Negative gearing a no-go, so what’s next?

It's clear that this year’s Budget is going to be a battlefield on housing affordability.

Negative gearing a no-go, so what’s next?

With Treasurer Scott Morrison yesterday defiantly ruling out any changes to negative gearing, it's clear that this year’s Budget is going to be a battlefield on housing affordability.

While Mr Morrison is believed to have been considering changes that would have limited the deductibility of interest on mortgages held by investors, failure to secure the support of the Liberal Party’s right, namely, Immigration Minister Peter Dutton and Finance Minister Mathias Cormann, has killed the issue off for Budget 2017-18 at least.

Addressing the Australian Housing and Urban Research Institute, Mr Morrison said, “Regardless of one’s ­opinions of the merits or otherwise of negative gearing, it is an established and ­structural component of ­Australia’s housing markets. Disrupting negative gearing would not come without a cost, especially to renters.”

Mr Morrison is reportedly hopeful that by categorically stating that there will be no changes to negative gearing, an agreement can be reached on changes to capital gains tax, which, a four weeks out from Budget 2017-18, are still being costed and modelled.

However, the concern over housing affordability will not be diminishing any time soon, with research commissioned by the Liberal Party from Crosby Textor indicating that it’s a critical issue for many. The research found that while Australians did not want Australia’s debt to increase, it wasn’t a large concern. Rising prices, from housing to electricity, jobs for their children and flat wage growth all ranked highly as issues that need addressing.

Read more at ABC.net.au

Opinion: Options for homeownership but what about renters?

When it comes to helping future homeowners, Treasurer Scott Morrison has options to consider. Not least the one that keeps rearing its head – using superannuation savings to fund a deposit.

While it’s unpopular with those who believe that saving for your own retirement should be the sole purpose of superannuation, it is one of the options said to be considered by the Government. However, there is the argument that giving people access to funds to buy housing will only push prices up, but with prices already rocketing, this argument is practically moot.

Retirees looking to downsize could also be handed a tax break, with the hope that it will free up more property and reduce market overheating. This is all well and good, but there are many more issues to be considered by downsizers than simply the financial benefits. If there is no affordable housing for them to move into, chances are they will stay put – tax break or no tax break.

But what about the poor renters – and I mean poor in financial terms. Renters account for 15 per cent of Australians aged between 65 and 85. That’s 15 per cent of retirees who will never own their own home. And as we know from our research for the Retirement Affordability Index™, which was published on Sunday, the need to spend the vast majority of their income on rent means that renters have to make cuts elsewhere – namely, on health, transport and recreation.

So, while it may be important to help people onto the ladder of homeownership, it’s equally important to help those who have no hope of owning their own home.

What do you think? Is superannuation the best way to help people own their own homes? Would you be more likely to downsize if there were tax breaks available? Do you think older renters are overlooked in the housing affordability discussion?

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    COMMENTS

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    Not a Bludger
    11th Apr 2017
    10:27am
    An excellent idea - if a first time home buyer has the capacity to repay the P & I mortgage, then, they should be able to use their super as part or all of the deposit.

    But, with a legal caveat that the sum must be repaid into super in the event of sale of the property.
    Misty
    11th Apr 2017
    1:09pm
    And what happens when they finally retire and realise the do not have enough super to fund their retirement, more people on the OAP.
    Not a Bludger
    11th Apr 2017
    2:07pm
    Misty - you have the priorities wrong.

    As your lawyer, accountant, financial advisor or other expert will tell
    you, they are:-

    1. A roof over one's head and then owned

    2. Super - which one then has the next 20 to 50 years to accumulate - plenty of time
    Bowsa
    12th Apr 2017
    2:22pm
    and lived in by purchaser .
    LiveItUp
    14th Apr 2017
    2:27pm
    Certainly a much better investment for super than where the majority is currently invested with only the scrpas left.

    I know a couple of people who rent their house from their super fund.
    Captain
    16th Apr 2017
    8:13pm
    Bonny, according to ASIC, if your super fund owns a house, neither you or relatives can rent it from the super fund.
    Mad as Hell
    11th Apr 2017
    10:28am
    Scott Morrison does not get it. He is still claiming supply is the reason first-home buyers cannot afford a home. Has Morrison attended any auctions for established homes in Sydney recently? If so he must have noticed how many buyers are investors looking to negative gear the property. Just 10 years ago, 10 per cent of auctioned homes were bought by investors. Now it’s more than 50 per cent.

    Perhaps more affordable rental accommodation is needed, but many first-home buyers and young families wanting to upgrade are now renting. If they could buy a home it would free-up muchneeded rental accommodation.

    The investors are not charging affordable rent but are making a living from their investments and at the same time reducing their tax to an absolute minimum. This country cannot afford to lose tax revenue at the expense of first-home buyers. (Copied from an opinion letter in the SMH, it passes the pub test for me.)
    Misty
    11th Apr 2017
    1:13pm
    More like 72%, Scott Morrison said only 28% were mum and dad homebuyers, so that must mean the rest are investment buyers, some of whom leave these empty for God only knows what reason adding to the shortfall of renting properties.
    GeorgeM
    11th Apr 2017
    1:32pm
    Yes, the "supply is the issue" bandwagon is supported not only by the Liberals but also all other vested interests such as State Govts (for Stamp Duty), Councils (many fees), Developers, Real Estate Agents, and of course a range of investors.
    I heard Harry Triguboff (the Apartment king) say on radio that for his apartments, the buyers were 50% local investors, 25% Overseas investors and the rest 25% homeowners. He also indicated that the "Chinaman" was grabbing apartments very quickly while the young homeowners were cautiously analysing the high prices, future of interest rates, etc, i.e. their abilities to pay for it.

    The solution clearly is to curtail the Demand to stop the price distortions and availability - i.e. ban Overseas Investors (especially Chinese) and, secondly, remove Negative Gearing for any property beyond one for local investors.
    KSS
    11th Apr 2017
    1:37pm
    "The investors are not charging affordable rent but are making a living from their investments and at the same time reducing their tax to an absolute minimum."

    Not sure this is really correct. Rents would have to cover or mostly cover the mortgage (with a little short to negatively gear). It stands to reason then that if the cost of purchase goes up, so does the rent charged. They cannot make a living and negatively gear at the same time at least not a good one. The investor is doing just that - investing - essentially banking on the increased value over time. The ability to offset costs of owning the investment against tax (just like any other investment) plus the reduced CGT on the eventual sale are what make the investment attractive. And just like any other investment, there are risks - they might not be able to find a tenant (even more likely as rents rise and salaries stay low), they may get a terrible tenant who doesn't pay rent or worse destroys the property, or they may have constant tenant turnover costing more each time to replace them. And it is worth remembering that the majority of property investors who are negatively gearing their investment are NOT wealthy but are ordinary Australians in ordinary occupations earning an average salary.

    I would have far more sympathy with prohibiting anyone other than an Australian citizen from purchasing residential property than stopping Australians making the investments of their choice.
    Misty
    11th Apr 2017
    2:14pm
    I think you have that % wrong KSS, did you not see my comment above about what Scott Morrison said the % was?.
    KSS
    11th Apr 2017
    2:31pm
    Misty: Fact Check's analysis of the ATO statistics found that 66.6 per cent, or 838,675 of all those using negative gearing had taxable incomes below $80,000, in line with Mr Morrison's statement.

    There are undoubtedly those who make a business from property ownership (those with multiple properties - some of whom are even in their 20s) but they are not the norm. Most have just one property they have bought with a view to their retirement.
    sunnyOz
    11th Apr 2017
    2:59pm
    And dare I say - at the chance of being called all sorts of things - look how many houses are being sold to overseas buyers? The surcharge is too small. Example as per below. If they can afford to buy a $2mil home, they are only paying an $80,000 surcharge - that is too low.

