The Negative Gearing Debate
Recently, there has been talk in the media at a Federal Government level, particularly from the Greens Party, about abolishing negative gearing. In simple terms, negative gearing is when the cost of owning a rental property outweighs the income that it generates each year. Negative gearing gives investors and landlords a tax break for having a loss in an asset, where they can claim a tax deduction against other income. At a time when we are in a cost of living and housing crisis, proper debate needs to be had around this subject, and I believe this should be around the whole taxation system rather than just one form of taxation. Currently, there are approximately 2.4 million landlords in Australia that provide private housing for tenants, with approximate 80% being mum and dad’s that only own 1 investment property. By targeting those who hold the majority of investment properties, it is really going to disincentivise them to hold onto those properties. We’ve already seen the effects of changes to Residential Tenancy Acts across the country, with numerous landlords selling up, and these properties purchased by owner occupiers, reducing the already scarce number of rental properties available.
In a time when we need more housing, not less, the debate should be around how we can encourage more investors to purchase properties and help meet demand for rental housing. I don’t believe the Government should have to do all the heavy lifting when it comes to providing housing, which is where private investment comes in. However, I do believe all levels of government have dropped the ball over a long period of time (that’s a whole other blog) for their lack of investment in social and public housing. This lack of investment has significantly contributed to this mess, that will take significant amounts of time, money and strategizing to return to some form of normalcy, if it does at all. You can learn from history, and when negative gearing was taken away back in the mid to late 1980’s for 18 months, we saw major increases in rent, and price growth of assets skyrocketing. This certainly doesn’t help those that need a roof over their head, or address the issue at hand. Would it happen the same way again? Who knows, but we can only learn from our experiences.
I would be surprised to see any changes around the current format for negative gearing, mainly because my understanding is that most politicians have property that they negatively gear, so they would only be hurting themselves. This debate tends to rear its head every decade or so, much like the topic of daylight savings. With approximately 885,000 people moving to Australia in the last 2 years, we need to encourage extensive investment opportunities for landlords, not making it less enticing for them. If we remove the incentive for potential investors, the current situation will continue to develop, making it harder to resolve in the long run. In my opinion, the more appropriate debate should be around GST. This hasn’t changed for over 20 years, and most western societies have rates close to 20% or higher, but again, that’s another debate for another time.
Whichever way the Government goes, there needs to be a uniformed strategy and plan in place. Governments will argue they have these in place, but the reality is, they’re either a hard copy document in a filing cabinet or a link online burrowed somewhere deep into a website. I’m sure it will be dusted off with elections to happen in the next 12 months but if we’re serious about fixing this crisis, action needs to start now and not wait for more budget announcements, tenders to be completed, government departments to sign off on projects and the list goes on. I would expect this topic to be front and centre for foreseeable future, and you’ll have an opportunity to question the very people that are not doing enough or being accountable. One thing we know for certain is that the housing and cost of living crisis is not going anywhere soon.
