I agree with the author. As a trade off why doesn't the goverment abolish negative gearing but instead allow the deduction of interest payments on home mortgages on new hopes. This would benefit first home buyers who are the people who need the break.

Well Philip, you have caught the snake, but it was in its middle, not near its head...

The root causes why this ridiculous negative-gearing exists are:

1. Non-uniform tax rates.
2. Tax-deductions for borrowing money.

As Peter mentioned, the rich are advantaged by a bag of taxation tricks, but they are also disadvantaged in the first place by being hit with higher tax margins. Both humps should be removed.

That some people want to start a business without having sufficient capital, is their own problem - one cannot actually forbid them to take a risk, but the proper way is to work hard and save first, then invest one's own money in business: there is no legitimate justification why the tax-system should encourage and reward the practice of borrowing other people's money instead of using one's own.

Finally, Peter is right that travel to and from the workplace is a genuine working expense that should be tax-deductable (so long of course as one doesn't stop on the way for any private matters). I would argue though that childcare is not - after all, who told you to have children?

So here we have yet another lefty tyro, determined to make the same mistakes that so many of his forbears have made, to our detriment.

He's a highly qualified researcher, & will probably, unfortunately, end up advising a lefty government. Unfortunately I suggest, because his method is distorted to find only what he wanted to find.

I have never seen a proposition that was all bad, or all good. When someone tells you that something is all bad, you know they have ignored, or hidden, what they found to negate their proposition. That our Philip has found only certainty gives the lie to his efforts, which then must be treated as tainted by ideology.

From his thumbnail it appears he has his nose deep in the taxpayer trough, & has not ventured into the dangerous environment of business, let alone investment, or even had a real job. This gives us his perspective. He wants government to provide, not go make money for himself.

If we want to quarantine losses from one income stream, from the profits of another, we will have to close all universities. These are huge loss making areas, but we fund these losses in the hope that their product, graduates, will make future contributions to repay those losses.

Sound familiar? It's what we do with investment in rental property. It's superannuation run privately. Does our boy wonder also suggest tax brakes for super should be scrapped.

I suggest young man, you go get a job. Yes a real job, with no tax payer input. It may, just may allow you to get a perspective not tainted by lefty ideals, which may improve your future efforts.

Sorry Yuyutsu, I don't want to be unkind, but what planet have you just descended from. You can't have been on planet earth very long.

Just how many large employing business do you think we'd have without borrowing? Automotive, & appliance manufacturers would not exist, & mining would be a cottage industry, only producing enough iron for the army's swords.

Do you really think anyone, or even any company could fund a multi billion development just from capital? Is it perhaps private business you want to ban?

We could go back to the tax payer funding the infrastructure, railways & ports for the export of our products, but I rather like the companies paying for it. Without borrowings they could never do it.

Even better was our old much maligned Joh, who made the companies build the rail system they required, [which required them to borrow the money], then give it to the state. Interestingly, some of this stuff Labor sold back to the miners. Talk about a ripoff, but Joh was like that, any thing for Qld, & its people.

So again sorry mate, you'll have to find another thing to knock the landlord with. Interest on money borrowed is a legitimate cost of business.

They abolished negative for a time a few years ago. It caused a huge fuss because renters began to find it difficult to find a place to live. Most landlords are negative geared, so if that's not permitted any more there's no incentive to be a landlord. Better to sell the property and invest the money elsewhere.

But perhaps you prefer to abolish negative gearing and spend the extra tax revenue on government housing? Now there's a good Soviet idea.

Also agree, we need negative gearing and the traditional bricks and mortar mindset, almost as much as we need a hole in the head!
Although, I suppose one or two might serve a useful purpose, particularly if there was nothing up there to hurt?
I mean, the Irish cure for water on the brain, is a wee tap on the head.
Knocking this negative gearing nonsense on the head, would save the budget around 5 billions per, most of which could be rerouted into low cost public housing, or low cost loans, that achieve virtually the same outcome for the less well off?
It certainly wouldn't do any harm to the economy or the new home housing industry, or the tradies, now being laid off in their thousands, or doing it tough?
Rhrosty.

Dear Hasbeen,

I understand very well that bad habits are difficult and painful to change. However, this habit of borrowing money is relatively young, 20th century stuff.

In the good old days, families accumulated the money to pull projects together, which worked well. This isn't of course the only way - nothing prevents even people who are not blood-related from coming together with their savings to create bigger projects.

I have no clue how you came to such idea as if I want to ban private business.

While adjusting to healthier ways may produce a jolt, I am not saying that borrowing will suddenly stop altogether, only that the interest-payments should not be recognized as a tax-deduction: consider that alongside the introduction of a simpler flat tax margin (say 30%), removing the higher tax margins, and you will find that it isn't such a bad deal for businesses after all.

Abolish negative gearing and there won't be any investment in housing.The real problem is that Govt is using housing as a cash cow.They are restricting supply of land thus keeping prices high and have taken any motivation for developers to build more accommodation via fees,charges and taxes.

At every level from Council,State and Federal,Govt is milking the system to fund waste and bloated bureaucracies.

Just a random observation.

"Property is run at a net loss when interest payments and property-related expenses like repairs and maintenance exceed rental income"

Very true.

But bear in mind, that those expenses, as well as the interest payments, are real money.

Without an incentive to the landlord to incur that loss, rents would have to rise, and/or the property would lack repairs and be under-maintained.

So the taxpayer is in effect feeding money directly into the tenants' bank accounts, as well as supporting the quality of their living environment.

How considerate of us.

Yuyutsu in those same good old days the average family could not aspire to home ownership. This was despite the fact that houses were much cheaper. 5 years of average net income, [not gross] was enough to buy a home.

