Let me put it this way. I might go to a race track and place a $50 win bet on a horse. The horse loses, I lose. The money is exchanged there is no further need for the government to subsidise my loss as I fully understood that I was risking my capital and it may end in me losing it all(and I certainly don't pretend gambling is a public service or benefit). Property investors have none of this fear because the good old tax payer (i.e… the rest of society) will subsidise them.

    That's the problem with the whole system is these unsophisticated investors are leveraging themselves up to the hilt without fear of reprisal as all the loses they make are fully tax deductible. How is that good, how does that not distort a market? Imagine how the gambling world would be if all the loses made by average joe punters were tax deductible, Would people be happy with that? I doubt it.

    • SteatoLegato on 14/02/2016 - 11:42

      you have no idea man… just try
      negative gearing is a massively misunderstood term given to property investors that show on paper cash flow loss
      it is however nothing but extrapolation of deductibility of the costs of running a business that applies to EVERY SINGLE BUSINESS INVESTMENT currently
      i.e. if you were running a bakery at a loss, you could be calling it negatively geared bakery - but you wouldn't because the VALUE of the bakery is inherently connected to the profits it makes
      in property, the VALUE of the property goes up despite the cash flow LOSS most these days produce. Richer investors EXPLOIT that by reducing taxable income while reaping the benefits of higher values. Has NOTHING TO DO WITH SUBSIDISING YOUR BETS ON HORSES
      the legislation is in need of change to STOP THE EXPLOITATION that is driving the prices up so quickly

      • caramellokoala on 14/02/2016 - 15:05
        +2

        Except it's not a business, it's asset ownership plain and simple.

        It's gambling without the fear of loss.

        And if you want to compare it to a businesses what do they call a business with sustained negative cashflow(Hint its not called a negatively geared bakery)? INSOLVENT.

        • burningrage on 14/02/2016 - 16:20

          Incorrect. Landlord engages in a business of providing a tenancy service to tenant so it is a business.

          And i dont agree with this policy because it means altering the meaning of deductibility of expenses in the course of generating a taxable income.

          Once we excluded some deductibility there will be no end. Next people gonna say no negative gearing on bakery or no negative gearing on anything.

        • Flet on 14/02/2016 - 21:35
          +4

          @burningrage:
          Land is different from other business investment because it is in fixed supply. It is a natural resource and no more of it is being made. Location is critical eg people want to live within 10 to 20 minutes transport from their work, not 40 minutes or more. Increasing demand for this limited resource just pushes up prices and FHBs are crowded out by investors buying the prime locations. The real economy of production and employment is burdened by high private debt reducing the capacity of consumers to buy what business produces. Supply of man-made products (like bakery goods) and services will increase if demand increases but land supply is fixed. We need a site to do absolutely anything in life even if it is just a place to stand. Land should be a utility, not speculative investment.

          Texas USA has a 2.5% property tax which directs investment away from land speculation. The result is affordable housing and a healthy economy. Australia does the opposite with tax incentives for speculation, with predictable results.
          http://www.macrobusiness.com.au/2014/04/australian-property-…

        • burningrage on 14/02/2016 - 22:34

          @Flet:

          I like your argument but the fact of the matter is, even land is in fixed supply, that same of land can be turned into a higher density building which means it is not "fixed" in that sense.

          CBD Melbourne for example where there has been an oversupply of apartment, leading to price depreciation (I know coz my sis in law just had a good bargain - her Section 32 cost is higher than what she paid for), is an example of efficient market hypothesis at work.

          The focus of negative gearing has always been centering on the "winners" and less on the "losers" which in this case, that CBD property owners who have to sell at a loss. Now that this person is selling at a loss, he/she is not paying tax of it and there will still people be complaining about why he/she is not paying tax.

          I am afraid the debate has been more about "equitable" rather than a principled one. That is, it is perfectly legitimate to deduct expenses that are incurred in the course of producing an assessable income.

          People don't want to see this truth and would rather debate on the "equitable" side, that is, "I want that piece of home but the <insert favourite ethnic buyer> makes it too expensive and I want the Govt to force the price down by <insert your favourite strategy eg: FIRB, ban Negative Gearing, etc>".

          That's hardly a principled argument.

        • Frozensage on 15/02/2016 - 11:44

          Except there is the fear of loss… there's the fear the tenant can just not pay you rent for 2 month and then move out. The laws are always on the tenant's side not the landlord, cause landlords are all greedy and evil right? If you went to to a store and ate a meal then refused to pay, you can be prosecuted but apparently it's ok to live in a house for FREE and then just move out cause you don't have the money to pay. And then ppl complaing houses are unaffordable. Very good.

