Will Negative Gearing rules be changed

With some commentators believing that negative gearing is the main reason for higher property prices and the fact that the government is in defict, will Rudd make the call and abolish or alter negative gearing on properties?

I heard in the 80's negative gearing was abloshied and that apperntly created havoc for the rental market. (I was too young when that happened).

Will abloshing negative gearing have a major effect on property prices?

What will happen with the rental market?
I believe it will not be abolished.....it may be tinkered with.

Either way rents will go through the roof which is bound to happen anyway due the rising demand and diminishing supply.

Tinkering will just blow it sky high.
It seems to be pretty much entrenched 'knowledge' (apparently it might not have been real, but if everyone believes it, the truth doesn't always matter) that cutting ng will cause rents to jump. Certainly short term it'll introduce a lot of uncertainty into the market.

The opposition would use any chaos to excoriate Rudd. Why would Rudd take the risk? There's very little political gain. The people who are most negatively affected by high property prices are first home buyers, a minority of the population. The majority of the population / voters own their own homes, and they might lament how young people will be able to buy their own homes, but they're secretly happy that their biggest asset is going up. How many homeowners are willing to see their home values come down to give fhbs a leg up? I think they'd be happier to refinance their own homes and specifically help their own offspring.
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Why would an expense in earning an income not be tax deductable?

And I agree Rudd would'nt take that risk, it's much easier to levy taxes.
There are other examples where losses can only be offset by profits from that activity (IE. non-commercial losses for a business operation). So it wouldn't be too radical from a academic tax point of view to have negative gearing losses quartined to future rental income.

There is the Henry tax review. There has been some hints in that, that Henry wants property to not be treated as favourably as it is by the tax system at the moment.

They say that one in 10 people are negativly geared into property. I have no evidence but my guess is that most of these people would be staunch liberal voters. The argument might go that "we" the taxpayer are funding "the rich" to buy properties which is making "you" pay more for your house.

What I think this will come down to is the fact I feel the government will need more money to fund the debt that they put us in. The government won't raise income taxes (rather not move the rates for years), it'll be nearly impossible to increase the GST rate. Yes they will probably give us new taxes (ETS), but I feel this government will need every dollar they can get. Due to ideolagy, it's not too far fetched to see negative gearing abolished (though it probably won't be raised until after the election).

What I'm interested in, is hearing from people who remember the last time negative gearing was ablolished and the effects of this.
What I'm interested in, is hearing from people who remember the last time negative gearing was ablolished and the effects of this.

People would que for hours to inspect IP's. Rental prices increased immediately and there was a massive shortage of investment properties and a rental crisis.

The government had no choice but to re-introduce negative gearing again and investors were able to back claim for expenses on their Ip's during the time that negative gearing had been abolished.

Do you really think, given the massive undersupply of property at the moment and the rising population in Sydney and Melbourne that any government would tinker with negative gearing?

I don't think negative gearing is responsible for the rise in house prices (especially in Melbourne) at the moment. I think the change in rule relating to foreign investors being able to purchase existing/established property has had a significant effect.

Regards Jason.
There is at least a whole generation (close to 2) people of voting age who do not know what happened in the 80's when negative gearing was abolished. With commentators saying that negative gearing is a major reason why they can't afford property, they may support the abolishment of negative gearing.

This is a government that gave people earning less than $80,000 a year (and paid $1 of tax) $900. This is a government that has already reduced the allowable super contributions that one can make. Nothing would surprise me about what this government will do.

On another point, I find it hard that a country the size of Australia with a population of less than 25 million people has a housing shortage (even if we take out 2/3 of the land as desert). There maybe a shortage of houses in some areas, but I'm not convinced that we have a housing shortage, but rather people justifying why rapid price increases will continue.
If that's what you believe, Pickle, then don't buy property. There are plenty of asset classes out there.

Just because I may think some property maybe overvalued at the moment, doesn't mean that it will always be overvalued. To say that I shouldn't buy property because I believe the housing shortage argument might be over stated, only really applies in the short term.
Then wait until you think the market is undervalued. What's the problem? You express a concern about how the market might go, and you use emotional, paranoid arguments against what I think is more logical reasoning by other people. Then you push back when it's suggested that you just stay out of the market. That tells me you just want to feel better about your fears and inaction by being argumentative ('how can an investor have confidence in the market when the government is insane?').

Property CAN be overvalued at times, followed by long stagnant periods. Nothing wrong with waiting. Buying in Sydney in 2003 would have given terrible results. Much better to have waited 4-5 years. While you're waiting, study other asset classes, or at least other areas. There are always good buys somewhere. As you imply yourself, there are areas that aren't overvalued. Look for those.
In regards to my original point of my post. I never said that loosing negative gearing will reduce the value of property. I only said that some people argue that it might.

On people that have stated that negative gearing won't be abolished, I respect there arguments and there argument is based on solid foundations and experience. What I was trying to do was to continue the discussion as to why it's possible that negative gearing may be altered soon. I never said one shouldn't invest in property because of the potential changes in negative gearing rules.

