Why negative gearing won't go

From: Lisa Southgate


Hi, I found excellent comment on the archives about negative gearing and how long it will be with us. I wasn't around when it was being discussed but I'm burning now to give my 2c worth, if belatedly.
Negative gearing won't be abolished in Australia because it underwrites so much of the building industry. It is inextricably linked with investment selling, and that accounts for a hell of a lot of construction in this country, particularly Queensland (as well as a thriving financial services industry). I don't know about the rest of the country but it reportedly underwrites around 80 - 90 per cent of building on the Gold Coast. Developers like Raptis and Sunland owe their fortunes to it, and it's what allowed Devine Homes to go into medium density. And that's just the development and building side - I don't know how much the financial services industry that is linked to THAT is worth, but I'd love to see a study. So many industries and money depend on negative gearing that any Government would be loathe to kill it off - certainly not a Government that goes to the expense of introducing a first home owners grant to stimulate the building industry. I think it would take a tectonic social and economic shift for negative gearing to be phased out. And then who would rent those dodgy little offices in Cavill Avenue? Lisa.
 
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Reply: 1
From: Michael Croft


The punishment for those who ignore history is to have to relive it.

In this last election campaign (you know the one 2 weeks ago) the democrats and some labor people were calling for the abolition of neg gearing. So please don't say its not possible.

And remember too that neg gearing is of no benefit to the home owner only the investor, and we make up less than 10% of the industry.

Michael Croft
"The best parachute folders are those who jump themselves."
 
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Reply: 1.1
From: Andrew S


There will be a time when those in government will not remember what happened last time negative gearing was abolished. It's then that they are most likely to do it again, so never say never!

There is a solution - Don't negative gear. If you want to know why then read the myriad other postings on the topic!


Mr Jolly
(aka Andrew S - there are too many Andrews)
 
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Sim

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Why negative gearing might go

Reply: 1.1.1
From: Sim' Hampel


I hate the blanket statements people make about the "lessons learned" from the attempted abolition of negative gearing tax benefits in Australia, saying that "they tried once and it was horrible, so they'll never try again".

Didn't this kind of thing happen with a certain new taxation system that we just had to have ? Something that has political drivers will surely come back on the agenda at some point in the future, no matter how ugly the short term ramifications.

I don't think we should run around saying that the sky is one day going to fall on our heads if we negative gear. Receiving tax benefits on the shortfall from buying an investment property the is expected to achieve good growth is nice. Losing those tax benefits will mean that some people who geared themselves too heavily will probably go bankrupt. But the world will move on and adapt.

I'm a conservative kind of person by nature, so my advice is always to leave yourself a buffer. If I really cannot afford to buy a house now without the tax benefits from negative gearing then is it really a great idea to buy it with them ? Of course, the risk takers will say yes, the growth you will get outweighs the risks. That's fine. You just need to work out what is comfortable for you.

 
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Reply: 1.1.2
From: Lisa Southgate


Not saying it's not possible. Anything's possible. Just that, given political realities and history, I can't see it happening. The economic arguments are too daunting. Since you point out that election campaign was so recent :) then you wouldn't have any trouble remembering Labor and Democrats lost. (No matter what spin Natasha puts on the result!) The winners, in this day and age, are the ones who have the support of the money-making communities. (Since the Greens are on the rise this may change, but the day is not come.) And developers make campaign contributions, too.
PS. It's easy to call for things - just put'em on your press releases. Once an Opposition gets into government Treasury shows them the books, and then you have a contender for the World Backpedalling Championships.
 
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Sim

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Reply: 1.1.2.1
From: Sim' Hampel


Like I just mentioned in my other post. What about the GST ? The short term cost of implementing that was (is !!) enormous.

But that didn't stop them. It was the new taxation system that we "had to have".

 
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Reply: 1.1.2.1.1
From: Duncan M


The thin end of the wedge has already been inserted.. Family Tax Benefits use an "adjusted assessable income" to determine whether you qualify.

Adjusted Assessable Income is arrived at by adding back any losses made from Rental Properties to your Taxable Income.


Duncan
 
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Reply: 1.1.2.1.1.1
From: Lisa Southgate


Yeah but Sim, the long term rewards of GST are (supposedly) huge. In theory at least, the short-term costs of GST are just that, short term. We supposedly needed the GST to afford a huge country with a small population, etc, etc. (I sound so right wing. I'm really not!!) Plus, Howie's long-held ambition was a consumption tax...I don't think he feels as passionate about negative gearing. But I'm thinking the sums of taking out negative gearing would not add up like that in the long term. I'm not in Treasury so I haven't seen any sums, but it would have to justify that loss of great big chunks of the construction industry. Another thought - governments tend to measure economies or at least justify decisions on housing start stats...so they'd want to protect that. Caveat...I am hugely cynical about governments' motivations! Cheers, Lisa.
 
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Reply: 1.1.2.1.1.1.1
From: Steve Navra


Problems create opportunity:

When they did scrap negative gearing, property prices went up enormously, because of the demand. (building slowed right up)
So, whatever you were short on your tax claim, you made up many, many times on the capital growth!

Maybe we could all do with such 'problems'!!