    • Vieira4 on 14/02/2016 - 15:04
      +2

      and when an investor makes a nice 500k gain upon selling the investment property, and the government takes a cool $250k in capital gains tax, is that not a win for the whingers?

      • burningrage on 14/02/2016 - 16:22

        Precisely. This is why this thread idea is so one sided it forgot the cgt side.

        • Frozensage on 15/02/2016 - 11:45
          +1

          Cause half wouldn't understand what CGT means or does. And how negative gearing works. Except what the media tells them. You can still be making money whilst having a negative profit and loss for the property through depreciations.

      • schwinn on 16/02/2016 - 16:41

        Actually, when then investor makes a nice 500K gain selling the investment property, the government does not take a 'cool $250K'. It takes $250K as the taxable income, thus 30%, 40%, or whatever the taxable income of the vendor, resulting in something aroud 75K or 100K.

        • Vieira4 on 16/02/2016 - 16:54

          well someone in the top tax bracket would be paying half of the profit as tax.

        • schwinn on 16/02/2016 - 16:58

          @Vieira4: Ok, but at least be specific that, assuming ownership of over 1 year, a 500K profit will have a 22.5% of it given to the government, which is $112.5K, and this is for someone in the top tax bracket. Not $250K.

    • Ace26 on 14/02/2016 - 17:19

      Investors can only offset losses against their own income, if they don't have income then they can't claim any benefit. When investor does sell their property they pay CGT on gain. I don't quite understand how society is being burdened by this?

      Also, investors buy houses meaning there is a need to build then there are jobs, materials, services and government collects GST and taxes through out the process.

      If govt wants to remove negative gearing then would that be just for property or everything else because this decision impacts all sorts of other investments as well.

      If the proposal is about being fair then there are options to consider, if you simply remove negative gearing and reduce/remove CGT discounts then any investors who hold property would bankrupt unless they increase the rent to cover their expense. At a macro level banks loose money where a lot of people have invested their money (even your super company would have invested in the banks you probably hate)

  • Thaal Sinestro on 14/02/2016 - 00:03
    -4

    They should also introduce a land/property tax on rich people who own more than one property. (Yes, if you own more than 1 property you are rich. A lot of people cannot even afford a single property, the so called 'Generation Rent', and all thanks to the greed of investors coupled with massive migrant intakes).

    Make the tax evading bourgeoisie pay their fair share for once.

    • burningrage on 14/02/2016 - 16:23
      +2

      So we must make everyone poorer so u can have a property. Is that the gist of what ur saying?

    • DavidFong on 14/02/2016 - 17:40
      +1

      "They should also introduce a land/property tax on rich people who own more than one property. (Yes, if you own more than 1 property you are rich)…Make the tax evading bourgeoisie pay their fair share for once."

      Your dream has come true!

      Land tax is escalates (increases as a percentage) according to the accumulative unimproved value of all the properties a property investor owns. Land tax does not typically apply to owner-occupier homes.

      For example in Victoria the rates are shown in the Victorian Land tax rate table.

      The difference between 0.2 and 2.25% might not seem to be much, but can easily be the margin of profitability if rental revenue is 5% or less of the purchase price of the property.

      Admittedly, land tax is calculated separately in each state, creating a perverse incentive for investors in NSW and Victoria to purchase their second or third investment property in Queensland…

    • marc86au on 14/02/2016 - 20:33

      "Yes, if you own more than 1 property you are rich"

      I strongly disagree. I currently own a 50+ year old house in a cheaper suburb of Brisbane. I owe about 80% of the value of the house.

      I am trying to save up a deposit to purchase a 2nd house which is slightly nicer and in a more upmarket suburb (about the median house price). I can't afford to live in this house myself as the repayments are too much for me to afford, however if I rent it out I can afford the gap between the rental income and the mortgage / rates costs.

      I am hoping to eventually pay off enough of the 2nd property that in 5-10 years time I might be able to afford to live there myself. As the rent I receive in the meantime will not be enough to cover the cost of paying the expenses I hope to save money on tax due to negative gearing.

      Once I purchase the 2nd property would you really class me as rich?

      • burningrage on 14/02/2016 - 22:36
        -1

        Let alone it is perfectly legitimate to enterprise or are Thaai Sinestro is now against the concept of enterprising?

        A betterment of self is completely not illegal unless you are in a Socialist country.

