Is it the end of negative gearing

[buzzlightyear]

http://news.domain.com.au/domain/re...ghs-despite-housing-slump-20120419-1x9cn.html

So assuming the often cited call about falling property prices in the context of NG removal, and given issues surrounding public finance across all levels of government, would they seriously jeopardize one of their larger revenue sources given the 33b tax intake?

Not bloody likely....

 

[Tony3008]

http://news.domain.com.au/domain/re...ghs-despite-housing-slump-20120419-1x9cn.html

So assuming the often cited call about falling property prices in the context of NG removal, and given issues surrounding public finance across all levels of government, would they seriously jeopardize one of their larger revenue sources given the 33b tax intake?

Not bloody likely....

But the same amount is colelcted in rates whoever owns a property and if there was to be (I don't believe it would happen) a mass unloading of IPs there would be a spike in Stamp Duty receipts and possibly CGT too.

 

[Graemsay]

There was an article at the SMH a few days back about calls (from two experts only ) calling for its abolition.

http://smh.domain.com.au/blogs/talk...r-negative-gearing-review-20120417-1x50i.html

What really puzzles me is why property prices are so high in Australia. There's a lot of space, even round Sydney. There are regions in Europe, such as the Randstad (the Amsterdam, Rotterdam, the Hague and Utrecht conurbation) that are of a similar size, have a higher population density, are richer, and yet remain cheaper.

Were there some pretty egregious policy decisions that have led to this, is it speculative, or something else?

 

[MIW]

There was an article at the SMH a few days back about calls (from two experts only ) calling for its abolition.

http://smh.domain.com.au/blogs/talk...r-negative-gearing-review-20120417-1x50i.html

What really puzzles me is why property prices are so high in Australia. There's a lot of space, even round Sydney. There are regions in Europe, such as the Randstad (the Amsterdam, Rotterdam, the Hague and Utrecht conurbation) that are of a similar size, have a higher population density, are richer, and yet remain cheaper.

Were there some pretty egregious policy decisions that have led to this, is it speculative, or something else?

It has probably to do with the government fees in establishing the cost to build a lot. I believe I heard somewhere that it costs around $160K in Sydney for a lot before anything is built on it. Other states such as QLD are much cheaper, so if you were a developer what state would you chose to invest?
Again government intervention has consequences.
I heard Sweden is flourishing in Europe today and yet the government increased investment by lowering taxes and providing incentives (did just the opposite to what PIIGS country are forced to do).
Some lateral thinking measures are necessary so I suppose the bold succeed?

 

[Ideo]

There was an article at the SMH a few days back about calls (from two experts only ) calling for its abolition.

http://smh.domain.com.au/blogs/talk...r-negative-gearing-review-20120417-1x50i.html

What really puzzles me is why property prices are so high in Australia. There's a lot of space, even round Sydney. There are regions in Europe, such as the Randstad (the Amsterdam, Rotterdam, the Hague and Utrecht conurbation) that are of a similar size, have a higher population density, are richer, and yet remain cheaper.

Were there some pretty egregious policy decisions that have led to this, is it speculative, or something else?

It's threefold.

1) Costs of development.
2) Lack of certainty in development
3) Lack of leadership and decision making from pollies.

 

[Token Funder]

It's threefold.

1) Costs of development.
2) Lack of certainty in development
3) Lack of leadership and decision making from pollies.

plus (currently) difficulty in getting development finance

 

[Belbo]

At least Saul Eslake admits that targetting negative gearing on property alone would be 'quite unfair' (which is very close to agreeing that its advocates are really just promoting state-sanctioned theft) -

However, Eslake isn't just advocating the abolition of negative gearing on investment properties.

"That would be quite unfair," he says. "I mean why should property investors be denied tax breaks that would still be available for investors in shares or bonds or artworks or gold? So I think it should be abolished for everyone.

(Thanks for the link above to that article quoting Eslake, Graemsay. I've been waiting for him to spit this out for a while.)

 

[Francesco]

At least Saul Eslake admits that targetting negative gearing on property alone would be 'quite unfair' (which is very close to agreeing that its advocates are really just promoting state-sanctioned theft) -
(Thanks for the link above to that article quoting Eslake, Graemsay. I've been waiting for him to spit this out for a while.)

Constant harping about negative gearing and the perceived wealth generation to PI for their retirement nest egg is a hangover of Marxist ideology of envy politics of perceived capture of opportunity by the IP class at the individual level. What they want is a spread of hurt all round even if they have to push potential PIs to the age pension to be provided by the state. 'Negative gearing' effect presumably continues to be quarantined and available to non individuals such as corporate investors, non profit organisations and state governments.

