Negative gearing to go?

[Token Funder]

I don't have a hell of alot of -ve gearing so it has little direct impact on me however again to say that a major change to the way an asset class is treated by the ATO and at the same time claim that nothing will change in the market is not logical.

The sun will rise and set tomorrow and I will continue to invest in property as long as the numbers stack up. Whether the numbers stack up for the majority of investors is yet to be determined.

Regards

Andrew

Didn't say things wouldn't change...just that the Chicken Little approach is really just the bleatings of investors for whom ng isholds up their house of cards, if you'll pardon the pun.

The world won't end, it'll just revert back to fundamentals.

NG is bad tax policy and and needs to go.

 

[Bargain Hunter]

the dole bludgers would be in public housing, so you're not getting their money. most of them are 'dole bludging' due to the fact that demand from employers is lower than the number of people looking.

then there's the high youth unemployment rate for the same reason, although most of them are living at home.

the money they get at least flows straight back into the economy as they spend a miserable $10K a year on food and clothing. Australia has the lowest unemployment benefit anywhere in the OECD, by the way.

I find it hilarious that you leech off tenants and your employer for doing no useful or productive work, when someone else (a battler on low pay) can't bend the system to their advantage then they're a bludger.

there's always a huge deficiency of actual facts on this speculators' paradise website, I notice.

Just for clarification; a dole bludger is not the same as someone who is unemployed, and even in these PC correct times you can still find a definition

dole bludger 
–noun Australian Slang .
a person who collects unemployment benefits but makes no serious effort to get work.

I have rented and had a crap landlord who kicked us out without ever fixing the raw sewage running down the driveway. I have worked on the tools, commuted many hours each day for work because I couldn't find local employment, been unemployed with a dependant wife and kids and a home loan to pay, so I understand people who are having a tough time.

I accept that there are a minority of people who will never be able to work however I cannot relate to people who are more than capable of working but make a lifestyle choice to claim entitlements.

By the way, all investments are driven by speculation regardless of whether these are based on fact or otherwise.

Regards

Andrew

 

[Piston Broke]

Buying an investment property is an economic decision and need not require the contribution of other taxpayers for it to make sense. Removing ng going forward will simply change the economics such that the underlying yield will be rational or the investor will voluntarily elect to carry the cash-flow looses until they realise their capita....justl like a grown-up.

The world won't end.

No the world wont end, but it would distort the whole tax system which is based on the fact that any expense incurred in making a profit is claimable.
And as you point out it is an economic decision to take a risk and lose money in the short term hoping to make some in the longer term.
Our whole economy is based on that system.
All biz investing is based on that system.


and also

There's no point taxing those without money so you have to tax those who have some.
There's a reason NSW is the most taxed state, and that's because it was the biggest earner.
At the time the talk about annexing WA was cause it was an anchor to the rest of the country for decades.
Now that they can afford to pay truck drivers 150k and everybody in the mining industry is buying million $$ houses, then why would they be looking anywhere else?
Whoever is deemed to be making too much needs to cough up more taxes.
It's pretty obvious commy common sense.
And vodka is already the national drink amongst gen y...

and a few more quotes (it saves typing)
Originally Posted by Piston Broke
Obviously if you have no wealth, then you can't be made to pay much.
But those of us who spent decades creating wealth & income, paying taxes on everything, are now paying taxes on taxes that we already paid tax on.
It's corporate communism or fascism, where the population is either poor or very wealthy, and the middle class pays.

Small RE owners are easy targets for communist taxes as it's expensive to "move out" if you don't like them.
So the state governments just keeps plying fees & taxes on the small holders who don't have the funds nor the inclination to donate to party coffers and attend their fund raising activities.
Those that do large developments, and give large donations, somehow receive "benefits" and kickbacks for contributing to the economy.
And of course relief on the regulations that small schmuck developers must adhere to the letter.

 

[Bargain Hunter]

What's that? Public Housing you say? You have got to be kidding! Let me tell you there is nowhere near the amount of housing that is required to house those, shall we say, unable to support themselves.

There is currently a five year wait for this fallacy of Public Housing. Do think the Government is really going to suddenly supply more Public Housing to house all these people? Of course not!

It's the same as saying that the government should not provide any funding for private schools. We all know full well that if the private schools closed their doors tomorrow there would be no way the government could afford to provide an education for all the displaced students.

Regards

Andrew

 

[Token Funder]

No the world wont end, but it would distort the whole tax system which is based on the fact that any expense incurred in making a profit is claimable.
And as you point out it is an economic decision to take a risk and lose money in the short term hoping to make some in the longer term.
Our whole economy is based on that system.
All biz investing is based on that system.


and also

Indeed. The question is more "is it good tax policy to allow the cash flow losses of geared investments to be set off against personal income in correct to carrying those losses forward and offsetting them against capital gain?". Whenever it's looked at from the perspective of the of the cost of the shelter, the market skewing effects it objectively comes back as a no.

Obviously, anyone personally benefiting from bad tax policy has a vested interest in squealing like a stuck pig. But let's not pretend it's anything more than that.