      • Tyrx on 15/02/2016 - 11:53

        I could see some people claiming you're asset rich once the second house is fully paid off. Until that time I doubt anyone would claim you're rich. People would have an entirely different word for what you're planning on doing…

    • CLoSeR on 15/02/2016 - 15:02
      +1

      They already do, it's called Land Tax.

  • gringo on 14/02/2016 - 01:21
    +1

    A total cap on deductions - while being a bit fairer, is still pretty dumb (in isolation).

    Expensive houses possibly become a bit cheaper, "cheap" houses remain expensive. Rich people find other tricky ways of avoiding tax, mid income people keep rorting. Poor people keep getting nothing.

    Net difference probably 0.

  • KangarooOz on 14/02/2016 - 02:18
    +2

    How about stopping the election expenses deduction for politicians?
    ATO doesn't allow any deduction for getting a new job, except for politicians. I am keen to know how much it would cost for this exception.

  • CyberMurning on 14/02/2016 - 07:42
    +3

    Usually a (fairly newly built) property become negative geared because landlord claimed lots of depreciations. This mostly in apartments.

    Few people realise when they sell they need to added back all those depreciations amount as "gain" therefore increase their cgt.

    • leiiv on 15/02/2016 - 00:07

      But the CGT will be calculated after halving the gain? So wouldn't it still be better off to claim the depreciations for negative gearing?

  • JimmyF on 14/02/2016 - 08:43
    +1

    There are two parts here, changing both at the same time will end in tears!

    Change the current neg gearing tax write off savings but keep the CGT savings after 12 months.

    Won't do anything to house prices though. The bit everyone misses is people/banks are OWED a lot of money, for house prices to come down, someone has to take a loss on the house and this rarely happens.

    Someone paid $800k last year for that '$800k' house. So they won't turn around and sell it for $500k once these rules come in, as someone is losing $300k.

    • t_c on 14/02/2016 - 10:10

      Wouldn't the bank make some kind of a margin call, forcing the owner to come up with a bucketload of cash to reduce the banks risk to 80% of the properties value or foreclose on the property?

      • maximum on 14/02/2016 - 11:33
        +1

        Where are these people who have over captalised getting this bucket of cash from? If banks force sales at lower rates on mass they will destabilise their market - massive defaults on loans . The bank makes their money on interest not on the price of a house. It will just be making it harder for people to borrow money so then new people cannot enter the market even if prices have reduced.

      • JimmyF on 14/02/2016 - 14:49

        Well the bank can't change the terms for existing loans like that and even if they COULD, how/where would the owners come up with bucketloads of cash to make the banks happy? There is a reason they borrowed upto their eyeballs!

        New loans, then yes, the banks can push for 20% deposit. In some areas of the country, this already happens. ie country areas in small towns.

    • Frozensage on 15/02/2016 - 11:47
      +1

      and ppl don't understand you can't have a housing crash without the rest of the economy going down with them. Guess who gets affected the most when the economy goes bust? POOR PPL., those ppl who can't afford to buy a house will now be out of a job.

      • JimmyF on 15/02/2016 - 12:04

        Correct!! A housing crash, is just like the stock market or any other market crash. It takes down things around them!

        For the price to come DOWN, someone has to lose money! Either owner owners or banks in this case.

        Somehow, people think it will magically come down overnight and everyone is a winner!!

        Sadly for a overnight drop of $300k, means everyone owning a house today, has lost this amount. Meaning a lot of people will now have more debt than the house is worth!

      • macrocephalic on 15/02/2016 - 16:44

        Howver, moving money out of the property market and into productive investments is good for the economy. A crash might be bad, but a lack of correction is probably worse.

        • Frozensage on 15/02/2016 - 17:13

          what? like the share market? I heard that is really going places especially this year…

        • macrocephalic on 15/02/2016 - 17:41

          @Frozensage: The share market has its purpose, to provide capital raising for businesses, although it is subject to bubbles and speculation. What I really meant though is investment in small business and the like.

  • viperxz on 14/02/2016 - 09:07

    Unfortunately this will hurt renters and smaller investors the most.

    Land lords will raise rents to cover the loss (hence rents will probably rise 30%). I agree capping negative gearing has merit as this will prevent the rich exploiting it for maximum gain, however there are a lot of small time (mum and dad) investors who will be stuck in a situation where they will not have the cash flow to support their investment, living expenses, interest and tax and will inevitably go broke.

