Negative Gearing reform proposals much needed

Today it has leaked that the Gillard Govt is sounding out the possibilities for reforming the detested negative gearing:

THE Gillard government has sounded out unions over steps to cool Australia’s housing market, with measures that range from a new sales tax for investors sitting on large property portfolios, to curbing the popular strategy of using negative gearing for multiple properties.



Our most recent press release warned on the dangers of negative gearing, with many gearers exposed by the now falling housing market. The Age continues:

One change believed to have been discussed is for owners of multiple investment properties to pay a levy of 4 per cent of sale price at the time of sale, on top of state-based taxes.

Another proposal is to scale back the negative gearing tax benefit from its 100 per cent benefit as the number of investment properties rise.



We support reforms to reduce speculator welfare. However, this rumoured reform isn’t perfect as it will impede the turnover of supply, as Gavin Putland of the LVRG explains so well here.

The fact that the Gillard government has focussed this possible reform agenda at those with multiple investment properties shows they are concerned about the role speculation plays. The Tandberg cartoon (courtesy of the Age), hits the nail on the head as usual. These Tax Office figures compiled by the Age are telling:

About 1.7 million property owners used negative gearing in the 2009 financial year, claiming rental losses as a tax offset. This generated a net rental loss of $6.5 billion for the financial year, Tax Office figures show.

They show about 1.19 million Australians own one investment property. About 294,000 have two investment properties, while those with three number 88,300.

Meanwhile, about 14,100 Australians have six or more investment properties, the figures show.



Will these 396,400 people with multiple investment properties, more than likely the nation’s top 1% wealthiest, hold the rest of society to ransom in unleashing the now typical media blitz that occurs whenever there is a tax reform launched to assist the people? Yes – the Housing Industry of Australia was immediately on the front foot with their noon press release today:

“In totality, the cost to revenue of negative gearing is less than $2.5 billion per annum, which is around half the amount the Federal Government will raise through its newly introduced flood tax.”



$4billion less than the Tax Office figures? I’d like to see detail on that. The HIA continues:

“Suggestions that negative gearing should be removed are also ludicrous. Allowing taxpayers to claim interest expenses on borrowings is entirely appropriate – it is not a tax rort. Income from rental properties is assessable, and expenses should be deductible. This is the basic premise of Australia’s taxation system”.



The basic premise of Australian values is a ‘fair go for all’. Does negative gearing enhance a level playing field? No. Has it encouraged the building of more houses? No. Has it encouraged the building of affordable houses? No. It has only aided and abetted the game of property speculation that has brought the global economy to it’s knees. HIA:

“After the disastrous flirtation with the quarantining of negative gearing on rental investment property in 1985, and NSW Labor’s dire experience with a vendor tax, I doubt the Gillard Government is really suggesting such a strategy,” said Mr Wolfe.



Please read Ross Gittins exposure of this negative gearing beat up way back in 2003 – the rental market did not collapse when Keating moved to reform negative gearing. This is a media beat up that has been repeated so many times by vested interests, much the same as the property spruiker mantra that property prices never go down, that most people believe it is true.

The pursuit of (virtually) tax free capital gains has exposed the Australian economy to a speculative Ponzi scheme whose effects are only just beginning to show. Steve Keen is adamant that our bubble is bigger than even the US bubble that has brought so much destruction. Check his Graph 13 from this enlightening post.

With Chinese property prices plummeting 26.7% in Beijing (month on month), the rising call for a more responsible tax system that discourages unproductive investment in land and property must be listened to. A Land Value Tax must be implemented to limit housing bubbles and return business activity towards productive activities.

One can never criticise the ALP for lacking nerve when it comes to tax reform. Now can Housing Minister Jenny Macklin (whose full ministerial title is – Minister for Families, Housing, Community Services and Indigenous Affairs!) show the rest of the government how to hit the ground hard and sell a tax concept with passion? Please Jenny, on behalf of the people, give it a red hot go.

There has never been a better time to sign our MP auto-letter to alert politicians that the negative gearing gaming is over.

11 Comments

  1. Paul Meleng21-04-2011

    Here is the edited version I sent

    Re: Housing affordability

    Please do not underestimate the frustration and anger of those locked out of the housing market, or of those in jeopardy due to excessive debt and increasing living costs.

    Prioritising speculators over home makers has very serious negative consequences for economic activity, national savings, small business sustainability, community cohesion and the birth rate.

    Specifically, I ask you to:

    – RENOUNCE introducing a First Home Buyers Grant scheme, as this inflates the price of housing by at least the size of the grant and merely benefits home sellers. Moreover it entices young buyers into debt they cannot handle as soon as the slightest thing goes wrong like increased fuel or food cost or illness.

    It also leads to wealthy families taking advantage of it for every family member who qualifies, and again adds nothing to the base housing stock except price increases.

    – END the negative gearing of residential property investing except on newly constructed houses and units which add to supply.

    Both of the above distortions of the market lead to excessive investment in housing (large, luxury etc) relevant to superannuation savings and productive enterprise capital.

