Rule out changing negative gearing

It’s time for the prime minister to step up and rule out tinkering with the housing market and get on with the job of creating more supply. In particular he must rule out any changes to negative gearing according to the Australian Institute for Progress.

Executive Director Graham Young said that Labor’s broken promises on superannuation coupled with interventions in commodity markets by Commonwealth and State governments were creating uncertainty that are crippling future investment, jobs and prosperity.

“The Treasurer’s refusal to guarantee CGT exemption for the family home needed to be quashed, but it raises the question of what other tax measures he may have been considering on residential real estate.

Labor officially abandoned abolishing negative gearing in 2021 by removing it from their policy platform, but it appears that the Treasurer does not see himself as limited to what is actually in the platform.”

Mr Young said that there was a dire need for rental properties, with the national rental vacancy rate sitting at a 0.8%, and negative gearing was one of the few incentives that might help to expand supply.

“Our Housing Affordability Index shows that housing repayments are at a record level of unaffordability, and recent moderations in the decrease in prices suggest this is plateauing.

“As a result, fewer Australians can afford to buy their own home, so they are forced to wait what they hope is a peak in interest rates out in rented accommodation.

“Yet at the same time higher interest rates make it harder for investors to fund provision of new housing as their cost of borrowing skyrockets, leading to housing shortages and rental increases.

“Negative gearing makes real estate investment more attractive than it might otherwise be, particularly to the higher earners who will be the only ones meeting the banks’ lending criteria at the moment.”

Mr Young said that negative gearing has a negligible effect on government revenue.

“Gearing allows for more houses to be built, which yields governments more taxes in GST, payroll tax, company tax, income tax and stamp duty than they lose in tax deductions.

“Increased borrowings also mean that lenders pay more tax, compensating for some, if not all, of the tax deduction.

“Ultimately negative gearing is a mechanism for tax deferral only. As income from the property increases it will become cashflow positive and the initial tax deductions will be recouped in taxation.

“Investors also pay full CGT when they sell the property.

In fact our analysis shows that investors pay far more in tax than owner-occupiers, negatively-geared or not.

Mr Young said that Labor had had an unsteady first year in government, and now is the time to steady the ship as it became apparent just how tough the economic environment is.