Abolish negative gearing

Governments need money. That's a fact of life.

Flood levy is a joke but that's one government view point. Compulsory super is another topic, however I agree with it.

Why should all tax payers be subsiding property investor's negative geared properties? At the very least government is not getting income by contuning with negative geraing. I just don't see what the public gets by allowing people to buy property and allowing negative gearing.

As for people who build a new property (and potentially allow more residence) there is a public policy argument for negative gearing for these people, but for established properties, I just don't see the public benefit.

Negative gearing will probably never be abolished as it's probably going to be unpopular.
 
Interest rates that are gearing up time and again with the passage of everyday should also be abolished. what you say about it?

You want 0% rates? That's free rental.

When you rent a DVD, it costs a certain amount for a certain period of time, no different to when you rent $500,000 from a bank.
 
It will increase rents...and see how tenants will like that.
Or it will mean lots of properties for sale, at cheaper prices.

On another note...
We are not permitted long term negative gearing in Canada. Revenue Canada expects us to make a profit, otherwise they can disallow deductions.
We are permitted to deduct certain amount against other income.When it gets to a certain point, we just carry the deductions forward.
 
The only way it'll increase rent is if there are less properties available for rent.

At least in Australia if there are are less properties available for rent, maybe it'll mean there is less demand to buy property, so reduce the increase in property valuation.

I say let's see what happens to the market if negsative gearing was abolished. My point is government will have more income (at least a liberal government as labour will waste it on something) which gives the government more flexibility (IE. reduce taxes, direct spending on importantareas, etc.
 
Okay you all heard pickle pickle, please everybody set your calendars back to 1985 so we can see what happens.

The only thing I see what happened in 1985 is that rent increases were blamed on the abloishment of negative gearing. The studies done about this seem to put a question mark on the fact that this was the case.
 
Why should all tax payers be subsiding property investor's negative geared properties? At the very least government is not getting income by contuning with negative geraing. I just don't see what the public gets by allowing people to buy property and allowing negative gearing.
My view is that the government would be reluctant to abolish it because then politicians would lose the benefits of it too, and politicians are investors and tax payers too. I don't see them changing the rules when it would hurt them financially.

But that's just cynical me.
 
The reason why the Australian Government encourages investment - and actively encourages investing in income producing assets - is simply because the more self funded retirees there are, the fewer pensions the rate payers of the future will have to fund

Never mind about a bit of negative gearing here or there

Current Centrelink payments for a sole Pensioner are $17,118 and for a Couple, $12,903 per annum each

http://www.centrelink.gov.au/internet/internet.nsf/payments/age_rates.htm

Kind of makes negative gearing pale by comparison, doesn't it?

Pensions are means tested, so if during the working life of an investor - of which there are proportionately very few, - salary sacrificing superannuation, buying an investment property, buying shares - can encourage even some of them to be not reliant on the pension the pain now is worth the gain later

Governments tend to know a thing or two.

During the next twenty years the population is going to age suddenly and dramatically. Women will soon not be eligible for the pension until they are also 65.

The number of people fit enough to continue to work full time starts to fall away quite sharply from that point.

All of a sudden, that person is drawing $12 - $17,000 out of the People's Bank of Australia.

If, during their working life, by tax concessions of whatever name, that person had saved eg $100,000 in superannuation (statistically very unlikely) then the claim on the Govt is deferred for a while.

Negative Gearing is not as relevant as it used to be. Tax bracket creep has seen to that. However, if people's perception is that 'negative gearing' will help them buy property with a view to later financial independence why on earth would you not encourage that?

Investing is a means to an end.

The end is a dignified retirement.

Whether it is the low income earner superannuation contribution scheme, or the ability to salary sacrifice, or the opportunity to claim depreciation or to reduce your PAYG taxable income by a few dollars for a few years, it really doesn't matter, provided that the Government can popularise the process and have as many tax payers as possible saving for their inevitable old age.

If anything, Governments are cranking up their tax incentives

If there are 100,000 women in Australia capable of being fully self funded retirees I would be very surprised. There probably are more than 100,000 self funded men, as men tend to have longer working lives with few breaks inemployment and earn about $12,000 per year more than women. $12,000 x 9% since 1989 = $23,760 without taking compounding interest into account t.

If you can increase the number of self funded retirees to eg 500,000 across the Nation you can save the tax payer $85,000,000 per annum in pensions.

Roll on Negative Gearing, I say. Increase the superannuation contribution, make salary sacrificing of voluntary superannuation payments more widespread than just in the Public Service, bump up the $1 for $1 bonus, do anything possible to minimise the burden of our healthy, and long lived Senior Citizens by encouraging all persons to plan, save and invest for their retirement.