    If 'A', who is a foreign person, purchases a residential property for $2 million, duty calculation is as follows:
    Duty payable on $2 million is $95,490
    Surcharge of 4% on $2 million is $80,000
    Total payable is $95,490 + $80,000 = $175,490
    Misty
    11th Apr 2017
    3:09pm
    Well what else would you expect KSS, most people on huge salaries or have other forms of wealth, structure their affairs in such a way, no doubt through accountants and financial advisors so that they pay little or no tax, so of course their incomes would show up as below $80.000.
    mIKER
    11th Apr 2017
    4:12pm
    KSS Fact Check also reported that the taxable income referred to by Mr Morrison was after the gross income had been reduced by negative gearing and other allowances or concessions.
    Further that only 8 per cent of people with taxable incomes less than $80,000 use negative gearing, compared with more than double that proportion among people with taxable incomes above $80,000.
    Also Fact Check pointed out that the median wage across all incomes was just over $52,000, so $80K + is not a modest salary, although in fairness it is the average wage for full time employment for those lucky enough to work full time.
    Just checking the facts KSS.
    niemakawa
    11th Apr 2017
    4:34pm
    If the Government reduce concessions on negative gearing astute investors will withdraw and invest elsewhere. Remember Governments today rely on investors to provide homes for newcomers, which according to some spurious International Law, it is required to do. Where will they find alternative accommodation for these people.
    Rosret
    11th Apr 2017
    6:43pm
    niemakawa people want their own home not a rental property that makes someone else wealthy and them in perpetual poverty.
    TREBOR
    11th Apr 2017
    8:25pm
    That must explain why it is so profitable to own fifty properties while living the high life.... all that cost money must be a terrible drain on the Rolls...
    LiveItUp
    14th Apr 2017
    2:29pm
    Most people wou I d positively gear not negatively gear as there us simply no point in making losses year after year.
    Troubadour
    11th Apr 2017
    10:55am
    For sure older renters are overlooked - we had to sell our house due to financial constraints through no fault of our own - loss of earnings because of injury and having to give up work, and the fear of not being able to keep up the mortgage, and interest rates were much higher then. So now we are between a rock and a hard place with rents, private health and other amenities on the up and up. Maybe we should have hung on yes - but hindsight is a wonderful thing!
    inextratime
    11th Apr 2017
    11:30am
    Well ScoMo enjoy the rest of your time as treasurer as you sure won't be there in two years time. Governments have created a monster that they have no idea how to kill. Too many immigrants for too few houses, a taxation system that favours only a section of the population and uncontrolled investors from overseas,low interest rates and interest free loans. Renters are in strife, through little fault of their own. The crunch will come when investors eventually realise that the properties that they have bought can no longer attract the rents that they need to recover to make the investment work. Interests rates will go up eventually making their repayments unviable. Forced sales will drive prices down and a lot of blood will be shed. However in the meantime we all put up with the consequences of a section of the free market economy that has been severely tampered with.
    Jacky
    11th Apr 2017
    2:20pm
    I think your comments are spot on inextratime.
    niemakawa
    11th Apr 2017
    4:18pm
    If all those things that you mention were to happen, then there will be less revenue for the Government which can only lead to increased taxes and charges. Otherwise they will have to reduce services, welfare and the pension entitlement.
    Oldman Roo
    11th Apr 2017
    9:08pm
    I do not really think this arrogant Government cares one bit about the monster they created . Most politicians are profiteering from the overheated housing market and keeping the " good thing " going for them with negative gearing , overseas investors pushing up prices and keeping the renters poor to ensure their properties will continue to be in demand . Under the LNP it is a rich man,s world and watch out if you are not rich .Just how older pensioners who are renting manage is obviously also of no concern to them .
    Anonymous
    14th Apr 2017
    7:48am
    good comment inextratime. it would also help to have a 'vacancy tax' to ensure that more empty units/houses are occupied, and to bring down rents. we have excess units and houses, many unsold and kept empty. there is only a problem of over-supply.

    govt could also remove the 50% discount on capital gains tax introduced by the howard government.

    and, of course, reduce our very high rate of immigration. currently we need a new canberra every year!!!
    Tinker
    11th Apr 2017
    11:39am
    My son is in a position where he cannot afford to buy into the Sydney market but if he stays a renter 50% of his retirement income will be paid in rent putting him into the poor retired category. But if they changed the rule where a rental property bought through a Super fund could be rented by a relative, his superannuation could buy a property for me to downsize into I would happily be the renter with a guarantee of income to the fund to the benefit of both parties, and I would not have to ask for an aged pension. Possibly some original thinking needs to be done.
    Rosret
    11th Apr 2017
    12:21pm
    Yes. I honestly believe those who are part of the investor world want just that. A renting society.
    What a disgrace our society has become. I wonder if our very new escalating multi-cultural society has lowered our united bond to provide for our children or whether we as a nation have just all become greedy "Me first" people.
    KSS
    11th Apr 2017
    1:45pm
    Tinker your son could do exactly what many others have done and buy an investment property elsewhere outside Sydney. Rent it out for a few years, negatively geared of course, and wait for the increase in value. Then sell and use the increase to buy the next one and so on. In the meantime, he should be putting the difference between rent and mortgage he is currently saving into either super or a high interest savings account towards his super.

    Yes I do think there could be more creative thinking but by the people who are doing the complaining about housing affordability in order to help themselves instead of expecting the Government to fix things for them.
    Rosret
    11th Apr 2017
    6:48pm
    KSS someone has to stop greed. There is a balance between capitalism and socialism. The United States has found that out the hard way. A rental property in a country town is only a good venture if there are people who need to rent. Remember if a young adult can afford to buy a home in that country town then so can everyone else who lives and works there.
    Eddy
    11th Apr 2017
    11:43am
    I would be opposed to the idea that superannuation can be redrawn to put a deposit on a house I would think that this forum would be only too aware of the benefits of superannuation in retirement. There are so many more options available, cutting back on negative gearing is only one. One I would advocate strongly is to re-invent the State Housing Commissions to develop land and build basic houses (ie 3 or 4 bedroom brick veneer with lounge, kitchen, 1 toilet, 1 bathroom and no under roof garage) to modern standards of efficiency. These could be offered to owner occupiers at a modest profit margin. Governments would probably have to borrow money to do this but is secured by the assets generated. I believe this would take some heat out of the property market and leave investors free reign to buy on the open market.
    These houses would have good value in the longer term, SHC houses built in the 50s and 60s are coming on the market now at prices more that 10 to 15 times there original cost.
    Eddy
    11th Apr 2017
    11:52am
    I suggest Mr Morrison's idea is that it will pass the problem onto a future government, in about 30 years or so, when retirees will have insufficient superannuation on which to retire so will still be reliant on the Social Security OAP.
    This idea is to try and take steam out of the negative gearing debate to protect his rich mates. As for the Mum & Dad investors Mr Morrison is so fond of bringing up, there are plenty of other investment options they could pursue rathe than property investment.
    Lescol
    11th Apr 2017
    12:13pm
    CGT was introduced to reduce speculation and it needs to be applied but rates should be upon a sliding scale of say -5%/year. So after 2 years there is a CGT of 90% and after 20 years no CGT.

    However it matters little as majority of people now come to realise the need for change away from the stupidity, shortsightedness & greed of the current liberal government.

    cheers
    Rosret
    11th Apr 2017
    12:15pm
    Treasurer Scott Morrison has made a correct analysis of the housing market. It is under supplied and there is a crisis. However his comment on the news " We can't keep on throwing money at the problem" is where he falls down.
    The billions spent on housing is the supplements handed out to those who can't afford to live in this rental market.
    Somehow the government needs to break this opportunistic profiteering of developers and people who have old investments charging massive rents. Those just entering the investment market need to recoup there purchase price so will be another issue again.
    If we are building the most expensive houses in the world you have to ask why. Our population is 3 people per sq km.
    The government doesn't need to provide more rental properties it needs to provide homes that real income earners can afford close to their place of work. They need to compete with these profiteers. The Government don't need to lose money on the deal just build at a fair price. Then they need a protective caveat on the sale of the property.
    I know they were selling houses in Nowra this way 10 years ago.
    This is actually a State government and council issue. However they are profiting from Sales tax, GST revenue and increased rates without having to pay for any new infrastructure as it is all passed onto the new buyer.
    If rent is affordable, if home ownership is affordable the Government won't need to supplement lower income earners. When you hear comments such as, "teachers, nurses and police should receive rental assistance", you know the State is in crisis. They are the goal posts set as the middle income earners.
    KSS
    11th Apr 2017
    1:59pm
    I read/heard somewhere very recently (I think it was Harry Triguboff) that about $300,000 of the price of a new home is taxes, levies and charges payable to various levels of Government. Perhaps this is an area that could be looked at given the amount that is being collected in stamp duty on top of that as well.

