and Subsidise Home Owners Mortgage Government Pay 25% of Interest on the Loan Negative Gearing must be terminated and the Federal Government must use that money to subsidise Home Owners Mortgage Interest Payments by 25%. Reason for this is because I see Investors racing to get in to pay the price of the Land or Property before potential Home Owners can make a bid. Rudds New Shadow Spokesperson on Housing is just not with it and her views are no different to the Howards Government on assisting investors those who already have a number of properties to the detriment of house seekers. immoral and obscene pass the sick bucket.

Bronco, all you will do is squeeze those that are in the rental market without much hope of ownership, even harder. Landlords will have to raise rents in order to compensate for lost income. There are plenty of people that will be subject to renting for many years before they could think about buying, whether negative gearing is abolished or not. You abolish it, you'll just hurt those people more.

I assume that to be fair, you would prevent the income from those properties that are positively geared (ie generate more income than they cost) from being taxed. That is, no deductions for expenses, but no tax on the income either.

Bronco Lane

Negative Gearing for what?

House investments? Share Investments? Option Trading ? Commercial Businesses?

I presume from the rest of your spate, you are referring to negative gearing on house investments.

Negative Gearing on housing no different to any other negative gearing arrangement, as it be it another investment or commercial undertaking. Namely the benefit can only be utilized or offset against an existing tax liability, just like any other operating loss on investment.

I would further observe, should the existing and historic practice of offsetting negative returns against other tax positive incomes be abolished, presumably for housing investment alone several things are likely to happen

1 Housing investors will sell up and invest in other areas. This may produce a small momentary windfall for owner-occupier house buyers.

2 As a consequence of 1, the availability of rental housing will plummet. This will immediately impact with increasing rental rates due to unsatisfied demand being serviced by a diminished supply of investment housing.

3 As a direct consequence of a no-negative gearing policy, rental rates will be further increased to ensure those who remain in investment housing, turning a negative into a positive return (or at least to a neutral return to stabilize against a later capital gain).

We saw how Keating tried it in the 1980s and the effect it had on housing rental rates. Proving that fluffing around with negative gearing is the first thought of the intellectually bankrupt.

Whilst Bronco Lane is being overly simplistic in blaming the 'evil' negative gearing investors for high property prices, he has hit on what I think is a real issue and that is the disparity between investors and home buyers. The fact they both have very different tax issues does distort the market in a way that adversly affects people's ability to buy their first home.

The answer I would advocate is to get rid of the discrepancy by ensuring that negative gearing should apply to all land purchases. This would even up the playing field in a way which ought to keep Bronco Lane happy, whilst maintaining the rental market. Of course, this might substantially impact on the government's surplus because of lost income tax revenue on all those first home buyers.

Lost Income tax revenue could in turn be offset by applying GST to all real estate, which although controversial, would have a couple of other advantages: 1) it would simplifying the GST system which at present is IMHO overly complicated (and market distorting) when it comes to newly developed land; and 2) would prevent such new rules from causing an instant boom in the housing market which the proposed tax advantages to home buyers would likely cause.

Just a thought.

Kalin, I take your points as fair. I do suggest though that by making home-owners interest tax deductible, that you risk inflating house prices further (even with the somewhat compensating GST increase). Why?

1. GST is 10%, most people have a personal marginal rate of 31.5% (including medicare levy), therefore there is still greater benefit to be had from the deduction.

2. Making available a tax deduction for non-incomeearning expenses will further encourage people to buy homes that are beyond their true affordability by way of seeking to minimise tax.

3. This deduction is available in the US (although I am not 100% sure of all the conditions surrounding it), and no doubt has contributed in some part to the current crisis that that market is now facing.

Perhaps the answer is in the modification to the interest-deductibility rules for investors. Income tax laws generally state that expenses are deductible so long as they are not of a private or capital nature. It might be argued that if a loan is interest-only, or there is not reasonable expectation of profit within say 10 years (given a set expected increase in rental income), then the interest payments are of a capital nature rather than revenue, and add to the costbase of the investment for CGT purposes, rather than being deductible on a yearly basis. This would still allow for investors to deduct interest where they are positvely geared, or where they expect to eventually be positively geared (encourages long-term investment), discourages speculation as these purchases are often done on interest-only terms, AND encourages the retirement of debt by investors to get to a stage where the investment is cashflow positive - a good thing in a tight-debt environment.

We often hear these simplistic solutions to complex problems but they don't work. The Labor government under Keating tried to abolish negetative gearing and it was a disaster. Rents went through the roof in Sydney as did the number of homeless. They had to bring it back.

Country Gal,

Capital Gainst Tax was a short sighted tax designed prevent the market distortion caused by people converting income into asset appreciation so as to escape income tax.

Unfortunately, whilst it addressed that distortion, it compounded another by effectively punishing the liquidation of assets. The effect being that investor's don't sell properties as often as they once did. This is just another factor decreasing the availability of real estate and pushing up prices. More generally, free markets work best when they are free of distorting influences. The whole theory of capitalism is that money will naturally flow to opportunites for profit, which naturally appear where there is demand. CGT unfortunately, has the effect that if you sink money into an investment for a few years in an appreciating market, you can't move that capital to a new opportunity (other than by borrowing against the existing assets) without paying a very heavy tax burden. The consequence is that, capital does not flow nearly as freely as it used to and the problem will get worse over time as assets appreciate.

This is bad for our economy in all sorts of subtle ways.

Bronco investors in NSW have already deserted the property market.That is why rents are soaring.Look to our state Govts.They slowly release land in order to Maximise their return.Look also at stamp duty infrastructure taxes etc that in NSW add a total of $170,000.00 to a house/land package.Abolish negative gearing and no one will produce another dwelling.

Our state govts have used land releases as a cash cow to pay for their bloated bureaucracies.

You may all say that I am being simplistic and that sums it up.
Investors are rushing to purchase land as soon as it is released they are even queueing and camping overnight to purchase land. The investors have the collateral of all of their properties so have ready finance. Potential home owners ma have only $80,000.00 deposit if they are lucky and perhaps financial approval. We in Western Australia are witnessing investors from Eastern States building houses before they have even sighted the land it has all been secured by an agent. A young couple visit the developer with high hopes and then told dong sorry that is sold. I was once a landlord myself and only charged $120 dollars a month now the greedy landlords with low interest rates are charging at least $250.00 a week and on auction. This is the unacceptable face of capitalism supply and demand created and engineered by the Howard Government. Previous Conservative State Governments sold off State Housing and the current State Governments have inherited the lack of State Housing and GEHA Housing. No Federal Government should subsidise landlords to supply low cost housing the Federal Governments should be subsidising home owners with mortgages.

What we need is an independent agent who inspects every auction (on site) and who selects the bidders who are in need of a home for their family to live in.NO (overseas or local) investors allowed to own more then two properties including their own dwelling.The second home should be fully taxed and treated as income minus legit expenses.Independent agents should have access to investors' business arrangements.Televised home buying/investment schemes should be abolished.Simplistic? You bet!
Last but not least is the banks' usury system,which makes money out of air.If you would ask them to show the gold as per equalising the paper money being circulated there wouldn't be any