Positive about the negative
NEGATIVE gearing is such a political hot potato it would seem.
Often it is asked, “what are the fundamental differences between the major political parties of 2016?”
Well, here it would seem is one of those differences, and those for and against seem to be able to quote a fairly equal amount of data proving their own point of view.
I did actually dare to comment on this topic last year and received an email, one only, lambasting me for my ignorance and lack of financial expertise. I gathered they believed vehemently in the abolition of said tax relief.
I agreed with very little in this respondent’s rant, but they were correct with one aspect — I am not a financial, accounting or any kind of tax expert. So in expressing my opinion, this is exactly that: an opinion, nothing more. My opinion, however, is based on common sense and experience.
We all understand negative gearing, in its simplest form in relation to residential property investment, is being able to claim the interest on loans related to that investment property as a legitimate expense.
For me the logic behind this is quite simple: any business or investment will or might have some form of holding costs, surely this is just one of them, if any profit is made then tax is payable on that profit.
Investors are not secretly pocketing this amount — banks and lenders would notice if they were.
If it suddenly became impossible to claim this as an expense, when in reality it was, then the whole amount of rent less usual expenses would be considered as taxable income, even though it wasn’t.
For many this would become financially unviable.
I have just summed up a very complex topic in a few short sentences, but for me they are the simple facts. I appreciate many non-property owners or first-home buyers feel no sympathy for the propertyowning masses with this form of tax assistance just to open up their property portfolio, but is it really extra help?
I would argue it is not and it is a logical and legitimate investment expense, so how can it be taken away?
Let us imagine negative gearing has gone. The question has to be asked, how many investors will need to sell their properties? How many future investors will be discouraged? I would suggest it could be in the tens of thousands.
Others will argue, with investor buyers out of the way and additional housing stock for sale as investors try to escape, this could be an advantage as it will lead to falling house prices resulting in more affordable housing stock.
Meanwhile, the opposing camp will argue that without the investors in the marketplace in the current volume, who exactly is going to provide rental housing stock?
I would argue that abolishing negative gearing can only be considered in tandem with a revolutionary new public housing agenda to address the absolute assurance that there will be a future chronic shortage of rental housing, because without private landlords there would be a real housing crisis.
I can see both sides of the argument, but are our house prices dropping really an ideal economic strategy?
Also, don’t forget tenants who may be struggling to secure a rental home amid a limited supply, which I believe could be the result of negative gearing being abolished.
The irony for me is if we undertake a major policy strategy such as this and prices do get hit, that will fuel a boom in buying and, guess what? House prices will recover again and those not able to buy will be paying astonishingly high rents due to a lack of supply.
My side says “leave it alone”.
Andrew Winter hosts on Lifestyle