Negative gearing: Sorting the facts from the fiction

John Daley  and Danielle Wood of The Grattan Institute argue that negative gearing and the capital gains tax discount are expensive, inefficient and unfair. These concessions have increased speculative activity in housing and reduced home ownership.

They also argue that the top 20 per cent of income earners claim almost 70 per cent of the tax benefits of negative gearing. And taxpayers with incomes of more than $80,000 capture 75 per cent of the capital gains.

 Joe Hockey was only partly right when he said that “The starting point for a first home buyer is to get a good job that pays good money,” It’s also the first step toward being able to negatively gear an investment property. Like Joe, with a $3 million home in Sydney, a number of investment properties, a parliamentary pension, an ambassadorial salary and living rent-free in Washington.

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The Parliamentary Budget Office estimates Labor’s plan that could raise an addition $32 billion over the next decade.

Peter Martin writes “Treasurer Scott Morrison told Sydney radio station 2GB on Monday that two-thirds of the people who use negative gearing currently have a taxable income of $80,000 or less,”

The figure of $80,000 is what two-thirds of the people who use negative gearing manage to reduce their taxable income to as a result of negative gearing. Before negative gearing, their incomes were higher, in some cases far higher.

The same figures show an astonishing number of negative gearers report taxable incomes of $10,000 or less.

Labor has dug into the same figures and discovered that 64,000 negative gearers report taxable incomes of less than zero. No one, certainly not the Treasurer, would believe they actually earned less than zero.

Peter Martin concludes that  “There may well be good arguments for retaining negative gearing. The apparent poverty of negative gearers is not one of them.”

Not only do the tax breaks  related to negative gearing favour the wealthy, they  also disadvantage younger taxpayers.

Tax breaks on investment properties and superannuation are costing the budget nearly $40 billion a year with almost none of the benefits going to the under 30s, who remain locked out of the housing market, according to new research.

This is because the benefits of negative gearing drive provide a benefit for landlords while driving potential first-time buyers  out of the housing market.

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So why is the government so reticent to challenge the right of this group, who already earn far more than the bulk of the population, to have their incomes subsidised by everybody else?

The government is running a deficit each year and that deficit is increasing.  Government debt is now running at around about $40 billion a year.  Strangely, that is about what negative gearing is costing the Australian tax-payer each year.

The Labor plan will rein in that debt to the extent of $3 billion a year. Not enough to bring the budget back into the black. It’s simply not enough to make  much of a difference.

The question for the Australian electorate is “Do we want to continue  to increase the government deficit by  subsidising the incomes of the wealthiest Australians?”

It would appear that  both major political parties think that the answer to this question is a resounding Yes.

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