What I have taken an issue with, is because I raise some arguments that may not follow everyones thinking, AlexLee has decided to state that I have taken no action in investing (based on nothing) and implied I shouldn't be asking the questions that I'm asking and if I do, I shouldn't consider investing in property. With respect Alex, you don't know my investment philosophy, or what investments I have or don't have.

I would like this discussion to be about property investing relating issues and not personal attacks on people who choose to post.
Pickle, I remember what happened in the 80's.
The numbers were vastly different, and mainly the avg personal tax rates were much higher than they are now.
Lowering the income tax rate effectively also reduces the -ve gearing benefit.
As was the avg interest paid by borrowers.

This question comes up regularly here, and the answers are always the same.
When conditions revert to similar as the mid 80's with interest rates >15% and tax rates of 48% for slightly above avg earners, it may become a problem for the gov.
True the Rudd/Gillard/Wong commune is capable of sillyness beyond belief, but they will lose to much votes for something like that.
As for "land shortage" and "housing shortage" it's a RE marketing fantasy.
Though perception is reality, so a fantasy that makes many people act.

I agree with your argument about higher interest rates and higher tax rates would effect a government on negative gearing more than it would now.

However I've read articles (non that I have access to at the moment) that argue that the value of the negative gearing is much higher now than it was in the 80's (after taking into account inflation). I don't know how reliable the argument is.

If the liberals got rid of negative gearing, then it would be harmful for them. I'm not too sure how harmful it would be for the ALP (at least in the short term). I don't quite understand how labour would loose too many votes in the short term if it argued to abolish negative gearing. There are many young people who believe that negative gearing is the reason why they can't afford property.

Below is a recent article about negative gearing. The losses should be a bit less now due to interest rate decreases.

Unfortunately for young people, the majority of voters aren't young. Will Rudd try to grab the young fhb demographic and risk alienating the homeowner demographic (which is about 2/3 of the population, by definition the majority)? If he does, he IS insane.
I guess at the end of the day it depends on what Henry has said on this subject in his review. Isn't that report going to be made public before the budget, according to Swan?

Gosh we haven't got much time left to consider what he has said before the budget is handed down, which maybe heavily influenced on the Henry review.
I guess at the end of the day it depends on what Henry has said on this subject in his review. Isn't that report going to be made public before the budget, according to Swan?

Actually, no. At the end of the day it depends on what Rudd and co decides. The report might be made public, but that doesn't mean the government will adopt it. Has Swan ever said he's going to adopt any part of the Henry report? You don't think commissioned reports get shelved?


On the other hand, Swan is clearly aware of the potential backlash on the topic of negative gearing.

Gosh we haven't got much time left to consider what he has said before the budget is handed down, which maybe heavily influenced on the Henry review.

We get to consider, but we don't make the decisions. The elected government does. And they're not obliged to follow any of it.

Is there any reason why political reality isn't an issue for you?
If Henry argues for a change of the negative gearing rules, there is a more likely chance that Rudd and Co will follow that advice as it gives them some economic argument and thus politcal capital to go through with it.

Considering that the Henry report was said to be the biggest tax report commissioned in recent times and the fact that Swan has continuely said that the report will be made public, I think it's fair to expect that the report will be made public and not shelved. The media attention of this report is too big to not make public and simply shelve.

Yes Rudd and co do have the option of not following any of the recomendations in the report, but that wouldn't go down to well politically simply due to the public interest that the commissioning of this report has received.

Considering that this report has been advertised as shaping tax policy for years by Rudd and co. we the public do have a right to see the report and to consider the report so we can have an educated opinion on tax decisions this government is making. Rudd and co. serve the Australian people. Yes they do make the decisions, however we make the decisions every few years if they have a job.

Again Alex has gone down the personal attacks. You just can't help yourself. I respect people that have a different opinion to me. However to say I have no politcal reality in simply suggesting Rudd may change the negative gearing rules I think shows you lack of political judgement. In general Labour is opposed to negative gearing as it's seen as a tax break for the rich. If they can come up with an argument to get rid of it, I think they will. Also considering the defict that they have created, they may need all the money they can get there hands on.
I heard in the 80's negative gearing was abloshied and that apperntly created havoc for the rental market.

You have created a very thought provoking thread. It is very interesting to think of what would happen if a bulk load of investors pulled out of the rental market because the ng aspect was not so attractive. Somewhere on SS I was told that it was a crisis in the 80's when this happened so I went hunting for data which supported that.

However, I have found nothing.

I did find this:

If anyone can back up this "havoc" with some actual data, or point me in the right direction to find it, it would be most welcome.
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Will abloshing negative gearing have a major effect on property prices?
There's a significant risk that it will. And then the baby boomers that were relying on selling their PPOR to fund their retirement will become dependent on the govt to fund their pension. Not an appealing prospect for a politician.

However, the govt may take a different view once those BBs with little super filter through the system.