IT’S the tax concession governments dare not touch even though there could be savings currently estimated at $12 billion a year if it were it scrapped.
And again this year, negative gearing – the claiming of costs related to investment properties as tax deductions – has escaped the Budget axe.
Prime Minister Tony Abbott has said it won’t be touched: ‘The government I lead wants taxes to be lower, simpler, fairer,’ said the Prime Minister.
And his government is not about to upset some 1.2 million Australians who use the tax rebate to cover expenses of investment properties, such as mortgage payments and repairs.
There are two issues at the core of this debate:
WHO NEGATIVELY GEARS?
The common view is that only the rich can buy a rental property so only the well-off benefit from negative gearing. So eliminating the concession has been depicted as a measure of fiscal equality.
‘The reality is that over half of geared housing investors are in the top 10 per cent of personal taxpayers and 30 per cent earn more than $500,000,’ said Dr Cassandra Goldie of the welfare sector body ACOSS.
Well, that used to be the common view. It’s now a crowded debate.
‘There is an urban myth running around that negative gearing is the province of the rich and should be for the high jump,’ said Social Services Minister Scott Morrison recently.
Sometimes the same set of figures have been used to make competing arguments.
Research by the Australia Institute think tank found a third of the rebates from negative gearing went to richest 10 per cent of households. More than half went to the wealthiest 20 per cent.
But another reading of the same data found more than a million people were negatively gearing, and, said a report in The Australian, ‘the widespread use of the tax losses in areas once considered ‘blue collar’ Labor territory in suburban Brisbane, Melbourne and Sydney’.
Scott Morrison used a Property Council analysis of Tax Office data. He said it showed negative gearers included 83,000 clerical workers, 62,000 teachers and child carers, and 12,000 emergency service workers ‘who aren’t the rich and famous’.
Certainly the well-off are better placed to buy property and use the concessions, but the Australian obsession with property means second-home ownership is no longer a province of the rich.
WOULD RENTS RISE?
This is the big obstacle faced by the anti-neg gearing side: The notion that eliminating the concession would halt investment in rental properties and push up rents.
‘If you abolish negative gearing on investment properties, there’s a strong argument that rents would increase,’ warned Treasurer Joe Hockey.
The tax concession has been dumped only once, by Labor between 1985-1987, and, Mr Hockey said, ‘The net result was you saw a surge in rents.’
Well, rents did rise but only in Sydney and Perth. The ABC fact checking unit has taken exception to Mr Hockey’s reading of history.
‘During the period that negative gearing was abolished real rents notably increased only in Sydney and Perth – where rental vacancies were at extremely low levels,’ said the fact checking verdict.
‘This is inconsistent with arguments that negative gearing was a significant factor, with negative gearing likely to have a uniform impact on rents in all capital cities.
‘At the same time, high interest rates and the share market boom of the mid 1980s increased consumer demand for rental properties, encouraged existing investors to pass on high mortgage costs to renting consumers, and discouraged additional investors from investing in the rental property market.
‘While the rent increases in two cities did coincide with the temporary removal of negative gearing tax deductions, it is unlikely that change had a substantial impact on rents in any major capital city in Australia.
‘Mr Hockey’s claim doesn’t stack up.’