What do you say about the economic persuasion and ideology of detractors of NG when they would prefer the incentive effect to be available to the institution and not the individual?

 

[Token Funder]

Constant harping about negative gearing and the perceived wealth generation to PI for their retirement nest egg is a hangover of Marxist ideology of envy politics of perceived capture of opportunity by the IP class at the individual level. What they want is a spread of hurt all round even if they have to push potential PIs to the age pension to be provided by the state. 'Negative gearing' effect presumably continues to be quarantined and available to non individuals such as corporate investors, non profit organisations and state governments.

What do you say about the economic persuasion and ideology of detractors of NG when they would prefer the incentive effect to be available to the institution and not the individual?

NG is a tax treatment not some sort of universal human right, the tinkering of which will bring an end to civilization as we know it.

Recommended reform invariably revolves around allowing losses to be rolled forward and deducted from CG rather than from other income. The fact that even a suggestion of removing it from all classes leads to the bleating it does is support for the proposition that the tax benefit has become central to the investment decision rather than peripheral.

Beneficiaries of poor tax policy, be it the taxing of fringe benefits, managed agri trusts, bottom of the harbour schemes or whatever, will always squeal. The level of noise does not constitute a real argument, only a political one

Your final comment is telling. I would ask, in the alternative, what does it say about the underlying quality of an investment if it is only sustainable in the context of one of the world's most generous tax treatments.

Sound fundamentals, indeed.

 

[Belbo]

What do you say about the economic persuasion and ideology of detractors of NG when they would prefer the incentive effect to be available to the institution and not the individual?

If by this you mean selective exclusion of personal services income (i.e. wages and salaries) from the game, yes, I think it would be not only utterly inequitable (as Eslake finally observes), but economically very distortive (as people will logically seek to restructure their affairs to look less like persons and more like institutions).

Note: The problem with economic distortions is that they lead to inefficient / unproductive national resource allocation (i.e. investment & spending decisions), something that no country can afford in an increasingly competitive world.

We must however also admit that severe distortions already exist. Negative gearing in property is no doubt one of these, but it is only one among very many. Some distortions are of greater scale and impact, while others are just convenient political footballs (the institutionalised economic vandalism, for example, that we know as the explosion of Howard-Costello middle-class welfare being by far the currently most damaging, but I digress).

So, selectively criticising NG as the old-Left / welfare lobby does for its 'ethical shortcomings' in contributing to housing unaffordability is disingenuous (or, more accurately, outright intellectually dishonest). NG applicable to all asset classes has long been just one root of an entire taxation bush that has historically come into being over a good length of time: "Now exactly how many roots of that bush would you like me to cut out on this day?" one might judiciously ask. (Along with, "You do have a skip handy if the entire bush topples over, don't you?")

No. What's increasingly unaffordable is being economically uncompetitive, and that goes for every single country, institution and person on this planet. It's not fair? Join Al Qaeda! Otherwise, suck it up, recognise charity when its given to you, and be prepared to pitch in decently when you've found your own feet.

 

[Dazz]

So another 25 posts added to this thread since I last checked in, and still the answer to the question of the thread is a resounding NO. Nothing has changed.

Bipartisan support for Negative Gearing to stay. Yay !!!


Next....

 

[Belbo]

Wait up!

Word just came through that not everyone on here is a party political hack.

(Sorry for the disappointment to some of the less independent-thinking.)

Discussion and debate is now welcome to continue.

Thank you!

 

[Ed Barton]

Wait up!

Word just came through that not everyone on here is a party political hack.

(Sorry for the disappointment to some of the less independent-thinking.)

Discussion and debate is now welcome to continue.

Thank you!

politics on here is like football. choose a team (usually decided by your parents) and stick with it for life.

 

[Dazz]

.....bipartisan support - go look that up.....

 

[Francesco]

NG is a tax treatment not some sort of universal human right, the tinkering of which will bring an end to civilization as we know it.

Only affects my portfolio of investments and country of investment from my little perspective. Maybe others like me also?

Recommended reform invariably revolves around allowing losses to be rolled forward and deducted from CG rather than from other income. The fact that even a suggestion of removing it from all classes leads to the bleating it does is support for the proposition that the tax benefit has become central to the investment decision rather than peripheral.

Beneficiaries of poor tax policy, be it the taxing of fringe benefits, managed agri trusts, bottom of the harbour schemes or whatever, will always squeal. The level of noise does not constitute a real argument, only a political one

Merely providing a feedback that it affects my investment decision as it should because it is a government policy incentive.

