Hands off neg­a­tive gear­ing

Herald Sun - Property - - OPINION -

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

on Life­style

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