    • jason101 on 14/02/2016 - 09:32

      Agree - those to suffer will be the renters as rents rise as supply of rental accommodation falls due to fewer investors buying in the established market.

      • scorpiovegas on 14/02/2016 - 13:58
        +6

        The houses won't simply vanish from the face of the Earth. Someone will still own them. If the effect is that there are fewer investors, then that must mean that there will be more home owners living in their own properties.

    • scorpiovegas on 14/02/2016 - 13:55

      Current landlords will retain negative gearing because of grandfathering, so they have no reason to say that their expenses or rental losses have risen.

      • burningrage on 14/02/2016 - 16:26

        That is the proposition now. Who knows in 1 or 2 years?

    • Tyrx on 15/02/2016 - 11:59
      +1

      Rents will not increase due to negative gearing being abolished. This is a myth that is peddled by the property industry and has been proven wrong again and again. We're also currently seeing a large oversupply of housing being built in a market that already has trouble getting tenets overall. If landlords increase their rents they simply won't be able to compete with other landlords who didn't make absurd financial decisions.

      mum and dad investors who will be stuck in a situation where they will not have the cash flow to support their investment

      You can't fix stupidity. If these "mum and dad" investors are so reliant on negative gearing to stay in the positive they deserve to go under.

  • accountant4Jesus on 14/02/2016 - 09:51
    +1

    My proposal is similar to Division 7A in the tax code regarding loans from private companies to related parties. Change the law so that banks can lend out only one loan to first home buyers (as in, limit this to only one use per person per lifetime), at normal 20-30 year repayment rates and interest rates. At the end of 7 years, the bank is forced to write off the rest of the loan still payable and declare it as an unfranked dividend to that person while removing the mortgage charge off the property. The person includes the unfranked dividend in their tax return as income for that year and then takes out a second mortgage on the property to pay the tax debt using their newly acquired equity in their house as collateral (which will be less than 50% of the previous loan, meaning in 7 years a first home buyer would have 50%+ equity in their house, lower repayments, and able to spend more disposable income on goods and services instead of loan repayments.) The government would have a massive increase of tax revenue in the short term that they would be able to use on infrastructure and other services. The banks would take a hit profit-wise, but considering they actually print money out of thin air to loan to us at interest (if you don't believe me, watch "Hidden Secrets of Money Episode 4" on YouTube for a better understanding of the current banking and economic system and how it really works) it's a small way they can actually give back to the people they've screwed over for the past 100+ years in Australia.

    I actually submitted this proposal to Tony Windsor when he was still in office (being my Federal member of parliament) and he flat-out rejected it without even thinking about it. Government is too beholden to moneyed special interests to make any meaningful reform, especially like what was done in Iceland following the GFC.

    • captobvious on 14/02/2016 - 11:33
      +1

      it made sense. Govt only does senseless things. Hence rejected

  • maximum on 14/02/2016 - 11:54
    +1

    Negative gearing is usually a short term thing for average investors and works mostly on new properties where there are bigger deductions so I can't see it being a big cost saver. It would just price first home buyers out of new homes.

    The real kicker here for smart investors is capital gains tax at a much higher percentage. This is where a lot of people make their real money on property or other investments. It would certainly make me reconsider my investment strategy.

    • DavidFong on 14/02/2016 - 17:57
      +1

      Agreed, the capital gains tax discount is far too great for just one year of investment.

      I'll stick my neck out, and suggest that even for 'owner-occupied' homes, there should be a capital gains tax if the asset has not been held for more than two years.

  • maxall on 14/02/2016 - 14:01
    +1

    If No Negative gearing for existing rental property, does it mean that tax fee on positive cash flow on rental property? I think it is fair…:)

  • scorpiovegas on 14/02/2016 - 14:06
    +7

    Imagine the trillions of dollars that could have been invested in new industry and research if over the last 30 years Joe Bloggs didn't buy a house for $200k and sell it without doing anything to John Citizen for $300k several years later. That's a completely dead $100k. Multiply who knows how many thousands of times and that's how much money has been put to dead use in Australia due to property speculation.

    • Vieira4 on 15/02/2016 - 13:54
      -1

      Doesn't that mean Joe Bloggs now has 100k to invest in new industry and research?

      • JohnHowardsEyebrows on 15/02/2016 - 14:01

        At the expense of John Citizen, without having added anything to the economy (just taking from J Citizen pyramid-style). In any case, we all know J Bloggs won't bother taking any risks and investing somewhere produtive. The money will just go back into more property. He'll even be so unimaginative as to buy a property in his super account to boot.

