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The Forum > Article Comments > Abolishing negative gearing a recipe for disaster > Comments

Abolishing negative gearing a recipe for disaster : Comments

By Elizabeth Crouch, published 20/2/2006

Abolishing negative gearing could mean soaring rents and housing industry collapse - an industry vital to the economy.

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Whow a Lobbyist lobbying and badly at that.
Posted by Kenny, Monday, 20 February 2006 11:55:53 AM
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Abolishing Negative Gearing WILL NEVER HAPPEN.

Forget it, there are too many Australians on a knifes edge and without property investment we have lost our main source of wealth acceleration in Australia for the subruban Mum and Dad.

oh, and there are too many politicians in Canberra who negatively gear.

No worries for you, no worries for anyone.
Posted by Realist, Monday, 20 February 2006 12:08:42 PM
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The discussion paper released by the Business Coalition for Tax Reform seeks to reopen the debate on possible directions for personal tax reform. However, it does not advocate removal of negative gearing. The paper has proposed three scenarios which canvass options for discussion purposes.

In-principle, suggestions for tax reform have been welcomed by the Real Estate Institute of Australia (REIA).

Negative gearing must stay in its current form for all asset classes, in order to ensure investment which provides for sustainable property rental supply and as a cornerstone of wealth creation for Australians saving for self-funded retirement. Reduced investment will result in fewer properties and higher rents.

In consideration of the Federal budget surpluses, the REIA supports public discussion on personal tax reform to simplify the tax system and a dedicated Government review process. The BCTR advocates a climate conducive to investment, growth, job creation, and private saving. In this context, the REIA unequivocally supports retention of negative gearing for property and other investment classes in its current form, as the Howard Government has stipulated on recent occasions.

There should be no doubt that negative gearing is an essential part of investment in Australia, which must sensibly be retained. For more information on REIA's negative gearing policy, see: http://www.reia.com.au/policy/negativegearing.asp
Posted by REIA, Monday, 20 February 2006 12:33:17 PM
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Negative gearing will never be abolished, but it will be phased out.

The advantage of negative gearing is that while you are on the top marginal tax rate, for every $1 you loses (via making a real loss on property for the year) you reduce you total tax bill by 48.5c. You hope that an eventual capital gain will be higher than your loss.

However, if the tax threshold continues to go up and if the top marginal tax rate goes down, this tax saving will get smaller and smaller. Eventually negative gearing will become an unattractive investment and therefore it will eventually be phased out
Posted by dovif, Monday, 20 February 2006 3:09:28 PM
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These facts are from the Reserve Bank submission to the Productivity Commission on Housing Affordability:-

-proportion of owner occupiers in the 25-29 year age group reduced by 10%

-since 2001 new housing loans to first home buyers almost halved, over the same period new loans to repeat buyers have increased by ~15%

-in 2001 31% of new loans were first home buyers

-in 2003 this percentage was down to 19%

-housing affordability have declined to 1991 levels.

This is a disaster caused by a tax system that subsidises investors/speculators to the detriment of owner occupiers who end up subsidising the costs of asset accumulation by investors/speculators.

What is the solution?

1. only allow 50% of costs of investments to be ddeducted against a person total income for a period of seven years.

2. thereafter 50% of the costs of the investment can be deducted only from the income of the same asset class.

3. savings from this to be directed to allowing first home buyers to reduce their taxable income by 50% of their morgage costs for seven years.

The reason for only allowing 50% of the costs to be offset is linked to the changes to the capital gains tax which reduces the tax paid when the capital gain is realised.

This would remove the distortion and creater a fairer system.

It is more than likely that investors would sell property every seven years thus realising their capital gain earlier and reinvest in other properties. The increased turnover and tax deductibility for first home buyers of their mortgage would increase the chance of ordinary Australians achieving home ownership by removing asset inflation caused by speculative activity.
Posted by slasher, Monday, 20 February 2006 9:58:41 PM
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The only people not compelled by the tax system to supply cheap housing for the general public, are single fathers, the really rich, and the renters. Makes perfect sense.
Posted by Seeker, Monday, 20 February 2006 10:54:33 PM
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