Re: 1 %
From: Sergey Golovin
The reason I think that Negative Gearing is on the way out is (put my researches hat on) -
1. GST - Goods and Services Tax was introduced.
It is changes there to all tax matters we had to have, such as building materials and services - for new homes and old once (renovation). Strong example to it - installed appliances, plumbing products, steel product have fallen considerably - all across the sector (thanks Dave for the HIA report – “Industry Overview”). No more “fat”, everything cut back to the bone. It is slow recovery there, at least for now.
However, the fact is - it is different this days (Wholesale &GST).
2. CGT - Capital Gain Tax has some changes to it, the way it is calculated now (thanks Paul, Dale, T Avery & others). Higher expectations or potentials are eroded (undermined).
3. FHOG - First Home Owner Grant ($7K), FHOG Plus ($7K) and Stamp Duty Exemptions were introduced. It is shift not only in rental Market but also in whole approach to home ownership. Question is how long it is going to be there for? It might stay there for quiet sometime.
All that does suggest that we are moving away from Negative Gearing system.
And I would like to expand on that a bit more.
In earlier days 1 or 2 years ago (even still today) people thought that rent is cheaper option then owner occupy. People prefer to rent then to buy or at least delay purchase of the house for as long as it is practically possible to do so. They will buy something eventually, but maybe not straightaway.
As we all know “Go with Flow” theory is always there. And flow always goes by the way of lesser resistance.
If we can have look at American example – rent is presumably higher then owner occupy. It must be. Just simple logic tells us that it is higher. Lets have look at two examples – same house (and I mean it same house) was sold to the owner (in first case). What does owner pays for after they have settled? It is all usual staff – bank repayments, Council (or equivalent to it) rates, repairs and maintenance, etc.
How does it work in Landlord case? They pay all the above (except probably phone and electricity), no tax deductions or offsets against your salary (thanks Paul for your expertise, great staff, always like your comments) and still have to make sure that it is enough money (profit) there to make living out of it.
Who pays for all that? Well, looks like tenant.
Government does not pay for anything. It is exactly opposite – they charge you for it, you have to pay tax. What are the benefits for the Government in that scenario? Well, they are not responsible for anything. All they have to do is to licence them, collect taxes and keep rent price under control.
Landlord does not (under normal circumstances) pay. Why would you? You are there to run the business not charity organization ( we do need them as well but not in this case).
So, only one party left - is a Tenant. They do pay for everything.
So, assuming all that, the rent is more expensive in that case on weekly and yearly basis.
In our case (back home) with Negative Gearing, Government is always heavily involved in it on all levels.
Would they like to simplify it? You bet…
They have already started.