        • metallum on 16/02/2016 - 19:46

          A few thoughts. Most semi serious investors are not turning over properties every few years. I'd argue the more property investors hold for the long term.

          So when this is the case, and this is the case for my circumstances, I never plan to sell, so CGT changes won't effect me.

          As for negative gearing, can someone explain to me why anyone would hold an asset to basically lose money year on year. If people are doing it purely to reduce there taxable income, I would seriously question their investment decision. Saving 30c per dollar spent doesn't make much sense. I use negative give gearing currently, but look forward the the day when I'm positive gearing, because guess what that means? I'm earning $$$. And I'll be happy to pay tax on them $$$.

          Removing negative gearing is short sighted. It will reduce investment in housing, which over time reduces the $$$ government will collect from these houses when they ultimately turn cash flow positive.

        • JohnHowardsEyebrows on 16/02/2016 - 20:10

          @metallum:

          People invest in loss making property (thus availing of negative gearing) on the basis that 1) they will get up to half of the loss back each year, mitigating the terrible yield property makes, and 2) they expect a large capital gain, which will be taxed at half their normal rate.
          It may not make sense to you, but it's happening. Negative gearing incentivises people to pay more for properties that are otherwise terrible investments (and keeps the bubble going).

          As for reducing investment - 93% of negatively geared properties are existing. That means zero investment for 93% of all this tax revenue being lost by honest taxpayers. That's a shockingly ineffective subsidy. Government revenues on capital gains at the moment IIRC are less than government losses from negative gearing. That's how bad this is.

          If you want investment in property, incentivise them to invest in new property, not speculate on old.

          This policy is good. This policy will work.

        • metallum on 16/02/2016 - 20:48

          @JohnHowardsEyebrows:
          I'm happy to take any amount of $$ off you, on the proviso that I pay half of that back. Doesn't make sense does it. The only reason you do it is because you are confident rents will increase over time, the value of your property will increase over time. Eventually you turn cash flow positive and the amount in extra tax you pay more then makes up for the the amount you negatively geared at the start of the investment.

          You only have to look at last time they removed neg gearing. Prices of houses dropped, which people don't like, and rents increased; because investors either sold up reducing supply, or increased rents to cover the increased cost of holding the property.

          Other side effect are with higher rents, the pressure on public housing is increased, costing the government more in this area. Also without property investing a % of investors now don't bother and eventually fall back toward the aged pension costing the governement more $$$$

          Like I said earlier, these changes are short sighted, there's a case for limiting the $$$ amount that can be claimed against an income, or a cap on the properties, but removal is not really thinking about the big picture. It's like saying lets just raise the tax rate to 80% we would much so much for $$.

        • JohnHowardsEyebrows on 16/02/2016 - 21:29
          +2

          @metallum: That myth has been busted. It was only Sydney where that happened, so it was not a causal factor.

          Rents go up as a function of supply and demand. As most investors don't contribute to supply, this hasn't changed. Therefore rents are currently set by demand - which is shaky, it's a renter's market at the moment. If landlords could charge more they would. Negative gearing just allows them to justify a higher price while they wait for their capital gain.

          The changes are long sighted - hence grandfathering out, and long term growth in revenue. What's short sighted is people pointing at possible immediate consequences on the market.

          In the end, the market will settle - it's the structure of the tax base, and house prices (they need to come back closer to incomes - they are simply too high) that has to change.

  • drfuzzy on 14/02/2016 - 16:05

    The speculation around negative gearing has already had an effect. I am a wage earner who was trying to do a small property development of 2 townhouses. The speculation has caused the banks to clamp down on lending while I'm mid-project which leaves the whole thing in doubt.

    8 months ago I was able to lend enough money to finish the project. Now I can't.

    I may either need to sell to a big developer with deeper pockets or just not build at all. So for my small development the negative gearing changes (or proposed changes) are likely to REDUCE housing supply rather than increase it.

    • burningrage on 14/02/2016 - 16:30

      And this is a clamp of enterprising. You have the right to be rewarded for your effort but now too many people think what you are doing should be illegal.

      Effort is no longer rewarded. It should be confiscated says Jessica Irvine's latest article in Fairfax.

    • DavidFong on 14/02/2016 - 18:05
      +4

      I'm not a banker, but I suspect the restriction in lending for property investment has more to do with changes in guidelines for capital-adequacy of banks, rather than speculation about negative-gearing. This is a widespread problem around the world, and a long-delayed result of the 'GFC' financial crisis.

