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.