The equity test for Hockey’s next budget

In an article in The AgeJohn Daley, CEO of the Grattan Institute, argues the case of the abolition of negative gearing.

The argument comes in two parts. The first is that it is massively inequitable with  the top 2% of taxpayers claiming 50% of the deductions. The second is that the argument that negative gearing increases the housing stock is a furphy as very little of the money invested goes into new housing.

Daley suggests allowing investors to deduct the expense of owning a property against capital gains when they sell the property. This really  delays the benefit of negative gearing and that delay may be sufficient to deter people from investing in negatively geared properties in the first place.

One good suggestion that Daley makes is to increase capital gains tax on negatively properties from 50% to 100%. This would have a significant detrimental impact on  speculative investment in real estate.

The real iniquity is that taxpayers who are negatively geared can deduct the expenses of losses on properties against their marginal rate which, given that mostly rich people invest in negative geared properties would be at 45%.

One other possibility is to require people who invest in real estate to incorporate so that they can only claim deductible expenses, namely interest-rate payments and repairs, at the company tax rate of 30%.

If the next budget is to meet the equity test, Joe Hockey must show that he is prepared to  tackle the tax benefits of the wealthy rather than simply attack the welfare benefits of the poor.

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