      Banks are also political animals, and if either forced to improve their capital-adequacy or maintain their profitability, are more likely to inflict the pain on businesses and investors, rather than owner-occupiers. At least some of the major banks also raised capital from their shareholders in the past year.

    • tryagain on 14/02/2016 - 21:06

      Did you actually read the proposed policy? New dwellings are excluded.

      • drfuzzy on 15/02/2016 - 09:47

        @tryagain - I'm guessing you have never tried developing property.

        This is my first time. It is actually pretty hard.

        Many of the big banks have already removed negative gearing from their servicing box of tricks for all property - not just new property. Certainly that is the case for me. The distinction is artificial anyway if you can't raise the funds to build your new property - the rules surrounding holding new property becomes irrelevant.

        • tryagain on 15/02/2016 - 12:09

          Nope I haven't, I do know a few developers though and some have been wildly successful whilst there are also plenty of bankrupt ex property developers as well, I guess if it was easy everyone would do it. Maybe some policy certainty would get the banks to reintroduce NG to their servicing capabilities for new constructions, hope you can get access to the finance or maybe get somebody else in as well to get it off the ground, all the best for the development.

        • JohnHowardsEyebrows on 15/02/2016 - 14:03
          +1

          Capital adequacy has nothing to do with negative gearing. It's about making property investors take responsibility for the risk they present to the whole economy.

  • Ace26 on 14/02/2016 - 16:19
    +2

    I personally think a better policy is allowing first home buyers to pay the interest on their residence tax free. Then collect capital gain on that property on sale.

    or even better give two options to chose from (at the time of purchase)
    Option 1: Pay post tax income towards the house interest and principle and then get CGT exempted when sold. (this is what happens today)
    Option 2: Allow interest repayments on the first house (To a meaningful limit e.g. unto or 10% more than median price) tax free, then remove CGT exemption when sold.

    Another policy which was discussed but never implemented is abolish stamp duty, collect more council rates to recover tax losses.

    My observation amongst my limited circle of close friends (in Sydney) and people around me in the last 5 years who don't own a unit/house had following issues for not being able to crack the market
    1. Not willing to move to an affordable suburb (they say its too far, I'm used to where I am living etc etc)
    2. Not willing start with something small (like a 2 bedroom unit instead of 3/4 bedroom house)
    3. Not willing to consider older properties (that don't have structural issues but need some renovating)
    4. Not being prudent enough in saving for a deposit (e.g. two couples went on a overseas holidays every year)
    5. Not looking at avenues to reduce their debt (e.g. buying expensive cars on loan, using credit card and not paying them off)
    6. Some of their partners are not willing to work to help assist the household savings/goals (yes I know its a personal choice)

    My general tips to those who are trying to crack the market

    First Step
    1. Pay off all personal loans
    2. Create a monthly/fortnightly budget (based on your salary frequency) and stick to it and save the rest
    3. Cook extra portion at dinner and bring left overs to work as lunch (limit eating out expenses)
    4. Save as much as you can and save everything your earn over your base salary (e.g. over time, bonus, tex refunds etc)
    5. If you are a couple then both of you work and live off one income and save the second income (hard but achievable)

    Second Step
    1. Do not buy new (don't even bother with off plan)
    2. Buy something small where you can make a big dent in the principle borrowing, this allows you to buy your dream house sooner
    3. Consider paying LMI if you don't have 20% deposit
    4. Ask your parents to provide guarantee in place of deposit (if this option is available, I didn't)
    5. Look for suburbs that are far but that have decent public transport, schools and connectivity to main roads.

    • Odin on 14/02/2016 - 17:37
      +6

      My observation amongst myself and my friends in Sydney:

      1. We simply won't pay inflated prices in an overvalued market.

      We all have the cash around in other investments, we have no debts, we have plenty of deposit money to buy pretty much where we want. We're just happy to wait because it's honestly retarded at the moment and has been for the past few years.

      Why on earth would any young person with a brain buy into a market which by all advice:

      • has peaked
      • is at generational record low interest rates
      • is literally the most expensive or second most expensive market in the world

      The only reason you'd buy into it if you think this crazy trains got a bit more juice in it. The hard part for us is - yes, it might have some more juice. Australian real estate growth goes against pretty well established property principles, but it's like some sort of self-fulfilling prophecy. Eventually it'll falter, but we can't predict when because nobody is acting rationally and it feels like half the country is gorging themselves in the trough.

      • Ace26 on 14/02/2016 - 19:26

        You speak like a solid investor. You seem to know when to enter and which market to enter. I bet you are not complaining about not being able to enter.