Regards,

Steve
 
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Reply: 1.1.2.1.1.1.1.1
From: Michael Croft


I agree Steve, no problem with me if they scrap neg gearing.

Michael Croft
 
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Reply: 1.1.2.1.1.1.1.1.1
From: Robert Forward


I also would love to see Neg Gearing scraped. Why should the tax payer, not the government, pay for our investments. Yes, there will be short term ramifications but so, there was with GST and I'd say the government will offer a sweetener like the did with the FHOG. And since investors only add up to 10% of the population it definitely isn't going have the whole country up in arms about it. Quite the opposite I'd say.

The sooner Neg Gearing gets scraped the faster we start standing on our own two feet with our investments and I believe the better a long term benefit it will be.

Cheers
Robert

The Sydney "Freestylers" Group Leader.

PS: "Be Not Afraid Of Growing Slowly, Be Afraid Of Only Standing Still."
 
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Reply: 1.1.2.1.1.1.1.1.1.1
From: Sergey Golovin


Lisa,

You have to remember that any Government always is hungry for money and if they know that by abolishing negative gearing they will top up their moneybags, they will do it.

What happening now is, instead of paying full amount of taxation on investment people with negatively geared properties are allowed to hold on to big chunk of it and put it away. Government hates it, instead of getting full amount with no hassle, they (Government) forced to be nice and kind to the public and allow all sorts of deductions.

In regards to building industry - they will readjust they figures, put the price up and it would the end of they “transitional period” into bigger and better future.

Also the current Government did make an attempt and they talked about it as well - to make changes to tax benefits for corporations, reduce the amount of tax relief. Clear example to it current crisis with Ansett where they refused to give them any tax relief whatsoever. Well, they are still negotiating I think. Again it is simple - to get as much money as possible out of everyone including corporations. Obviously it did not go ahead this time around simply because major corporations stepped in and warned the government that they will lose the election...

But who sad it will never happen?
They did in America in 1986 and American economy was and is much large then Australian one.

Serge.
 
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Reply: 1.1.3
From: Terry Avery


True, true, politicians do have short memories. Maybe it is up to us to
remind them?

Australia tried to abolish negative gearing but the effect on our economy
was far greater than on the Americans who after the initial pain adjusted,
they put the rents up. Governments retaliated with rent control. Anyone out
there understand rent control? If you don't then be afraid, very afraid...
if you are an investor then fight the abolition of negative gearing.

In the worst case scenario they would not backdate changes so those already
enjoying negative gearing (if one can enjoy paying out money instead of
making a profit) would not be effected. However, it always pays to be
prepared.

Cheers

Terry
 
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Reply: 1.1.3.1
From: Michael Croft


Damn yes and I had forgotten rent control! I remember back in the 80's doing valuations on rent controlled houses in Sydney with war widows living in them. They were effectively tenants for life and at about 60 years of age they had (back then) another 25 years of life expectancy.

Needless to say all we valuers could do at the time was capitalise the low rent which made the houses worth less than half those with out rent control.

Michael Croft
"The best parachute folders are those who jump themselves."
 
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Reply: 1.1.3.1.1
From: The Wife


Horse Racing, Is the last true bastion of free enterprise.

Read that in a book, I think its almost true?

TW
~Gambling sucks, dont do it.~
 
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Reply: 1.1.3.1.1.1
From: Darren B


Good riddans to neg gearing. If it ever happens, lets see how many people will still invest in property, quiet happy to lose money to get no tax breaks.
 
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Reply: 1.1.3.1.1.1.1
From: Kevin Forster



I don't think that we will see the abolishment of negative gearing but we may see a time when negatively geared properties cannot be offset against your earned income. The losses would be carried forward until the property makes a profit and the profits would be then offset against the losses from the previous years.

This has already occurred with hobby farms, some small part time businesses and those rural investment schemes.

The time that negative gearing will be abolished is when the tax generated from the building industry is less than the tax claimed by people negative gearing.

Other things that would go at the same time is margin lending on shares.

Just my thoughts

Kevin
 
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Sim

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Reply: 1.1.3.1.1.1.1.1
From: Sim' Hampel


Kevin... you said "but we may see a time when negatively geared properties cannot be offset against your earned income"

Umm... isn't that the whole point of the tax benefits we refer to as "negative gearing" ? You can offset the loss against other income. If you remove that ability you have removed the effectiveness of this type of investing strategy.

There are only two options... you can offset the losses against other income, or you must carry forward the losses to be offset against future income, which is what businesses must do.

So what you have suggested in that comment I quoted IS the end of "negative gearing" (in it's capacity to be financially attractive to people).

Maybe you could explain for me what you mean be your comment "The time that negative gearing will be abolished"... how will things work at this point ?

Hmm... on re-reading your post... maybe we're getting confused over the semantic definitions of "negative gearing".

 
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Reply: 1.1.3.1.1.1.1.1.1
From: Anonymous


Well done Kelvin. An accurate assessment of what will happen. At the risk of reiterating Kelvin's post - losses on one property can only be offset against net income from another property. What happens if you don't have a net income property against which to offset the loss from property 1?. The same as what happens to capital gain losses when you don't have a future positive capital gain ? - you lose it.

When does this take effect - see Kelvin's post.

The other posts are good but self-serving.
 
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