    However, if you look around the world, there are many countries that have a rental society and not a home ownership mentality and tradition. Perhaps this is the way of the future, particularly if the Australian population is going to keep growing at the current rate (by whatever means). We do not have unlimited land to build on despite the vastness of the total land mass - unless you want to move to the interior and try and make a living there!
    Misty
    11th Apr 2017
    2:18pm
    Why do we even have Negative Gearing here?, apparently they don't have it any many countries, USA and the UK to name 2 or so I heard on Skye News this morning.
    Anonymous
    14th Apr 2017
    7:54am
    there is no shortage of housing. according to the australian bureau of statistics we currently have more residences than we have adult people.

    there is a glut of unsold, empty units in our capital cities, especially brisbane, sydney and melbourne. this has been the case for some years now. and then there is extensive 'land banking' by property developers.

    don't believe the 'shortage' myth exaggerated by right-wing politicians, property developers, councils and r.estate agents and speculators - all those who profit from over-high prices.
    KB
    11th Apr 2017
    12:54pm
    If this to go ahead then there should be a capon how much can be taken out of super for a deposit on a house. It would also depend on how much a person has in super. Younger people would still be disadvantaged ad they are starting out.Not all super should be used to fund a house to own. Rather the super taken out should be regarded as an investment
    Misty
    11th Apr 2017
    1:08pm
    See reply above for Not a Bludger.
    Not a Bludger
    11th Apr 2017
    2:10pm
    Misty - see also reply to you, also above.

    11th Apr 2017
    1:09pm
    Past studies have shown, time and time again, that stopping negative gearing will cause an increase in rental properties because there will be less of them. The problem with housing affordability is not really a federal government problem but is more of a state government problem. Adelaide and Brisbane have a steady market, Sydney and Melbourne have upwardly volatile markets and Perth has a dropping market. How does a federal government enact legislation that will positively affect all of these positions?

    I believe that the main reason for housing prices rising is the simple rule of supply and demand. When a commodity is in short supply, the costs will rise. In Sydney, the position has become critical because, even if enough building lots are released, there is not a sufficient number of tradespeople to carry out the work to overcome the required shortage.

    Developers are always in the firing line from politicians who are merely taking the easy way out. Developers are the ones who cause building lots to be made available in the main. The costs of those lots will be influenced by a number of factors over and above the initial purchase and development. Councils are charging exorbitant amounts of up to $50,000 per block to provide approvals although it is almost impossible to justify these amounts. The developers are in their business to make money and pass on any council or government costs to the end purchasers who will, in turn, pay exorbitant amounts to get their buildings approved by council.

    State governments need to stand up to local councils by releasing land and doing the development work under state legislation, bypassing local councils. Homes on state government land will need to have covenants describing the sizes to stop the spread of McMansions. This is possible.
    Triss
    11th Apr 2017
    4:04pm
    When rents hit a ceiling maybe investment houses will tumble back into the market allowing renters to buy.
    Tom Tank
    11th Apr 2017
    1:26pm
    Given the number of members of Cabinet who own negatively geared properties surely it is a conflict of interest situation any time negative gearing is raised.
    If superannuation is allowed to be accessed to purchase a house then that would really be attacking the symptom and not the problem. It would most likely push up the price of houses.
    It is really the financial benefits to be gained from owning property that is the real problem and the tax benefits are largely to blame for that. These benefits need to be cut back quite drastically to restore something of an level playing field to the marketplace.
    The problem there of course is that any LNP Government would be striking at there supporter base and so-------! An ALP Government could well be in the same situation so we need someone of courage to stand up and do the right thing. Does anyone know where we can find such a person?
    Triss
    11th Apr 2017
    1:28pm
    Instead of expecting the elderly to move make these huge company tax breaks dependant on companies moving to very cheap areas so that employees and peripheral people will be able to purchase an affordable home instead of renting.
    TREBOR
    11th Apr 2017
    8:48pm
    Once the work moved there, unfortunately - the price of housing will go up to match. This happened in many country towns when fracking was getting its start and caused locals to not be able to rent, in the construction phase which employed a number of workers.. then it dropped to one or two who traveled from site to site just checking and maintaining, so the arse fell out of the rental market in those towns.

    Careful how this idea is put through - there will always be the greedy who see yet another golden opportunity to chum it up with their politician mate to get a free ride on the inside rail.
    niemakawa
    11th Apr 2017
    2:25pm
    Some developers offer shared ownership, maybe the Government can give financial support to such a scheme.
    Not a Bludger
    11th Apr 2017
    2:35pm
    This, too, is a good idea but would need some sensible control/regulation
    TREBOR
    11th Apr 2017
    8:49pm
    Rent/buy? Dangerous ground.... as NAB says - would need careful regulation... the current situation is that a person who defaults loses all equity in the home, even when the reason for default is outside their control. A very shark-filled business.... suitable for ethnics perhaps but not for Australians.
    niemakawa
    11th Apr 2017
    2:37pm
    Maybe more tax breaks for property investors under the proviso that they charge rent say 15% less than the market rate.
    TREBOR
    11th Apr 2017
    8:51pm
    As if.... that's like offering a company tax cut or a penalty rates cut - it only goes into the pockets of the owners...... and the goal posts will be shifted by shifty agents to suit.... just like the first home owners grant.
    TREBOR
    11th Apr 2017
    8:53pm
    Unless we have a (heaven forbid) totally controlled housing market............... don't raise that spectre again.

    Adolph is firmly in his grave, thanks..... ans so is Uncle Joe.... we don't really want to go there, but the privateer market is driving us that way...
    LiveItUp
    14th Apr 2017
    2:32pm
    If you look into it you will find such a system already exists. No sure of the percentage but if y I u c h arhe below market rate you get extra tax incentives.

    11th Apr 2017
    3:28pm
    Good - leave negative gearing alone

    focus on important tax and budgetary matters
    TREBOR
    11th Apr 2017
    8:53pm
    Chop negative gearing and give concessional capital gains to match - or chop concessional capital gains and pay negative gearing.

    No more double-dipping.
    Anonymous
    14th Apr 2017
    7:56am
    capital gains tax has already been reduced - by a whopping 50%. nice for the speculators! thank you john howard.
    Crimmo
    11th Apr 2017
    4:02pm
    Recently the government legislated on the objectives of superannuation, following extensive public feedback. It could be argued that using superannuation to fund housing has an indirect nexus to superannuation objectives, but I see this as popularist politics. More direct measures are required to address the housing affordability issue, rather than using and eroding superannuation resources, which will bite us in 30+ years.
    disillusioned
    11th Apr 2017
    5:11pm
    Until this woosy government puts the kybosh on overseas investment in the capital cities' property market and curtails negative gearing, housing will continue to be more and more unaffordable for young people to buy.
    Anonymous
    11th Apr 2017
    6:07pm
    its ok
    i have my houses and so does my kid

    the increase in wealth makes up happier
    Misty
    14th Apr 2017
    11:02am
    That's ok for you and yours Raphael but don't you have any thoughts and sympathy for all those, old and young out there who haven't been as fortunate as you, through no fault of their own?.
    Jim
    11th Apr 2017
    6:14pm
    It would seem that everyone considers negative gearing is the main cause of housing affordability , I am not sure how people come to that conclusion , I admit to not knowing a great deal about how it works, but my understanding is that you can claim a tax offset for the ammount of money that it cost an investor over and above the ammount it cost to service the debt. Isn't hat he way all investments operate? I see many different ways that people use to minimise their tax liability, just one example I can think of is your average tradie goes out and buy's a $50,000 vehicle to drive their tools around then clams a tax deduction to cover the cost of running the vehicle and of course it would be cynical of me to think that all the expenses that are claimed are completely genuine, what about the shop owner who buy's their vehicle and puts ads all over the vehicle to enable them to claim a tax deduction, the new one claiming office expenses when working from home, if we want to be fair dinkum about raising revenue, then we don't need to look far to realise that just about everyone tries to minimise their tax, and some by very dubious methods, the poor old paye tax payer are the ones that pay the majority of tax to keep he country going. Maybe if everyone paid their fair share there might be a bit more in the pot for those that need it, in particular the oap who's taxes have funded the country for most of their working lives.
    Anonymous
    11th Apr 2017
    6:20pm
    its just jealousy