    – REMOVE Stamp Duty, a vile toll that benefits life-long property investors relative to new buyers. All buy-sell costs reduce the essential mobility of a growth and construction driven workforce. People lack the job security of the past and are forced to follow the work and yet the dynamics of house changing act as a dead weight and unreasonable cost of doing so. All housing coists should move towards pay as you use and away from big buy-sell costs.

    – CREATE a genuinely informed property market by mandating the Australian Bureau of Statistics to provide timely, accurate and unbiased property sales information.

    – MAKE property unattractive to speculators by introducing the Dr Ken Henry-recommended federal Land Value Tax to be offset by reductions in tax on labour and enterprise.

    While I am only one of the tens of thousands of voters in your electorate, this issue is of fundamental importance to me. Your observed behaviour will guide the way my vote is cast.

  2. Max Joy22-04-2011

    Hear, hear!

  3. John Ingram25-04-2011

    We need to remember that there is a shortage of properties to rent in Australia but especially Sydney. anyone who has tried to rent a place in the last 5 years will attest to that. The reason for the shortage is that investors do no longer see buying properties to rent out as a good enough return. With stamp Duty,capital gains tax and then income tax its just not attracive anymore. So no investors no properties to rent out.

    What do you think will happen if the government makes investing in property even less attractive? Thats right ,there will be no building of new apartments and houses as no investor will be interested.

  4. Karl Fitzgerald25-04-2011

    HI John,

    this is the same sort of misonformation that Californians were fed before their bust. That’s what our real estate spivs have been feeding us for too long and those who subscribe to the murdochracy fall for it hook, line and sinker.

    Read thru this site and you will see the supply side argument dispelled a number of times. Regarding negative gearing, pls read Saul Eslake

  5. George25-04-2011

    Congratulations, John Ingram,
    Straight out of the spruikers handbook.
    Don’t happen to work (or “invest”)in the real estate industry by any chance?
    The clue is in your statement “….is that investors do no longer see BUYING (my capitals)properties to rent out….”.
    And therein lies the rub, John – we’re really not all that interested in “investors” BUYING properties to rent out – such properties could be just as readily and more productively purchased by a homeowner – and the purchase of such a property by an investor does absolutely zip for the overall supply of properties. It’s what is called a zero-sum equation.
    What we need is for investors to BUILD properties for the purpose of renting out – where such a need exists. And those people who are actually in the business of building properties rarely base their business model, and the ultimate profitability of their business, on the concept of negative gearing. In fact, I’d go so far as to say that most fair-dinkum investors in the real-estate industry, or any other industry for that matter, actually prefer to build and turn over their product and make a profit in the process – isn’t that what business is all about?
    Negative gearers make no nett contribution to the real estate market in general, and the rental market in particular, other than to keep real estate agents happy, and push prospective homeowners further out into the cold. In fact, I would suggest that negative gearers actually make an overall negative contribution to the rental market by sitting on properties, frequently unoccupied, and wait for a nice big fat juicy taxpayer-subsidised capital gain. No point having those nasty unwashed tenants dirtying up the newly-renovated property when it’s going back on the market in a few months, now is there?
    And if you have any lingering doubts about the usefulness of negative gearing in satiating the rental markets needs, have a good read of Gittins article linked above – he blew that one out of the water a long time ago.
    Only the spruikers maintain the faith.

  6. itsmeagaaain02-05-2011

    Can anyone tell me why there are so many ‘for rent’ signs around Brisbane. I have noticed them for a while, but I cannot remember noticing so many before. Where is the rental shortage if there are so many signs out there?

    What does it mean if there are properties that are vacant long enough for a sign to go up? Some high end properties have had the sign out for months.

    If the housing market collapses will the government rearrange negative gearing so that it is owner-occupiers who are subsidised and not investors?

    I think that the government will do everything it can to prop up the housing market. If it crashes it will be terrible for a while. There will be a lot of bankruptcies, far as I can see. The banks will be nothing but ruthless.

  7. Karl Fitzgerald
    Karl Fitzgerald02-05-2011

    @itsmeagaaain
    It’s called Property Supply Magic. Read that article and it will explain the motivations behind so many rental signs. Thankyou for your update…brisbane is leading the way down the recessionary wormhole. Surfers probaly started it, the floods have confirmed it. Good luck up there ;)

  8. jon swift03-05-2011

    It would be of great interest if we knew how many investment homes belonged to our politicians.
    In my area the state member had 9 plus such houses but who recently conveniently transfered ownership to his wife and who also now conveniently he has separated from.
    Guess we know where his policies lie on this
    JON SWIFT

  9. itsmeagaaain03-05-2011

    Well just for interest sake Jon Swift can you say which party he is with, or just a hint, and whether it is state or federal?

  10. Karl Fitzgerald
    Karl Fitzgerald03-05-2011

    Nick Xenophon, of all people owns 6 properties. See:
    http://bubblepedia.net/tiki-index.php?page=SenatorsSpeculations

  11. Steven Shaw07-05-2011

    Karl, great tip on China trying to slow RE in Beijing. Karen Maley had an article with a bit more info:

    http://www.businessspectator.com.au/bs.nsf/Article/China-property-bubble-banks-lending-interest-rates-pd20110415-FWUEF

    I wonder if that impacted on the recent fall in commodity prices across the board? A slowing China and commodities would have terrible consequences for Australia.

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