They were not mansions as today, but they were adequate. I'm not sure if my kids would be prepared to live in my first home. Just one bedroom, & 80 years old, it was bought for cash, & cost just 2 years of my net income, & that was in Sydney.

I do recall even 50 years ago, the average building tradie had little chance of owning a home, even if the prices were lower. Their low wages contributed to low house prices.

Today it is only borrowing that gets a kid some equity. Two of mine, got into home ownership as soon as possible. Now still under 30, they have equity above $300,000. The middle one, shunted around the country by his employment did not want to rent something out, so did not buy. He is a couple of hundred thousand dollars poorer than the others because of that.

So, although I personally have not borrowed money in 30 years, I believe, done intelligently it probably necessary to get any where for ordinary folk.

All that nonsense could be done away with by introducing flat tax. But, unfortunately, many people don't want fairness, they just want to make more at everyone else's expense.

So the author and his supporters of his quest need to ask themselves one very, very important question.

WHERE WILL PEOPLE LIVE!

If you take away the reason why so many invest in property, they will simply stop investing.

BTW, the majority of property investors hold their assets in either trusts or companies, so there is little to right off against ones personal income tax.

Now on the other hand, if you own property ( rentals) in your personal name you are taking a huge risk with landlord exposure issues.

Of cause you can try to tell me why investors will continue to provide affordable housing, without tax deductions, as rents would need to be at least 8to 10% income to value, as they were.

This would mean most rents would increase by at least 120%, but of cause that won't happen, so the alternative would be not to invest in rentals.

But as I always say when this topic gets a run, be careful what you wish for, as you may just increase the rate of homelessness.

I doubt anyone would want this outcome.

Dear Hasbeen,

Houses are made of bricks and mortar: no amount of money bills can build a house, so ultimately, the number of people having their own homes is not determined by finances but by the availability of resources: land, bricks, metal, builders, etc. It is also determined by the demand, eg. by population increases and by the required building standards.

As for land, see Arjay's comment.

Metals are expensive due to the export market.

Builders are scarce because most of them work in mines.
With the remaining builders busy making new houses, it is also so difficult to get someone to repair old houses that more old houses have to be destroyed where they could otherwise be repaired, what a waste!

The amount of effort and materials that needs to go into building one family home is also increased by the piles of government regulations.

One way to lower house prices would be to import temporary builders from Romania. Romanians have an excellent skilled construction workforce and are willing to come and work extremely cheaply. If government allowed them to be contracted for 2-3 years, we would have more houses than we need (provided there is land). This of course will not happen because it goes against Labor's ideology.

I understand it's hard to wean out of borrowing habits, but once the crisis is over, as in the old days, families would accumulate money and support their children getting their own houses, which in turn will support their children, etc.

As has been says, in a round about way, people today typically want THE HOUSE not A HOUSE and this is where most of the problems with home ownership come from.

Like it or not, NG has helped keep rents down, so it stands to reason that if it's taken away, and not replaced by a benefit of similar values, the housing availability will get worse, much worse.

I note the author has gone very quiet on the topic.

I agree with David L. Tenancy laws make being a Landlord extremely onerous. State Governments use landlords to abrogate their own public housing duties. Tenancy tribunals actively work to make landlords PAY in lost rent to keep fringe dwelling single mums and drug addicts housed for as long as possible, at no expense to State governments.

State privacy laws make it impossible to do thorough checks and every landlord has been stung.

Further its not just the money loss its the minimum 2 months time and worry.

State governments would have heart attacks if they couldn't palm off this social duty. Unsuspecting landlords are IT!

This is why negative gearing will NEVER be canned.

You can State Bank on it.

You would have to change the Constitution to eliminate state governments before negative gearing could be abolished.

Its a layer of government increasingly prone to corruption and self serving behaviours. Witness Barry O'Greiner and Keneally to Carr in NSW! The other states are worse. Cut out the middlemen. And That is all state govts have become since Federation.

But one thing. For a Federal <-> Local Govt system to work, parliament must sit in every capital city on a regular basis. Canberra is too remote and sterile to be up to the task of governing a complex and vibrant nation. You always end up with back stabbing unaccountable snakes like the ALP-Gillard & LIB-Abbott. Not because they are idiots or BAD people but because they are suffocated and isolated too far from the real action. They are so so hated by most Australians that they have become Hawkish traitors to their own people. They feel their only hope is to transfer taxes away from Aussies to bonus and tax-favour foreign immigrants and unborn children for the political salvation of their Parties and indeed their very own souls.

They, like negative-gearing, are more to be pitied than LOATHED

The government in the past has looked at abolishing negative gearing.

It would become too expensive and unrealistic for the investor to hold the property as the tax deductions are not sufficient to make the property cash flow positive or even cash flow neutral in terms of costs to the investors which are high.

It was thus found that two things would occur if this went ahead.

Investors would either flood the market with the properties meaning there is less housing to rent. The government would have to provide more government housing which would cost more than the tax rebates given to investors. Remember also that there is 50% capitol gains tax the government receives when the property is sold so it is worth the governments while to support negative gearing.

The other scenario that would be likely for investors who do not sell up are they would raise the rent in order to be able to afford the property making the already overinflated rental market even more over inflated and this would lead to hardship for renters.

Another issue is that the building industry would be negatively affected.

I am quite amazed that the writer did not do his research before making such a song and dance out of this

In my experience landlords charge as much rent as they can get, whether or not they are positively or negatively geared.
They are not altruistic. So rents will only go up if renters are willing and able to pay more.
All landlords should only be able to claim back 15 cents in the dollar regardless of their tax rate and only for new builds.