    they assume those who negative gear are generally wealthy

    same old same old - politics of envy
    Rosret
    11th Apr 2017
    6:56pm
    Negative gearing has very little to do with it. The immigration policy and state infrastructure are absolutely linked. They increased immigration to help pay for our superannuation without having to "grow" these people since birth. However somehow the government figured they would just blend into the existing infrastructure.
    One day it would be nice to think some group of intellectual people have a proper plan for the future of our country rather than an adhoc city jungle.
    Misty
    11th Apr 2017
    7:57pm
    Rosret why does everyone have to live in the cities?, I am sick of people, pollies included, who seem to think Australia begins and ends in the cities, get out in the country and smell the roses and see that life still goes on outside those concrete jungles.
    TREBOR
    11th Apr 2017
    8:55pm
    People need income and to get income they need work, Misty - it's not that simple.
    TREBOR
    11th Apr 2017
    10:21pm
    In that case, Dim - there should be no concession on capital gains, since the 'loss' has already been taken care of through a reduction in personal income tax.

    Many people, also, have a serious objection to taxpayer's money propping up a losing investment. Would you knowingly buy into a corner shop knowing that it would lose money, and then expect the taxpaying public to bail you out?

    I thought private enterprise was more efficient etc.... seems not...
    Dot
    11th Apr 2017
    8:05pm
    Negative gearing, foreign buyers are pricing Aussies out of affordable homes, yes Australians you are being sold out and now the boof head is over in India telling the millions come over and be educated in our Uni's ignore the Aussies we the Government is about selling off everything. The same A.H's that will lay a wreath on Anzac Day, what bl--dy hypocrites these mongrels are.
    TREBOR
    11th Apr 2017
    8:58pm
    "The annual median per capita income in India stood at $616, the 99th position among 131 countries."

    https://www.quora.com/What-is-the-average-annual-salary-in-India

    Now someone tell me again how all these Indians can afford to be students here.... I smell a rat..... but at least we know, looking at $616 a year, many think they are flush with gold getting $8-$10 an hour.. wow - less than two weeks work and you've made your annual income!! Whoo-hoo!
    gadsby
    13th Apr 2017
    11:14pm
    well said ,Dot,you nailed it.
    Farside
    13th Apr 2017
    11:50pm
    @TREBOR, the average per capita income in India may be $616 a year but the key word is average in a population around 1.3 billion people. The top 10% own 74% of the national wealth while the bottom 60% own 7%. It has around 15,000 people with fortunes exceeding $10 million, 8th highest in the world, and more than 300,000 millionaires. This provides for lots of foreign students.
    TREBOR
    11th Apr 2017
    8:22pm
    The rule should be - you either take negative gearing and get no concessional capital gains, or you don't accept negative gearing and you get concessional capital gains. Two bites at the cherry of a business that will not produce any income until sale of property is ludicrous.

    Traveling back from the South coast t'other day, I decided we would go through Wollombi... lots of land out that way - but zero infrastructure and zero work.

    Super needs to be brought under one roof and removed from the hands of politicians and their grasping mates. Once again, private enterprise is simply NOT efficient here, but is a drain on the lowest paid's super.... to which end a rule needs to be brought in that super funds and banks do not take fees from a fund below a certain level.

    It is just ludicrous for someone to work as I did in my last few years of work - with a gap between jobs of a couple of years - and watch your super fund eaten away by fees.
    Rae
    12th Apr 2017
    9:01am
    Check out the prices in ST Albans TREBOR. It is a nonsense of course. Yes there is a pub there. And it's pretty.
    Oldman Roo
    11th Apr 2017
    9:34pm
    The Government is still using the flawed excuse by the wealthy that without negative gearing , the renters will be in trouble .
    In fact after a short period of adjustment it will improve the chances for low income earners to purchase a home as prices will be more affordable nor will there be a dramatic drop in housing availability for renters as the same numbers of houses will be in existence and be occupied by renters or owners . There will be no magic disappearance of houses as the Government scare tactics want us to believe .
    By also stopping the foreign investors , who should not be in our domestic market at any time , we will see a return to a healthy and affordable market without vested interests spin .
    TREBOR
    11th Apr 2017
    10:24pm
    If the investors drop out of the market, it seems to me that the prices will fall and the homeowner breed might get a chance for a change.

    Also the idea of a reciprocal rule sounds good - if we cannot buy a home in your country, you cannot buy a home here.

    This country must be viewed by many out there as just ripe for the plucking.... with a government always prepared to drop its drawers and point it ass to the sky for them....

    11th Apr 2017
    11:39pm
    Are house prices rising everywhere in the world

    U.K.
    Canada
    Singapore
    New Zealand

    Yes even in countries with no negative gearing

    So suck it up sunshines

    It's market forces and general increase in wealth that's causing price increases
    Oldman Roo
    12th Apr 2017
    12:28am
    House prices have been gradually rising in most countries ever since the end of World War 2 ,but the phenomenal rises we have experienced in Australia over the last few years are way above those of any countries .
    It defies our general decline in productivity as the record low interest rates clearly demonstrate .
    We are experiencing a politically manipulated market force that is not in the best interest of Australians generally .
    I can certainly tell where you are coming from and may add , the general increase in wealth is isolated to the wealthy only and regrettably we have a Government that likes to see it that way .
    Rae
    12th Apr 2017
    8:57am
    Not to mention that lazy $60 trillion created and thrown at banks by Central Bankers terrified the bubble will burst taking all that "wealth" with it. That wealth is someone else's debt and liability.
    Not politically manipulated as the Central Banks are private organisations with licence to create money.

    There has been no decline in productivity but the companies are simply taking all the profits. They won't share with us. Neither by lower prices, fair payment of taxes or increasing wages.

    Over 150% increase in productivity and still prices and fees rise and wages are cut.Retirees incomes are cut as well. Property currently returns 1.75% after costs. Bank interest and bond yields are dismal and unsafe and the share markets everywhere over valued with little room for growth.

    The profits are sitting on balance sheets, paying down debt, buying back shares , increasing bonuses and dividends.
    Making those at the top feel "wealthy".
    It is not being invested and certainly not increasing employment. Banks are once again shutting branches all over the place. Selling off the property at high prices while they can. Can't blame them.

    This has happened before and only ever ends badly.

    Check out your history. People do keep making the same mistakes over and over again.

    About every 60 years so we are overdue a very large correction to mean.

    And that destroys "wealth". An illusion at the best of times.

    In seconds a million is 12 minutes, a billion is 32 years and a trillion is 32000 years.

    so the 30 million odd people here now owe almost 1.5 trillion. There is no wealth, just a lot of debt.
    Anonymous
    13th Apr 2017
    7:01am
    House prices in Australia haven't risen all that much really. The rise has been in specific cities. Sydney and Melbourne prices have risen at crazy rates, but Barnaby Joyce is actually correct. We don't have a housing affordability crisis in Australia. We have a housing affordability crisis in Sydney and Melbourne and other specific areas of Australia. Housing in many areas is far more affordable than it has ever been.

    There's no way to get the solution right when the problem is incorrectly defined. I'm not suggesting everyone should have to move out of Sydney to afford a home. That's not a workable solution. But neither is it practical to look at the issue as a nation-wide problem when in fact it isn't.

    There are other aspects to the problem. Today's young folk have far more extravagant expectations in relation to housing and in relation to general living standards than our generation did. Look at them in the food courts! Check out where they holiday. They spend up big on leisure, spend far less on necessary furnishings, appliances, clothing etc. and cars - all cheap as chips compared to decades ago - and then want brand new brick and tile 4+ bedroom, 2+ bathroom, rumpus and double-garage, often landscaped and with back yard pool, as their first home.