        My comments earlier were for those who waited or wasted time to buy and now complain of not being able to buy.

        Personally I wouldn't buy in any inflated market whether it's property or some other investment.

        Property investment is a big decision and should be taken with caution.

        • SnoozeAndLose on 15/02/2016 - 08:00

          Inflated Market?

          If you look at the history of Australia Real estate I think if you are looking for long term home (it is not the case if you need to move every 1-2 years due to work or other reason) , the home market is always trend upward that is to say you are generating income from year to year, it may fallen a bit but if you are living in there, it will not affect you as the replacement should be the same.

          If you are short sighted then you are losing out and will be left behind more if you delaying it.As the house price will grow may not be in 6 months or 1 year, by the time you realise you being left too far out, it is too late.

          Pick something now or nothing later, the amount you save is always slower than the house market growth and the money in your bank for saving will be diminish due to inflation.

          Good luck finding your dream home

        • Ace26 on 15/02/2016 - 10:31

          @LoveBargain15: I was just replying to earlier comment from Odin and acknowledge that current market prices are at their peak.

          If one buys a house to live in long term then any short term gain or loss is merely on paper. So anytime is a good time to buy first property to love in, in that sense (said that to few of my friends but they think market will crash in 2016 and that's when they will buy).

          Why would anyone want to pay more when they know that the prices will come down (well speculation of course), similarly for an investor buying at low end of cycle gives them an upper hand, as profit is made when buying and realised when selling.

        • Odin on 16/02/2016 - 20:54

          @LoveBargain15:

          "If you are short sighted then you are losing out and will be left behind more if you delaying it.As the house price will grow may not be in 6 months or 1 year, by the time you realise you being left too far out, it is too late"

          If this were true, how exactly do you explain any younger generations buying places?

        • SnoozeAndLose on 16/02/2016 - 22:15

          @Odin:
          I am in my late twenty and i own my forst investment when i am 21,with no parent help just by work hard. I worked 6 days a week mostly on the weekend with penality rate, save up enough money buy a place whuch is in the west then recently got it sold and buy my own house .by mwan of younge r generation i amn t sure how young you are refering to, there is cheap house around outer sydney but it may not be their perference.

          Young generate want to leave closer to the city then that is where complain coming for . there are always place that is cheaper but the location is not what they want.

        • Odin on 17/02/2016 - 19:47

          @LoveBargain15:

          You're not understanding. If your point is that if you delay you will miss out, how do you explain that the next generation can afford houses? Such as yourself for example.

          It's not like the next generation gets paid more than the previous, in fact, the opposite occurs because the previous generation has experience and skills and commands higher wages.

          Delaying can never result in missing out, unless you spend all the money instead of saving it.

        • SnoozeAndLose on 17/02/2016 - 21:04

          @Odin:

          Miss out means you will not able to get the same house with the same low price.

      • Frozensage on 15/02/2016 - 17:16

        That is what I hear every person who "does not" have a house say and have said since I was a boy. Market will crash house price will come down cash is king. It's just another way to say, the boat has sail, we are getting further and further away from earning a house. Then there are also those we buying lottery tix every week hoping for some "Free" cash…

  • [Deactivated] on 14/02/2016 - 18:41

    It's a silly idea to remove negative gearing for property while it's still exists for other investments. I'm going to borrow to invest in MyHomeBuyingCompany Pty. Ltd. which just happens to exist solely to buy property. Done and done.

    At the moment it also makes next to no difference as with interest rates this low most properties are positively geared (they rent for more than the interest, so there are no tax savings from negative gearing)

    Limiting/removing the amount of capital gains tax exemptions makes sense however.

    The negative gearing changes just kick middle Australia in the teeth, it wont make a lick of difference to property prices, as it didn't last time it was removed. Those at the top end of town will still be able to negatively gear property though companies. Grandfathering in rules also reduces the efficiency of the market which is already hampered by stamp duty (which should really be removed).

    Tax capital gains, tax super at the marginal rate (or marginal rate - discount). But this is just silly.

    If you want to keep house prices down you want to encourage people to sell, and encourage them to turn over properties which are surplus to needs. Stamp duty is the biggest disincentive to this. Re-entering the market or changing properties is ridiculously expensive, people aren't going to do it unless the make substantial capital gains.

  • porsche26c on 14/02/2016 - 19:59
    +3

    i wouldnt mind if they get rid of negative gearing, maybe just limiting it to say 2 properties or even 1. new or old house. keep it but limit it!

