One of the few areas of difference between the Liberals and Labor is negative gearing, which I saw this morning described as having connotations of “ of wealthy rental owners buying properties in order to reduce their taxable income and to sell them later at a profit …. “.

This claim is offset by the recent claim from treasure Freydenberg that most landlords have an income less than $80,000. For most of us not in the know, it's probably a case of who we believe - a lefty MSM reporter or a politician; and that's a real problem!

The lefty reporter thinks that negative gearing is “tax dodge”; and that the treasurer “would have you believe our entire housing market is reliant on a tax dodge …. “.

As a conservative who is 'supposed’ to be on the side of landlords, I am in fact, with Labor on this one. What are the feeling of others?

ttbn,

It depends what you are trying to achieve. Allowing people to reduce their taxes by investing in properties does have some public good, in that properties for rent are almost always investment properties.

If you ban negative gearing, the return on investment properties drops considerably, people invest their money elsewhere, the stock of properties for rent drop, and the prices shoot up.

Presently the rent/$ invested in Aus is about 1/2 of what it is in countries typically without negative gearing, so without negative gearing, the long term outlook would see house prices drop and rentals increase. Considering that the people renting are mostly in the lowest earning brackets this would effectively be a tax on the poor.

In every industry in Australia, a business person is entitled to deduct the interest paid on money borrowed to invest in their business from income, before their taxable profit is rated.

Why should investing in rental property be any different to every other business activity?

Is it OK to deduct the cost of borrowing, if it is a shopping centre or factory you are renting out? Is it only housing that should be different to any other business investment?

The left are very good at demonising those they don't like, particularly if that demonising gets them the vote of non thinking people. The catch phrase "negative gearing" is like a red rag to a bull, when used against landlords.

The problem is of course our overvalued housing market. In the US, & most of Europe, with lower housing prices, the interest on a housing loan, even if 100% of the properties value is borrowed, is still less than the rent for the property. That is the rent on a property, verses the purchase price is much higher.

After the crash, which must come some time, we may get back to something sensible. The "council flat" does at huge cost to the taxpayer, put a ceiling on rents & housing prices in England for example. I wonder if we can get back to sensible housing prices, without the poor bloody tax payer, who is trying to buy their own home, having to fund housing for those too lazy to do it for themselves

Tax deductions for the cost of business are one thing. Negative gearing affects landlords entire earnings from all sources.

If politicians cared more about the real economy than the size of the deficit/surplus then negative gearing would not be so controversial
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ttbn,
>For most of us not in the know, it's probably a case of who we believe - a lefty MSM reporter or a politician;
Surprisingly they're both telling the truth - in most cases wealthy owners buy properties in order to reduce their taxable incomes to less than $80000.
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Shadow,
>If you ban negative gearing, the return on investment properties drops considerably, people invest their
>money elsewhere, the stock of properties for rent drop, and the prices shoot up.
That effect would be cancelled out by the increase in the number of people buying their own homes, resulting in a corresponding loss of rental demand, so rental prices aren't likely to rise very much.

However, due to the land tax exemption that owner occupiers have, that would probably mean a drop in state government revenue. So arguably the real public good of negative gearing is more revenue for state governments.

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Hasbeen,
>Why should investing in rental property be any different to every other business activity?
Possibly because it doesn't increase production.

The world's second worst treasurer, after number one, Wayne Swann, often claimed that the abolition of NG briefly in the 80s caused a rise in rent prices. However, rents rose ONLY in Sydney and Perth. There were no rises in Adelaide and Brisbane and low to no real increases in Melbourne. In Sydney and Perth, there was a low vacancy rate, which is more likely to have been the reason for rent increases, with landlords taking advantage of the shortage of rental properties to jack up prices. Well know economist, Saul Eslake, says that the increase would have to be general for it to because by lack of NG. Negative Gearing was reinstalled by the Hawke Labor government in 1987, under pressure, probably.

Well known economist, Paul Eslake, says that for the loss of NG to effect rent prices, the prices would have had to rise universally. And the famous, or infamous, ABC 'Fact Check' deemed Joe Hockey's claim to be iffy.

AC0SS places some of the blame for the high cost of housing on tax breaks – negative gearing and the 50% discount on Capital Gains tax available to investors. It also calls out the myth that it is all 'mum and dad' investors benefiting from negative gearing:

“This is an illusion due to the way the Taxation Statistics break down deductions for rental property investment by taxable income, which is itself reduced by negative gearing strategies. Many households that appear to be ‘middle income’ actually have higher incomes before deductions are subtracted. In reality, over half of individual taxpayers with geared rental housing investments are in the top 10% of personal taxpayers (earning over $100,000 in 2011) and 30% earned over $500,000.”