Hands off negative gearing
HERE we go again. Our elected officials are threatening once more to abolish claiming tax relief on the interest on investment property loans.
I’m sure some people aren’t concerned or think this won’t affect them. I’m guessing they are those rare breed of investors fortunate enough to own their properties outright.
The others who won’t be concerned are probably the non-property owning types: young people or those who hate property and see no validity in owning a home. Then there are the struggling types who wish they could save enough to buy. These people won’t be worrying either.
They should be. This illconceived policy change could have a negative impact on many Australians.
Even if you’re young, struggling or a home ownership hater, you need to live somewhere. Where are you planning to do that if landlords are scared out of the market?
And that’s where this policy idea has the potential to do real damage — it’s a disincentive for landlords to continue supplying rental housing stock. It stops investing in property from being a viable proposition.
I can’t see how local councils will soften the blow this move would deal the rental market, either. Perhaps governments could acquire a mass of properties and construct new homes to accommodate all those people no longer able to rent a home, but I doubt it.
And who would pay for it? The extra tax gained from dropping negative gearing benefits certainly wouldn’t.
Maybe there is an upside? It’s possible this will put downward pressure on housing prices, and some people would benefit.
But I don’t think it’s realistic to expect prices to go down. Even if they did, there’s a further downside: falling property prices can be destructive to the economy.
Unless present and future governments can create a vast supply of rental housing stock (by building new homes and acquiring existing dwellings to cover the loss of the private rental sector desecrated by this policy) the lack of rental housing stock could be at
worrying ly low levels.
Then, someone in power somewhere will work out that an error has been made and even more millions of dollars will be squandered for us just to return to the status quo.
Being a modern day landlord is not an exclusive club for the idle rich, it is a form of
investmen t that can take time and patience. Risks are attached. Not everyone is a winner.
Claiming mortgage interest as an expense in connection to property investment is fair. As expenses go, it is usually the principal one. If any business buys equipment using a loan, those costs are understandably claimable against your tax.
If a review of investment property ownership in Australia is considered essential, the
focus should be on taxing profits. That is fair and logical. If you buy an investment and make $100,000 over the term of ownership, taxing that profit seems perfectly acceptable to me.
If private property investment does come under review, I beg the powers that be to concentrate on tax on profit.
A review of capital gains tax is perfectly acceptable. Those that make quick profits in the short term should pay more, while long-term ownership should be encouraged. This will help protect the rental sector.
So, negative gearing — please leave it alone.
Andrew Winter is host of