It was only a matter of time that the negative gearing debate would resurface again. Even though Tony Abbott has now ruled out any changes to negative gearing, due to not wanting to start the tax reform debate by increasing taxes, Joe Hockey has suggested that any changes made to negative gearing will need to be “properly considered” as it will not only affect rents, but harm investors.
However this theory has been disputed by various respected economists such as John Daley from Grattan Institute. Mr Daley suggests, “The belief that negative gearing keeps rents low seems to be a folk memory from when the Hawke government temporarily abolished negative gearing in the 1980s”.
There are other factors that are at play, including population growth that is driving property prices upwards due to increasing demand for housing.
So what does this really mean for Australians?
On average, 1.2 million Australians currently make use of negative gearing, with claims around $14 billion in concessions a year. The report from ACOSS also shows that of all those claiming negative gearing, over half are in the top 10 per cent of personal taxpayers claiming the largest amount of concessions, whilst 30 per cent of those are earning over $300,000.
Despite this, there is still a large percentage of people who are ordinary working Australians that are utilising the benefits that come from negative gearing, including sales assistants, hairdressers and clerical staff.
According to the Property Council of Australia’s analysis of the 2011-12 statistics from the Australian Tax Office (ATO), there are 83,280 clerical workers, 61,500 teachers and child carers and 46,450 sales assistants that are claiming negative gearing benefits.
In total there are 325,585 people in working-class roles earning a taxable income of less than $80,000 per annum. Of all those that do claim negative gearing deductions, 91 per cent only has one or two investment properties.
It is the belief of many that if negative gearing was to be changed then this would have a massive impact on rents, driving them up to realistic amounts that a vast number of Australians would be unable to afford.
Many Australians, particularly in roles under $80,000 rely on negative gearing to get on the property ladder and to save money in tax.
According to Shadow Minister Chris Bowen, no current landlords would be targeted if negative gearing was to be changed. Also, other principles would include:
- Do not disadvantage people who have made investments in good faith under current rules.
- Do not risk reducing the supply of new housing or, if possible, improve the situation with the supply of new housing.
Published on 29th of April 2015 by Marty Stanowich