  • drillvoice on 14/02/2016 - 20:59
    -1

    Negative gearing disproportionately benefits the wealthiest people - if you want something to improve equality, there are better methods.

    Australia is one of only like, four, countries in the world that has negative gearing. It's totally a rort and, as I said, disproportionately benefits wealthy people by allowing them to claim a tax deduction on money they use to buy property.

    See http://www.tai.org.au/content/negative-gearing-positive-rich…

    • burningrage on 14/02/2016 - 22:39

      "… claiming tax deduction on money they use to buy property" is a completely incorrect understanding on how negative gearing works.

      Please check ATO website rather than an opinion website.

    • Davros on 14/02/2016 - 23:01

      "It's totally a rort"

      BS, its totally legal.

    • SnoozeAndLose on 15/02/2016 - 07:51

      Who is the wealthiest people? can you provide a figure?

      Or you might say that the one who can afford to buy a property right?

      I have seen many people have investment property but they are renting, this is just a way to reduce tax (as Australia n tax is highest amount the "four" country in the world.)

      Negatively gear helped me a mid income earner $60,000-$70,000 before Tax to own my own house(with 80% loan) after 10 years of Neg gearing.

      This practice is encouraging people to invest so that the econ grow. Do you want to see the house market and the econ die down everyone is jobless?

      I think understanding how much money is involve in Net gearing will be more fair.

      • gringo on 15/02/2016 - 08:18

        You should go to centrelink and ask them to help pay your mortgage - to help the economy grow.

        They do offer rent assistance, but you have to be almost destitute. Such a double standard.

      • drillvoice on 15/02/2016 - 09:13
        +1

        You're right that negative gearing benefits anyone who can afford to buy a property with it. However, it disproportionately benefits the wealthiest households: according to a The Australia Institute report on NATSEM data, "one third (34%) of the benefits of negative gearing were captured by the top 10%".

        If we are talking about ways to make housing more affordable for middle-income people, negative gearing isn't it, as it is a budget drain that benefits the wealthiest most.

        I'm also not sure there's evidence that it helps the economy to grow. It mainly seems to be wealthy investors buying pre-existing properties.

        I also wasn't sure about Australia's tax rate compared to Japan and NZ - two other countries that allow unrestricted negative gearing - but it looks like ours is much lower. https://en.wikipedia.org/wiki/List_of_countries_by_tax_reven… http://www.treasury.gov.au/Policy-Topics/Taxation/Pocket-Gui…

    • poppit88 on 16/02/2016 - 21:24

      Actually, I disagree with your view that negative gearing benefits 'only the wealthiest' people? What do you consider wealthy? Someone on a $100k, $200k or perhaps $300k a year. I can assure you that I earned nothing like this for many, many years. I went without for years and years and have virtually had an investment property negatively geared on and off since I was about 19 years of age.

      I worked myself into the ground working two/three jobs for four years to get the deposit together for my first place. I did that in the late 1980s and early 1990s. It was no mean feat, even back then. Frankly, fast forward to 2016 and nothing has changed. (Let's put it this way when I purchased my place in 1996 it was the equivalent of 6.8 times my annual income.) I finally got myself back on my feet after a horrendous break up and purchased a house again in 2013 and it was 4.1 times my annual income. That's a huge difference.

      I can assure you, I'm not 'rich' by any stretch of the imagination.

      That said, other countries don't necessarily tax the hell out of their constituents like Australia does for the average individual. Perhaps if we concentrated on taxing those earning millions and millions and large corporations tax dodging their responsibilities the world would be a different place.

      • drillvoice on 16/02/2016 - 22:03

        I agree with you that negative gearing benefits anyone who has a negatively-geared property, which includes lots of people with middle incomes. However, wealthier people experience more benefit proportionately. I'm in favour of tax reform that does make the system work better for lower income people - negative gearing deprives the budget of revenue in a way that favours the wealthiest.

        I'm also very pro corporations paying their fair share of tax!

  • gringo on 15/02/2016 - 06:21
    +1

    It's simple really - end it for everyone overnight with compensation.

    For existing gearers - submit estimated total deductions over the life of the loan based on current circumstances. Get credited a proportional deduction each year till the loan is paid (no adjusting the loan). If you get tricky expect an audit.

    Alternately, they might offer to acquire your right to NG with cash (discounted amount).

  • ruddiger7 on 15/02/2016 - 09:52
    +4

    Personally i would have legalised the use of marijuana and had a reasonable tax in place.

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