    If we conducted an HONEST examination of who can't afford a home and why, and then compared with a generation ago, I think we'd be surprised at the results.

    Buying a home in inner Sydney was never an option for the majority of working Australians. If you had to work in Sydney, you opted for the less appealing outer suburbs and commuted. Maybe you have to go further out today. Or maybe you have to choose between the high-paid city job and owning a home? I agree the high prices in some areas are a problem and it would be great to be able to fix that problem, but let's not confuse it with a nation-wide problem because houses are HIGHLY AFFORDABLE in a vast number of areas of this country. $300,000 buys a very good home in most parts of New England. The average home price in Tweed Heads region is $550,000.
    Farside
    13th Apr 2017
    7:45am
    @Raphael asks "Are house prices rising everywhere in the world"? The answer is no.

    In USA house prices fell from 2006 to 2014 or so and despite recent recovery remain about 20% below the 2006 peak in real terms. I was chatting a few days ago with a lady who walked away from her Californian home she had purchased for US$320,000 ten years ago when the value dropped to less than half that amount while still having a loan balance near US$200,000.

    House prices in Japan have fallen consistently since 1990.

    Houses in Germany have fallen 10% in real terms over the last 30 years largely due to government policies that favour renting over purchasing.
    (https://www.forbes.com/sites/eamonnfingleton/2014/02/02/in-worlds-best-run-economy-home-prices-just-keep-falling-because-thats-what-home-prices-are-supposed-to-do/#a2882786ad07).

    Even in Australia there are numerous past and present examples of falling house prices e.g. Melbourne in the late 80s, early 90s. I have relatives in Perth and Darwin who have properties on the market below their purchase price. Prices for homes in the towns linked to the resources industry in central Queensland and the WA Pilbara have fallen dramatically since 2012.
    Retired Knowall
    16th Apr 2017
    7:22pm
    Back in 1982, the ABS Survey of Income and Housing revealed that 168,000 or 10% of home buyers spent more than 30% of their gross household income on housing costs. Nearly 30 years later in 2011 these numbers had soared to 640,000, equivalent to 21% of all home buyers.

    The trends in housing cost burdens reflect rising real house prices. The history of house prices over this timeframe is one of booms in which real house prices escalate to higher levels than they peaked in the previous boom. Periods of house price stability punctuate these booms, and give household incomes some breathing space in which to catch up.

    But at each peak in house prices, household incomes have fallen further behind. According to the same ABS data source, households in 1990 on average valued their homes at a multiple that was four times their average household income. By 2011 this multiple had climbed to nearly six times average household income.
    Farside
    16th Apr 2017
    9:36pm
    @Knowall, interesting data especially when overlaid with the prevailing economic conditions. In the past borrowers could at least rely upon inflation and growth in real wages to take the sting out of loans but that is a different proposition in today's low inflation, low growth, high uncertainty environment.

    I recall my first home loan was capped at one-third of my take home pay and then being astonished in the early 90s when the bank was pushing to lend so that repayments were nearer half my take home. My first house cost around 3x average weekly earnings in 1982 ... those were the days.
    Farside
    12th Apr 2017
    10:08am
    If the government is genuinely concerned with housing supply then it can always impose policies that are specifically unfriendly to investors and provide owner-occupiers and first homeowners with increased chances to buy. Probability of this happening, nil.
    niemakawa
    12th Apr 2017
    2:32pm
    Abolishing negative gearing will not have the desired effect as espoused by so many here. Investors will take their money and invest in other assets. Prices may fall, for a while, but not over a sustained period of time. Owner occupiers may take up the slack which will lead to a drop in rental properties. The housing stock itself will not increase and those that rent may be forced out of their homes and for those that have no other means but to rent will find the housing stock somewhat diminished. The demand for rental properties will outstrip supply, so the inevitable will occur, increases in rents.
    Farside
    12th Apr 2017
    3:00pm
    The growth in the number of households has more than doubled the growth in population over the last 100 years. Abolition of negative gearing will reduce competition for available supply from investors, who make up 75% of property loan applications, enabling many renters to become owner-occupiers. Many of those with negatively geared vacant properties (I understand this is the case with many apartments) will opt to offer them on the rental market. You may see some increase in average household size due to sharing and beyond that the normal laws of supply and demand will kick in without the distortion of negative gearing (and hopefully the capital gains discount). You see the cycle magnified in the mining towns ... demand greater than supply, rent goes up, attracts more investors to build using commercial loans, supply goes up, rents come down ... such is life.
    niemakawa
    12th Apr 2017
    3:12pm
    @Farside. You seem to know that many apartments are unoccupied, so if this is the case the local council or government would surely know this also. The Government could introduce a "deeming" rate of rental return on such properties Negatively geared only) which would decrease the offset for expenses.
    Farside
    12th Apr 2017
    3:19pm
    For sure, a deemed vacancy tax could influence whether an investor decided to leave a property vacant or pay the tax; tax is high then investor likely to rent, tax low then more complicated depending upon borrowings etc and whether investor wants to recover cost of outgoings. The effectiveness of this policy lever is in government hands.
    niemakawa
    12th Apr 2017
    4:30pm
    @Farside. I find it very unlikely that an investor would not want to recover costs of outgoings. A deeming rate could be applied regardless and considered as income. They can chose whether or not to claim expenses to reduce their taxable income. I recall the Labor Government in the 80's abolished negative gearing which was abandoned in a very short time as that policy had a detrimental affect on the availability of rental properties. Better not to "bite of ones nose to spite one's face" so to speak. An orderly approach is needed not a gang-ho one. Unfortunately modern politicians find it difficult to see past the next election.
    Farside
    12th Apr 2017
    5:55pm
    Firstly, the Hawke government did not remove negative gearing in 1985. It quarantined rental property losses to property income (something I still advocate) however, it generously allowed "losses could be carried forward to offset against future rental profits and reduce taxable gains made from other rental properties." Its reinstatement in 1987 was a win for noisy vested interests and a mistake; something they now freely acknowledge.

    Research shows the removal of negative gearing was not responsible for rent increases or availability despite the claims to the contrary. Rents only increased in Sydney and Perth, where the vacancy rate was 1% and 1.4% respectively . If the abolition of negative gearing was responsible then rents should have risen everywhere (since negative gearing was available everywhere).

    Independent economist Saul Eslake, found that the removal of negative gearing in the mid-1980s did not increase rents.
    https://www.documentcloud.org/documents/2071570-saul-eslake-affordable-housing-inquiry-submission.html

    ABC Fact Check reached the same conclusion after conducting its own research. http://www.abc.net.au/news/2015-05-06/hockey-negative-gearing/6431100

