Crikey – Negative gearing
Letter to the Editor
Dr. Gavin R. Putland, Director, Land Values Research Group, Prosper Australia, writes: Re. “Kevin, will that be two terms, or four?” (yesterday, item 16). No, Nicholas Gruen, don’t cap negative gearing, because no matter how generous the cap is, the speculators will still scream about reducing the supply of rental housing and pushing up rents.
Instead, call their bluff by allowing negative gearing only if there is a tenant in place — not if the property is merely “available” for rent. What about rorts such as interest carried forward? Just ignore them. The bigger the rort, the more desperate the rorters to attract tenants in order to maintain the rort!
Under those arrangements, there would be no justification for grandfathering existing mortgages. But new buildings could be exempted for five years as Gruen suggests, in order to encourage construction – the downside being a reduced incentive to attract tenants to those buildings within the five years.
Of course, if property were taxed according to the imputed rental value of the land alone, and not according to the actual rental income derived from the land plus buildings, then every owner of land would be maximally motivated to build on it and attract tenants, because all those activities would be tax-free. Any debt against the property could be handled by treating the mortgagee (lender) as a part-owner.
In other words, as the borrower would pay tax in proportion to equity in the land, rather than the rent, so the lender would pay tax in proportion to the debt rather than the interest. But that would be too much like common sense.