I certainly intend to be able to pay for my own dentures and to be able to afford the Roast of the Day on Tuesdays at the RSL.

Negative Gearing has not been of such a great benefit to me but it has been a real help through Mike's PAYG

It has helped our teenage children buy property as it has recycled even the small amount of tax paid through their part time jobs

We must all keep our eye on the horizon. It is the future that matters and the long term financial health of our citizens

Anything else is simply short sighted and pretending that everyone is 'selfish' or earning heaps of money and rorting the system is very far from the truth

Cheers
Kristine
 
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As for people who build a new property (and potentially allow more residence) there is a public policy argument for negative gearing for these people, but for established properties, I just don't see the public benefit.
In addition to agreeing with Kristine's point about encouraging investment, you have to think of longer term unintended consequences.

Investors buy new homes in anticipation of capital growth. If there are no tax benefits to the person who buys the home down the track when it's an established home, it would mean fewer prospective buyers and thus lower prices. Negative gearing benefits don't turn a loss into a profit, they just reduce the loss, so if you minimise future capital growth, investors are likely to decide that it's not worth investing in new housing, even with negative gearing benefits.

And you create incentives for market distortions. Because negative gearing benefits are available, prices in new estates would be driven up such that they're disproportionately expensive compared to existing properties, and it would be even harder for young people "starting out" to buy into these estates (a traditional source of cheap housing for young couples), because they're competing with investors. The area will become dominated by renters, and likely become stigmatised and undesirable. :eek:

You'd also cause older areas to degenerate. Why would developers invest in refurbishing older properties when they could spend the same money out in the new estate and have negative gearing benefits? You'd end up with decrepit, lower standard housing in the inner city.

You always have to think of unintended consequences. And there'd be many more than I've managed to think of in a few minutes.
 
I, well, agree with the article.

If the only reason you invest is because of a tax deduction than it’s a pretty poor investment. I’ve got some Timbercorp and Great southern tree plantations if anyone is interested in investing in them…

The way the ATO should treat the tax of RE investments on the “Mum and Dad” level is that you can claim interest, costs etc against the income you receive on the property. Not your personal income.

As a property investor/speculator this is not going to be good for you and will result in a steep decline in property prices initially. But what you’ll find is that when prices stabilise, the yields you’ll get will be much higher and that property investing will become more about the yield, than the capital growth.

Australia has one of the most supportive tax laws for Property investing in the world. But even with harsher tax laws elsewhere in the world, renters still rent and people still make money on property.

I doubt anyone will try and say that negative gearing hasn’t contributed significantly to the substantial gains in property over the last 20 years. But when it comes down to it, are higher property prices really good for our economy?

Think about it like this, if you took negative geared investors out of the market, say the value of houses decline 20%. If I had a $100K deposit and previously wanted to buy a $500K house, with a decline of 20% in prices I’d only need a $300K mortgage vs a $400K mortgage previously. At 8% over 25 years that’s a saving of $143 per week and $101K in interest over the life of the loan. This extra saving could either go towards your retirement savings and or consumption which in turn generates more tax revenue for the govt, which in turn leads to more prosperity and potentially lower taxes (only if we vote out labour of course…)

if your average joe isn't spending 40% - 50% of his income repaying a debt to a bank he has more money to invest and more to spend which is better for all of us.
 
At this point in time the government would face a substantial downside if they were to abolish negative gearing. Lets assume house prices dropped by 30%...

land tax revenue would drop by 30%
stamp duties would drop by 30%
CGT revenues from properties would drop by 30%

In fact it would probably be worse as cheaper properties have lower threasholds for the first two. The government stands to loose a lot of money by removing negative gearing.

Let's also not forget how much value will be wiped off peoples superannuation given that a lot of super is invested in real property.

Actually I'm all for it. My property portfolio has very low LVRs at this point so I don't really stand to loose anything other than a 'paper' value. Actual rents will increase over about 24 months so I'd be even more positive geared. The only real downside is that I might have to save for some deposits rather than use equity, but with the cashflow I'd be receiving it would be a speedbump rather than a roadblock.
 
if neg gearing is abolished, a majority of those on the scheme will sell their IPs because they can't afford it.

that will crash the property market AND jack rents through the roof.

renters can't afford the rent, so they end up in public housing.

which has yet to be built.

so now the govt has to buy land, build houses and house tenants in the middle of a voter backlash.

seems a lot more expensive than just giving a tax break to a few investors, no?
 
Increased Tax vs. Increased investment.

I'll go for more self funded retirees reducing the overall tax burden for the government.

If you worry about market distortions, just get rid of neg gearing for properties. :D
 
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