    Those analyses completely undercut the property industry's primary claim that removing negative gearing would hurt tenants more than landlords by pushing rents higher. Further, ABS statistics show that less than 10 per cent of investor loans are going to people planning to build or buy newly built dwellings. Negative gearing is simply giving investors a leg-up to outbid owner-occupiers for existing dwellings, pushing up the general level of home prices.
    niemakawa
    12th Apr 2017
    6:00pm
    @Farside. Do you truly believe and expect rents to drop even with changes to or even the removal of negative gearing ? I do not . Please answer yes or no, without qualification.
    Farside
    12th Apr 2017
    6:28pm
    Yes, rents can drop with a change in circumstances. For example, rent of the house I leased in central Queensland was $700/week two years ago, down from $1200/week only a year before and is now available at $400/week.
    niemakawa
    12th Apr 2017
    6:38pm
    @Farside, because there is an over supply of rental properties. Supply and demand will always have an affect on prices in a capitalist economy. Where there is strong demand of course rents will be higher for properties negatively geared or not. Government intervention only distorts this phenomenon.
    Farside
    12th Apr 2017
    6:43pm
    so we agree rents can fluctuate in a market driven economy and such fluctuations can be distorted, moderated or exaggerated as a result of government intervention.
    niemakawa
    12th Apr 2017
    6:57pm
    @Farside of course, but it will also have a detrimental affect on the economy across a number of sectors. Leave it to market forces that will provide the best results even renters. Surely market forces caused the large drop in rents in central Queensland. How has that affected the local economy there? Are people renting these properties if not why not? Who are the winners from this?
    niemakawa
    14th Apr 2017
    12:16am
    GST is not levied on rental income on residential properties. So for non-residents who invest in residential properties in Australia the Government could charge GST on the rental income. This may deter foreign investment in the local property market.
    maxchugg
    14th Apr 2017
    11:24am
    The hysteria over negative gearing is ill informed.
    If a person who invests in the purchase of a rental property is permitted to claim as deductions on his income such expenses incurred in owning the house, such as rates, insurance, maintenance, etc. why is it not reasonable for him to also claim the expense of the interest on the loan he has taken out to purchase the property?
    I am totally sympathetic with those who are struggling to purchase their own homes, and even more sympathetic with those who have to pay rent, but the removal of negative gearing will force rents up even more, thereby further reducing the ability of tenants to ever save a deposit for their own homes.
    And the benefits of negative gearing are only temporary. When the loan is paid and negative gearing ends, the effect is greater income causing the landlord to catch up on the taxes he has previously avoided.
    If the landlord continues to amass property, eventually he will pay through capital gains tax.
    Personally, when I was a landlord and enjoying the benefits of negative gearing, I was particularly careful in the selection of tenants. I always charged less than the prevailing rates on the understanding that the tenants would take good care of the property, an arrangement that was mutually beneficial.
    Unfortunately, with the arrival of political correctness I found that my rights to choose my tenants had been so seriously prejudiced that I decided to quit the market altogether and disposed of the rental property that I had owned.
    Farside
    14th Apr 2017
    12:10pm
    @maxchugg, what hysteria are your referring to? It would be arrogant to suggest all of those who have spoken out against negative gearing are ill-informed ... Grattan Institute, Reserve Bank, Deloitte Access, Saul Eslake, CPA etc
    maxchugg
    14th Apr 2017
    12:36pm
    O.K. Farside, maybe I should have used a different word to "hysteria" even though it means "an uncontrollable outburst of emotion or fear, often characterized by irrationality, laughter, weeping, etc"
    I would argue that endless, practically one sided comment on the matter of negative gearing in news reports and media statements is indicative of irrationality.
    Negative gearing has been present for many years here and overseas and to remove it would be a social experiment potentially dangerous for people renting as they attempt to raise a deposit for the purchase of a house.
    I would be willing to have a substantial bet that all of those you nominate are owners of their own homes, in experience far removed from the majority who are less fortunate.
    Farside
    14th Apr 2017
    12:50pm
    @maxchugg re "remove it would be a social experiment potentially dangerous for people renting as they attempt to raise a deposit for the purchase of a house." - why? More than 90% of negative gearing is for existing property rather than new construction and does nothing to increase supply for renters. Even so, re the 10%, it's removal in the past had limited influence. Subsequent increased rents in Perth and Sydney had more to do with tight supply and vacancy rates under 2% rather negative gearing. If it was due to negative gearing then it would have been reflected nationally.

    Many countries, notably Germany, do well with a rental mindset and regard property ownership as an investment choice.
    Misty
    14th Apr 2017
    1:33pm
    Maxchugg, the UK and the USA don't have negative gearing and they seem to manage ok.
    maxchugg
    14th Apr 2017
    1:45pm
    Farside, I repeat that benefits obtained by those who use negative gearing are of limited endurance and in the longer term the taxation revenue lost is eventually recovered when the loan on the property has been paid out and personal taxable income of the landlord.
    The more that rents can be lowered the faster the tenants are able to save a deposit for their own homes which does create a demand for new housing. Greater releases of land by governments to restrain land prices and the provision of adequate transport infrastructure to new subdivisions would effectively increase new home construction.
    A problem landlords face is that by accepting a lower return in exchange for care of the property, the tenants are able to raise a deposit for their own homes more quickly. In my own case it was apparent that when my existing tenant left my right to choose was severely restricted. This caused me to decide to sell the property because of being unable to reduce the risk of property damage by careful choice of tenants.
    An additional problem was that massive cost increases were about to force up the amount of rent I charged. Changes to land tax alone would have compelled me to raise the rent I charged by at least 50%.
    The best way to downscale negative gearing is to create a situation where home ownership increases and demand for rental properties decreases. A good starting point would be to reduce governmental greed in such areas as stamp duties and the cost of red tape.
    Governments could facilitate home ownership by releasing more land for development and reducing or eliminating charges which force up rents and disadvantage prospective home buyers.
    Massive costs and inconvenience resulting from the amount of red tape now faced by builders is driving many out of the industry which reduces competition and raises prices. Recently I was involved in the construction of a large deck. Costs for material and red tape were almost equal, around $10,000 for each.
    maxchugg
    14th Apr 2017
    1:59pm
    Misty, I have little knowledge of housing costs in either the U.K. or the U.S.A.
    I understand that in the U.K. public ownership of housing is substantially less than in Australia and rents are generally subsidized, likewise Holland where the subsidy is affected by levels of income. I would suggest that in these countries rental subsidies have a greater impact upon the revenue than does negative gearing in Australia.
    As for the United States negative gearing is practiced to a far greater extent than in Australia. According to Wikipedia, "The largest housing subsidy in the US is the home mortgage interest deduction, which allows homeowners with mortgages on first homes, second homes, and even boats with bathrooms to lower their taxes owed."
    niemakawa
    14th Apr 2017
    2:17pm
    @misty et al . Maybe you would care to read this .

    https://www.macrobusiness.com.au/2015/07/uk-government-restricts-negative-gearing/
    maxchugg
    14th Apr 2017
    3:19pm
    O.K. Niemakawa, I have read the article.
    Britain is making adjustments to the system of taxing rental income with losses incurred by interest payments carried forward and eventually offset against capital gains when the property is sold.
    All that means is that the losses caused by interest payments are simply recouped at a later date when the property is sold. The effect is the same, interest payments eventually wind up as deductions against rental income.
    We wait to see if the new system will force up rents as investors seek to maintain their income by raising rents, which is a very likely outcome.
    niemakawa
    14th Apr 2017
    3:31pm
    @maxchugg. Rents will definitely increase that is certain. Even if some investors abandon the rental market and sell up who will buy these properties? And how will this help renters? Most Government charges, at all levels, increase year in year out at above inflation rate, so these charges need to be recouped by investors.
    niemakawa
    14th Apr 2017
    3:52pm
    http://www.abc.net.au/news/2016-04-29/potter-negative-gearing-helps-poorer-people-most/7369604
    maxchugg
    14th Apr 2017
    4:00pm
    Niemakawa, if property investors begin to quit the market and sell, supply will increase so prices might fall provided the slack is not taken up by foreign buyers. But it is more likely that landlords would not sell because of the loss of negative gearing. They would be more likely to hold onto the property, increase rents and still have the benefit of capital gains.
    And you expose the hypocrisy of governments bleating about their new found concerns for people locked out of the unaffordable property market by commenting that charges rise faster than inflation. This cannot do anything other than to cause rents to also rise faster than inflation.
    In the end we have a double edged sword. Higher rents means that people have to stay longer in rental accommodation and as they delay purchasing property prices rise and property becomes even more unaffordable.
    maxchugg
    14th Apr 2017
    4:43pm
    Boof, I have given a number of reasons why negative gearing actually restrains rent increases.
    My arguments are there for you to read. If you can find anything wrong in what I have written, go for it!
    niemakawa
    14th Apr 2017
    5:10pm
    @maxchugg. Yes you are probably right in your assessment. Let's say negative gearing is abolished and rents remain the same or increase. A decrease is unlikely except where market forces dictate. What will the Government do with the extra revenue ? Will it assist renters, those that are receiving a Centrelink benefit, through increasing the rent allowance?. Will it provide (further) assistance to first home buyers ? Stamp duty is levied at State level. If my memory serves me right when the GST was introduced by the Howard Government, it was intended to replace all State charges such as stamp duty. Hasn't happened yet as far as I know and unlikely to do so. One of the problems in Australia is there are too many layers of Government all extracting money from everyone. Release of land is controlled by one form of Government or other. Rates are levied by local councils.
    maxchugg
    14th Apr 2017
    6:06pm
    Niemakawa, now we are in total agreement.
    The government is currently shedding copious amounts of crocodile tears about the increasing unaffordability of private home ownership, yet they are the primary cause of the problem.
    Your comments about the effects of the GST, so different from what was promised are also spot on.
    I also agree that a decrease in rental costs without the intervention of market forces won't happen simply because of the lack of appropriate action by government in the form of increasing both supply and competition.
    Local councils also need to be brought under control. At present it is simply too easy for them to do a budget, work out how much they want to spend, then set their rates accordingly. What should happen is that rate increases should not be allowed to exceed the CPI without a very good reason.
    Old Geezer
    14th Apr 2017
    7:50pm
    Even if landlords don't sell just the lack of new landlords will soon create a shortage due to population increase which will see rents skyrocket. The building industry will stop building them as people no longer want to buy rental properties. It has all happened before and it's not good especially for those wanting to find a place to rent.
    Farside
    14th Apr 2017
    11:39pm
    @OG - you're dreaming. Renters will absorb the vacant properties as they come onto the market. Growth in households has grown twice the rate of growth in population but this is unsustainable and we will see a return to increased average household occupancy, Cities cannot continue the cost and waste of urban sprawl and need to redevelop existing urban density.
    Boof
    14th Apr 2017
    4:25pm
    Get rid of Negative Gearing. It's gr8 for the people who do it. But. They want renters' to pay for their extra properties as well as make lots of money for them, by ordering their Realty Agents to put up the rent every six months. It has to end.
    Old Geezer
    14th Apr 2017
    7:45pm
    Yes get rid of it and those rent rises will skyrocket as demand for rentals outstrips supply. Owning a rental property is only just viable now but takeaway negative or rather positive gearing and it won't be worth owning the property unless rents increase to cover the difference it makes.
    niemakawa
    14th Apr 2017
    9:52pm
    @OG . The Government has made a right decision in this case not to touch negative gearing in the upcoming budget.
    Farside
    14th Apr 2017
    11:32pm
    Negative gearing on existing property is a crock that distorts the property market.