 

[Piston Broke]

The idea behind the geared investments is that they produce a larger income and profit some time in the future, and thus a greater amount of tax.

If the tax system did not allow expenses to be claimed for the last 30 years, how much tax would the govt be collecting today?
My guess would be a small fraction.
Even the whole banking system (which pays your wages) depends on this because people/companies borrow to invest in the future hoping for that outcome, ie more income & more profits.

The system abuse comes from bad banking (guaranteed by taxpayers), and the bad policy is taxing many times for the same asset/item.
The "stuck pigs" are the ones who claim the taxpayers should indemnify their poor biz practises and dodgy dealings.
Banks were the ones squealing like stuck pigs recently, or has that already been swept under carpet?
Why should we pay taxes to guarantee there billion dollar losses?

Yes it is a Ponzi scheme TF, one of which you are near the top of.

 

[Belbo]

Piston Broke, you make one very good point and one very bad point.

Good point: Quarantining negative gearing losses (as done in 1985) does just delay the day of reckoning for tax reciepts.

Bad point: TF is wrong to be debating this topic because he's just an evil banker.

 

[Piston Broke]

Oh no, I welcome the debate and he is one of my fav SS members.
But he refers to those complaining of doing it for financial interests, which is generally true.
I just don't isolate the "stuck pigs" as being those at the bottom of the pyramid.
The banks have been the biggest benefactors of NG and bad policy, and the loudest pigs.

Having it isolated is ok with me.
But this talk of "tax the evil capitalists who rort the system" and the only ones being taxed are those at the bottom.
The biggest rort of the decade was give the banks free money and as much as they want.
The labor parties rorts were handing over billions to private companies, lobbyists and hordes of go betweens in scam after scam costing taxpayers funds.
How many billions in the BER? NBN? Housing developments?
Big builders pay lobby fees and party donations and get big concessions and inside info and precedence in policy making.
And small investors are demonised for rorting the system.
Makes no sense really.

 

[devo76]

Ok.
What about the poor old mum and investors out there.
Forget for a second about the actual effectiveness of NG.
Fact is many Australians where enticed into the market by this policy.
Do you now think it is fair to whip NG out from under them.

 

[Belbo]

All fair arguments, PB, but on another topic.

On the topic of NG - which is topical - the question TF is addressing is, Does NG make for good policy?

I think he's ignoring the question, Does quarantining NG again (or abolishing it outright) serve the people (i.e. renters) that it would be intended to help?

 

[Piston Broke]

Yes Belbo, I was just explaining myself.

NG is not a policy imo.
The principle is in the tax system that any expense incurred in the process of making a profit is a tax deductable expense.This include interest.
And our economy would hardly exist if it were'nt for it.
Why should it be any different regardless of entity?

What they are trying to say is that companies pay a min of 30% (though have many more deductions) where individuals could in theory reduce it to zero.
So what they were trying to do is isolate RE deductions to be claimed only off RE gains or profits.
This is already the case for other incomes and is a much easier case to make, but when this is mentioned words like "abolish" come over the print media, who's biggest advertisers are the RE inserts, as they have dumb journo's do their shillin.

 

[Bargain Hunter]

Indeed. The question is more "is it good tax policy to allow the cash flow losses of geared investments to be set off against personal income in correct to carrying those losses forward and offsetting them against capital gain?". Whenever it's looked at from the perspective of the of the cost of the shelter, the market skewing effects it objectively comes back as a no.

Obviously, anyone personally benefiting from bad tax policy has a vested interest in squealing like a stuck pig. But let's not pretend it's anything more than that.

The reality is that the tax system is a combination of good policy and political expedience, and -ve gearing is but one of the many facets of this system.

Whether -ve gearing is a tax shelter and should be removed pales in significance to the many flawed policies and bandaid solutions introduced over decades of tax law, government policies and incentives.

Of the 138 recommendations made within the Henry Report how many of the politically unpopular ones will be introduced?

Let's face facts, the tax system is well overdue for a total overhaul but it is never going to happen. Instead political parties will pick away at the edges and make decisions based on political expedience and the popular perception of the day.

So one day -ve gearing will go, and at another time it will be reintroduced perhaps even by the same party sighting the same reasons used to abolish it in the first place.

It's all spin, there is nothing new under the sun.

Regards

Andrew

 

[Belbo]

Yes Belbo, I was just explaining myself.

NG is not a policy imo.
The principle is in the tax system that any expense incurred in the process of making a profit is a tax deductable expense.This include interest.
And our economy would hardly exist if it were'nt for it.
Why should it be any different regardless of entity?

Well because, according to one strident critic of NG, Leith van Onselen -

Tax purists might also disagree with such a change to negative gearing on the basis that it is wrong to discriminate among financial assets. My response is that housing is an entirely different type of asset from other financial assets, like shares. Firstly, housing is a social asset and shelter is a basic human need. Second, those buying other financial assets are bidding against other investors that can also access interest deductibility. However, with housing, the main other bidders are owner-occupiers that do not have access to this advantage (interest deductibility). So we are not comparing 'apples with apples' with regards to housing versus other financial assets.
(from - http://www.unconventionaleconomist.com/2010/06/negative-gearing-exposed.html)

And there I think you have the nub of the matter. Housing is a basic human need.

