Let’s not throw spanner into the gearing
NEGATIVE gearing is such a political hot potato it would seem, a subject that creates considerable angst in a modern political environment where apathy, for many, seems the rule of the day. Often it is asked, “what are the real fundamental differences between the major political parties of 2016?” Well here it would seem is one of those differences and the fors and againsts seem to be able to quote fairly equal sets of data proving their own point of view and confirming their stance on the topic. I did actually dare to comment on this topic last year and received an email, one only I hasten to add, lambasting me for the ignorance and lack of financial expertise they believed I had displayed in the article. I think “foolish” was the word used. I gathered they were not my biggest fan and that they believed vehemently in the abolition of 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, as my wonderful editor has asked me to do this week, this is exactly that, an opinion, nothing more. My opinion, however, is based on common sense and experience, so here goes.
We all understand that negative gearing in its simplest form in relation to residential property investment means 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 has some form of holding costs, and if any profit is made then tax is payable on that profit.
Investors are not secretly pocketing this amount – banks and lenders would certainly notice if they were.
If it suddenly became impossible to claim this as an expense for this investment, when in reality it really was, then the whole amount of rent less usual expenses would be considered as taxable income, even though it wasn’t.
In my opinion, this would become financially unviable for many.
I have just summed up a very complex topic in a short paragraph, but for me these are the simple facts.
I fully appreciate many nonproperty owners or first home buyers feel absolutely no sympathy for the property owning masses being given this form of tax assistance to set up their property portfolios. 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. These questions must then be asked: How many investors will need to sell their properties? How many future investors will be discouraged?
I would suggest the number could be in the tens of thousands. Others will argue that 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 current volume of investors in the marketplace, 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 stock, because without private landlords there would be a real housing crisis.
In conclusion, I can actually see both sides of the argument: But would a fall in house prices be an ideal economic strategy?
Also, don’t forget those 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”.