    It is a fantasy that rents will skyrocket while there is a surplus of vacant properties. Investors will be replaced by owner occupiers reducing the numbers competing for rentals. They did not skyrocket in 1987 as widely claimed by vested interests and most informed observers see its removal as a good thing for renters.

    Even if it eventuates the present oversupply is not as large as widely anticipated, there are sufficient policy and regulatory levers available to Governments to moderate and restrain increases.
    niemakawa
    15th Apr 2017
    2:12am
    @Farside, so you are saying that with the removal of negative gearing equilibrium will see those that want to buy can do so readily and renters will have a wider choice at lower costs, with less competition. Fantasy at its very best I would say.
    Farside
    15th Apr 2017
    9:52am
    @niemakawa, history and economics are on my side so time will tell. Supply of vacant properties is not the issue so rents are not going to run away if the present wealth driven investor incentives are replaced with ones that favour urban renewal and new residential construction. Investors using negative gearing are largely ignoring new construction and so not adding to supply. Rather they are being driven by a busted tax system to invest in property rather than productive capacity and infrastructure.

    The sooner government repairs the tax system to eliminate cross-subsidisation of investors by middle and lower income wage earners the better. I just do not understand why ordinary wage earners are so placid and willing to pay higher taxes than they should in order that wealthy investors can game the system and exploit their less well off neighbours.

    http://thenewdaily.com.au/money/finance-news/2017/04/14/rich-investors-tax-bill/
    niemakawa
    15th Apr 2017
    7:07pm
    @Farside. Rather than remove negative gearing altogether the Government should consider a separate tax regime for all property investors. A separate tax return to be completed. There must remain some incentive for property investors.

    1. Say 20% tax on net income after allowable expenses.
    2. Say 10% tax on gross income where the investor has opted not to claim allowable expenses.
    3. Say 5% tax on gross income where there is a net loss. Losses not carried forward.
    4. Say 5% tax on deemed gross income where a property has remained vacant for more than 6 months in any one year.
    Farside
    15th Apr 2017
    7:41pm
    @niemakawa, I don't agree wealthy property investors need special treatment from the government. My position may have been different if we had a cadastral income system or investors were investing in new construction but for now the vast majority of property investors are gaming the tax system using existing residential properties. Investors have done the property market, and especially first homebuyers, no favours over the last 20 years or so except to inflate housing values like a giant ponzi scheme. Naturally those of looking to downsize thank them for that but it has not been good for the community.

    A property investment is exactly that, an investment, and should be treated like other infrastructure investments. Accordingly it should make a long term return consistent with other infrastructure investments (say 2% over CPI).

    I have said previously I don't think negative gearing should be removed altogether however I do think negative gearing should be restricted to the class of asset similar to how the Labor government proposed in 1985 e.g. carry forward accumulated operating losses including depreciation over 30-60 years could be applied against capital gains upon sale.

    I also favour a land taxes (as a efficient and largely unavoidable tax and essential part of overhauling the tax system) and vacancy taxes (to encourage occupancy) but that is another story.
    niemakawa
    15th Apr 2017
    8:57pm
    @Farside. Try North Korea you will probably find that to your liking. A society where everyone is treated the same and the wealth is evenly spread.
    Farside
    15th Apr 2017
    10:25pm
    @niemakawa, NK really? That is the best you have? I don't think my preferences for economic determinism, fairness and social responsibility would be acceptable in NK. I am unsure if NK is even your cup of tea although your support for haves to exploit have-nots suggests maybe you should be looking a little closer to home if anyone should go there.

    By the way I suspect you will find treatment and wealth are not evenly distributed in NK.
    niemakawa
    15th Apr 2017
    10:39pm
    I prefer to live in a capitalist economy where everyone has the opportunity to become a "have" . Unfortunately in Australia there are too many "have nots" because of their own volition . They complain incessantly as if it is not their fault, when obviously it is. Australia is in reality a socialist country bordering on communism where those that contribute most through shear endeavour are expected to support the undeserving in our society. In some way I hope the Government does remove negative gearing as a form of tax break. One that actually brings so much benefit to renters and those that aspire to own their home. It will prove the points that I have made, investors will go elsewhere as they should and most definitely will do so.
    Farside
    15th Apr 2017
    11:07pm
    ok so your gripe is you think Australia is a socialist bordering on communist country with social safety nets that you disagree with. If that were true, what's keeping you and the other oligarchs here when the USA is more to your liking?
    maxchugg
    15th Apr 2017
    11:33pm
    I'm wanting to exit this argument, but I repeat the point I made at the beginning.
    If I take a loan and buy a business, I can deduct the cost of the interest payments from my gross taxable income.
    Surely the purchase of a rental property is a business decision, so why should the taxation arrangements be any different? I don't see anyone arguing that land tax, rates, insurance, maintenance expenses etc. should not be deductible, so why the special treatment for interest expenses on rental properties?
    Landlords are not harming the economy, in fact the opposite. As soon as they pay out their loans the tax deduction for interest costs ceases, taxable income rises and attracts additional tax.
    Unlike the owners of residential properties, rental properties attract a capital gains tax, hence more revenue for the government.
    Finally, think about this:
    Alf bought a house for $1 million. Bill bought a rental property and his residence for $500,000 each. Alf and Bill both die on the same day and it is discovered that inflation has pushed the value of both properties up by 50%.
    Alf's $1.5 million property is handed over to his estate intact, so does Bill's residence. But Bill's estate will have to pay tax on the capital gain of the rental property.
    The arguments for scrapping negative gearing are based on nothing more than the politics of envy, are out of step with most of the world, and if achieved, will increase rents and further disadvantage people who are attempting to save a house deposit while they pay rent. That task is already extremely difficult, why make it worse?
    niemakawa
    15th Apr 2017
    11:45pm
    @Maxchugg @ Farside. I agree. People like Farside are offside and have no real concept of reality, but tend to live in a Utopian world.
    Farside
    16th Apr 2017
    12:13am
    @maxchugg and niemakawa, the problem is your views are based on false premises.