Now where did I hear it once said, "From each according to his ability, to each according to his need"?

 

[Piston Broke]

I currency a basic human need?
Is means of transport a basic human need?
Are groceries a basic human need?
Is coal a basic human need?
Is gas for heating a basic human need?
Is a telephone a basic human need?
Is firewood a basic human need?
etc etc etc

Is bailing out banks and bad investors a basic human need?
Are market manipulations or stimulus basic human need?
Because the latter 2 are the real problem.

 

[Belbo]

PB, I was being ironic. And you're drifting off topic again re the last 2. Focus now. Focus!

 

[Francesco]

Well because, according to one strident critic of NG, Leith van Onselen -

Tax purists might also disagree with such a change to negative gearing on the basis that it is wrong to discriminate among financial assets. My response is that housing is an entirely different type of asset from other financial assets, like shares. Firstly, housing is a social asset and shelter is a basic human need. Second, those buying other financial assets are bidding against other investors that can also access interest deductibility. However, with housing, the main other bidders are owner-occupiers that do not have access to this advantage (interest deductibility). So we are not comparing 'apples with apples' with regards to housing versus other financial assets.
(from - http://www.unconventionaleconomist.com/2010/06/negative-gearing-exposed.html)

And there I think you have the nub of the matter. Housing is a basic human need.

Now where did I hear it once said, "From each according to his ability, to each according to his need"?

Arguments against providing 'incentives' or 'making money' out of RE is anachronistic even in contemporary communist China, where it will muster little support, if not leaving its hearers ROTFL. Of course in young Australia one can experiment and indulge in idealism supported in comfort by a social safety net.

If the proposed NG is wrong for individuals presumably it is still not wrong for other entities like companies and TFs to invest and profit in RE housing. Never mind the inconsistency.

Housing is a basic need and individuals should not 'exploit' this and profit from it? What about food, drinks, health care, security do they rank less as basic needs? Should the individuals steer clear of these classes of investments as well to avoid immoral profiting from it, whether it be through investment units or directly in personal names? What's that saying about the pot calling the kettle black?

Is the PI given unfair advantage over the owner occupier? yes or no. PI are subject to the vagaries of the loans just as owner occupiers are. Some PIs choose to negative gear, incur immediate losses in anticipation for long term capital gains, and as a result the tenant is subsidised. PIs pay tax, taxable income or CGs on IPs, owner occupiers do not.

Policies that liberate investing in IPs have lead to growth in Malaysia, Singapore and China. Presumably, withdrawal of such policies (eg abolition of NG) will reign in growth. This would be at least a second hit on RE investments inclusing the previous obstacle against overseas investments in RE. In a globalised investment portfolio, more funds will flow to overseas investment classes. As employment correlates with growth and vice versa, I sense the proposal to abolish negative gearing on IP has more value as a policy of envy than economic growth or employment.

 

[Bolero]

What's that? Public Housing you say? You have got to be kidding! Let me tell you there is nowhere near the amount of housing that is required to house those, shall we say, unable to support themselves.

.......

So, think for a moment how this will affect your "battlers". I can't wait! I've been pushing up my rents consistently for the last few years. I'm up over $100pw for each property, and they are still not stopping. Do this and the rises will keep on going, which means that I can buy more property (remember I'm NOT neg geared, so I CAN buy quite a bit and still not go neg) and retire earlier.

Hi skater,

just out of context want want to say I liked your post most of the whole thread. Very good and clear expression of thoughts. Really enjoied reading

 

[Cupcakes]

The problem I have with negative gearing is that the higher your salary, the more you benefit. Doesn't this mean that not all property investors benefit by the same amount?

 

[Belbo]

And I don't disagree with you one single bit, Francesco (or PB)!

So, we agree that housing investment is no more a special need that every other form of investment (in food, power, transport, etc, etc). Why, because economic freedom as a human right trumps any claim coming from human need. Otherwise, you're endorsing communism, which is the antithesis of human rights.

Now, let's go to van Olsenen's second argument -

Second, those buying other financial assets are bidding against other investors that can also access interest deductibility. However, with housing, the main other bidders are owner-occupiers that do not have access to this advantage (interest deductibility).

Where's the fallacy in this?

 

[Piston Broke]

Belbo that article is splattering BS everywhere, a reply/discussion cannot be focused.

The real issue was those buying with a $25,000 or more advantage and those not.
Interest rates dropping like a rock to subsidize and reduce bank losses.
So first the govt prints out money to subsidize home buyers, then subsidises investors, then sends everybody free money, then blows billions in BER & NBN, then bails out and guarantees banks (and a few private investment funds) with taxpayer's money, and the problem seems that NG is reducing the amount of tax collected and making it unfair and making prices unaffordable...
NG is but a small ingredient in a big pie.

And "quarantining" NG will not make prices go up.
Returns being lower make the investment worth less.

Skater with all due respect, your way too far in the minority for your situation to used as a general example (its a compliment lol).