Your final comment is telling. I would ask, in the alternative, what does it say about the underlying quality of an investment if it is only sustainable in the context of one of the world's most generous tax treatments.

The quality of the investment decision is based on the government policy setting at the time and the stability of the sovereign government. The financial assessment determines whether each investment opportunity is viable or not. Generalisation is superficial but at this point in time I can see better investment opportunities from clean and easy fixed interest investment through a SMSF than go through the hassle and opprobrium of investing in IP as an individual.

Sound fundamentals, indeed.

To remain sound one must react to policy settings and not abandon one's financial responsibility.

Comments above.

 

[Belbo]

Well TF, I for one think you have to concede that Francesco makes a damned good case.

To mess around with NG after investors have committed themselves and in such large sums won't be the end of civilisation, but it could well be the end many existing people's chances of ever achieving financial independence.

In abstraction, permitting NG on housing may not be perfectly rational tax policy. But as it has been longstanding national policy, demonising NG on housing now does smell suspiciously like just a thinly-disguised political assault on 'rich' property investors. (And that the loudest calls for change on NG are coming from the unreconstructed Left, really only reinforces this unpleasant suspicion.)

As to investments being unwise if they're 'unsustainable' in the absence of NG, I think there you may have tripped onto the reason for the origins of NG as national policy. Investments never do exist in abstraction: they only ever exist in a reality where they have to compete for capital. Unsustainable investments logically don't exist.

 

[Token Funder]

Well TF, I for one think you have to concede that Francesco makes a damned good case.

To mess around with NG after investors have committed themselves and in such large sums won't be the end of civilisation, but it could well be the end many existing people's chances of ever achieving financial independence.

In abstraction, permitting NG on housing may not be perfectly rational tax policy. But as it has been longstanding national policy, demonising NG on housing now does smell suspiciously like just a thinly-disguised political assault on 'rich' property investors. (And that the loudest calls for change on NG are coming from the unreconstructed Left, really only reinforces this unpleasant suspicion.)

As to investments being unwise if they're 'unsustainable' in the absence of NG, I think there you may have tripped onto the reason for the origins of NG as national policy. Investments never do exist in abstraction: they only ever exist in a reality where they have to compete for capital. Unsustainable investments logically don't exist.

I don't confine my criticism to property ng; it's poor policy across the board though, in the case of property, has additional downsides. In any case, I would remove the option of offsetting such losses against personal services income, irrespective of asset class.

No tax benefit - or disadvantage, for that matter - exists in perpetuity. Govts and courts change tax rules and interpretation all the time and people and businesses adapt.

In spite of the protestations, FBT didn't wipe out every bar and restaurant in Australia and business still managed to do business over lunch. No-one saw the need to quarantine Machieveli's because it's business plan assumed tax-effective lunches from blokes in suits .

And I make the point again. If removing NG is the huge impost on the ongoing attractiveness of the investment some would infer, it is simply further evidence that the tax treatment has become corrupting and should be adjusted.

My personal view is that most serious investors wouldn't be particularly bothered, as long-term it makes little difference. It makes a big difference, however, to the property investment industry who use tax minimization as a key driver to keep a steady stream of plodders delivering a steady stream of fees and commissions.

 

[Belbo]

Well, I think the criticism of negative gearing on economic rationality grounds is sheer poppycock.

Opposition to negative gearing investment property is driven by and rooted in a socio-political critique. Basically, it's part of the "eat the rich" crypto-Troskyite agenda.

Finally though we have a critic of negative gearing who has had the honesty to spill the real beans.

The truth of the matter according to Catherine Cashmore is -

1. Everybody deserves their own home (It's a "natural human ... need")

2. This means the government should cut negative gearing to force house prices to fall

3. And other "policy change" should also be introduced to "create new models of ownership"

4. So first home buyers can buy in the inner zones to meets their 'wants'

5. And property investors buy only on the outer margins despite no prospect of capital gains

Rollicking bonkers, eh? And what's more, this crazy cracker is a senior consultant for a national buyers agency!!!

read more

 

[Ausprop]

Rollicking bonkers indeed. Personally I would love it - renters should foot the bill for their accommodation not taxpayers. and there is no god given right for a 4 x 2 with a pool.

 

[Graemsay]

There's a story over at The Age about tax breaks for super being cut as a way of helping balance the budget.

I wouldn't want to bet against the same thing happening for negative gearing too.