    The rest of the world largely quarantines negative gearing losses to the class of income. Australia’s negative gearing policy is one of the most generous to property investors in the world under our progressive tax system where it disproportionately rewards the highest income earners. Among the OECD only USA, Japan and NZ have similar treatment to Australia.

    For instance the UK applies strict quarantining rules to loss-making properties. Investment property losses may be applied to the pool of income from investment properties and carried forward, but the losses may not be deducted against wages (i.e. non-passive income). In Sweden, tax deductions from negative gearing of rental properties are permitted (although quarantined with income from other capital assets), but imputed rents from owner-occupied housing are taxed. The US allows interest deductibility for both investor and owner-occupied property.

    The Financial System Inquiry Murray Report concluded negative gearing on residential property encouraged over-investment and over-leveraging in Australia’s housing market.Reality?

    The Henry Review recommendations for a “fairer” and more efficient housing market included the removal, or reining in, of negative gearing. Reality?

    Using Max's example, Alf has maximised his situation by living in his property and presumably taking a government pension while Bill has taken responsibility for himself and used his assets to help fund his retirement. Bill then gets hit for capital gains tax on his investment property. Which of the two has been the greater burden on the community?

    I would rather see investors invest in future prosperity and opportunities rather than locking out first homeowners from the property market. Negative gearing on property was introduced to increase housing supply and, importantly, the stock of rental housing. It has not achieved this basic aim and should be put to pasture to curb the negative consequences.
    niemakawa
    16th Apr 2017
    12:40am
    @Farside. You have made many contradictions in your numerous posts. Go back and review them. The progressive tax system is actually regressive as it stalls and prevents investment across all sectors not only property investment. There is no logical reason to extract higher taxes from those that actually keep the wheels turning.

    A flat rate of tax no more than 15% on all (business or individuals) income from the first dollar, no exceptions. ( there are no poor people in Australia) plus a tiered GST system will bring forth a better result for all. Everyone must make a contribution.
    Farside
    16th Apr 2017
    2:54am
    @niemakawa, negative gearing combined with the progressive tax system and its comparatively low increments affords high income earners a greater tax advantage - no contradiction there. I also have no issue with applying c/fwd undeducted expenses to capital gain upon sale - timing difference, no contradiction there.

    I have said many times I think the current system is broken and requires an overhaul. The revised system must above all be effective, sustainable and fit for purpose. It should be efficient and simple to understand, discourage tax avoidance and transfer pricing, and easy to enforce.

    I don't know what sort of result your ideology would produce as I have not seen the modelling. Certainly flat tax gets a big tick in the simplicity box however those countries that have implemented one have discovered other problems like generating sufficient tax revenue. It all depends upon the rate and the indirect taxation.

    Flat rate tax clearly favour the wealthy. It tosses out the capacity to pay social contract that provides Australia with its envied quality of life. Essentially a flat tax regime ensures the same expenses for the wealthy represent a lower proportion of their income than they do for the less well off. For example essential items, state levies, charges, fines and penalties become proportionately cheaper for wealthy people. If there is a safety net allowance to compensate then maybe there is further merit.

    Fairness demands additional changes if a flat rate or proportional tax regime is adopted. Basically it comes down to the sort of society you want to live among.
    maxchugg
    16th Apr 2017
    9:10am
    Farside, one of the reasons why Australia has an envied way of life - if it really does - is attributable to the fact that we live under the Westminster system of government where one of those rules is that the more you earn the more you pay. The fairness in this system comes from the fact that ability to pay is taken into account, which you have acknowledged.

    Niemakawa is also correct in arguing that a progressive tax system can act as a disincentive, the obvious choice is to attempt to take a middle position which provides maximum assistance to those on low incomes yet still is the least possible disincentive those who create employment. Obviously the government has come to accept the validity of this argument and is taking corrective action.

    You keep saying that the current system is broken, worse than overseas, but the evidence points in a different direction. I have already shown that a landlord pays more tax than someone who has purchased a luxury home. Your idea of quarantining the effects of negative gearing until a liability to pay capital gains tax has a serious flaw in that it will cause rents to rise.

    In the years immediately following the purchase of a rental property income is often less than expenses which puts pressure on landlords to raise rents whether they want to or not, this is not theory, it is personal experience. Further pressure comes from the actions of governments by way of increasing existing charges out of all proportion and inventing new ones unforeseen when the property was made available.

    But you overlook the major disincentive to those who consider putting rental property on the market, and that is the loss of ability to choose your tenant. It matters not in which state you live, take the time to discover the cost of repairs to publicly owned rental properties, it is simply horrendous. Governments might be able to cope with these costs, a private individual has no hope, and one bad tenant could cause bankruptcy.

    I repeat that the only sensible approach is to make land more affordable and to ensure that new subdivisions have adequate transport infrastructure. Supply of new housing could also be encouraged by removing the mass of red tape which has been introduced for no apparent reason.
    Farside
    16th Apr 2017
    9:09pm
    @maxchugg - there are many reasons why I believe the current tax system to be broken - complexity, over-reliance on direct taxation, raises insufficient revenue, easily exploited, bracket creep etc.

    I agree a progressive tax regime can be a disincentive if the rates are set too high. I remember 60 cents in the dollar rates and aware of even higher overseas.

    History and experience shows that quarantining negative gearing has negligible effect upon rentals. The reason rents rose in Perth and Sydney in 1985 was due to unusually tight supply at the time. In the years since investors have done relatively little to expand supply of rental properties with most investment money going into existing properties.

    You say the major disincentive to rent properties is the inability to choose your tenant. This may be true however it has little to do with tax treatments or financing. If the right to choose is important then that is what should be argued. As a matter of interest, why do you say landlords cannot choose tenants? This was not my experience when renting properties (in WA) or recently looking for rental property (in Vic). Can't say about red tape as have no experience with that but can't say it has been hard to buy, sell and build residential properties in the past 12 months.

    I don't agree with the notion of infinite sprawl of major cities into the surrounding green belts and agricultural land. It is wasteful of existing infrastructure like parks, schools, community buildings etc and expensive to provide adequate new infrastructure. I prefer to see urban renewal with increased diversity and densities so that maintenance and expansion of existing infrastructure is more cost effective.
    maxchugg
    17th Apr 2017
    9:17pm
    Farside, you better move to Holland, they really pack them in there.
    While you may be correct if you want to argue that landlords do not directly increase the amount of available housing, they do indirectly have this effect when people live in rental accommodation while they save to purchase their own homes.
    You say that it may be true that inability to choose a tenant is a disincentive, I can tell you that it was the major reason why I got out of the rental market.
    I think I previously explained why it is becoming hard to buy, build or sell residential properties. Prices are being pushed out of reach by the average person as a result of land costs and the burden of red tape which has caused so many builders to get out of the industry. There can be only one outcome. Demand exceeds supply so prices rise.
    inextratime
    18th Apr 2017
    11:44am
    Of course he ruled out negative gearing. Why would anyone who has the ability to negatively gear and make money out of something as unproductive as housing, chose to revert house purchase back to the free economy ?with out government interference when 90% of politicians have negatively geared property. Its called corruption in many countries.
    maxchugg
    19th Apr 2017
    1:16pm
    This argument proves nothing, singling out politicians does not add to credibility.
    First of all, if politicians purchase property, it is more likely that, on their salaries, they would own them outright, so negative gearing is not an issue particularly as increased taxation through increased income is assured.
    If a loan was taken, like other expenses, interest payments will be deducted from annual returns from the property if it is rented out. The interest paid goes into circulation and contributes to the economy. When the loan is paid out increased taxation returns from increased income will sooner or later offset any benefits obtained through negative gearing.
    Negative gearing cannot be used on a property which does not produce income, a holiday home, for example, but capital gains tax would apply when the property is sold, at which time capital gains tax will further add to the revenue.
    And how can the legitimate of negative gearing be corruption? Surely politicians have the same rights as everyone else.
    The ongoing attacks on negative gearing are a storm in a teacup, there are much more important issues which should be of concern at this time.