The two day tax forum in Canberra has ended today showing negative gearing is still firmly on the chopping block.
In April we reported (Negative Gearing Rort added to Endangered Species List) on discussions the Gillard government had been having on abolishing what is considered Australia’s largest tax concession. Figures from the Australian Taxation Office show Australia had 1.7 million loss making property investors in 2008-09, losing collectively $6.5 billion. While this is down from losses of $8.6 billion in 2007-08, six out of ten investment properties lose money every year and so landlords can avoid paying income tax. It’s also thought negative gearing is one of the drivers that has seen our housing bubble surge to one of the biggest in the developed world.
Saul Eslake, an economist with the Grattan Institute told the forum, “There is no country in the world that allows negative gearing as generously as the Australian tax system does.”
As Bob Hawke and Paul Keating found out in July 1985, abolishing negative gearing is sure to create a stir. Eslake today re-enforced this saying “There are now 1.7 million of them [negative gearing, loss making landlords] and they vote, which is why that subject is off the agenda for both major political parties,”
But the perfect window of opportunity is fast approaching to wind it back. Negative gearing requires investors to make a loss on rental income in return for capital gains in the future. With house prices now falling for eight months and expected to continue for quite some years, the carrot of capital gains may no longer be in sight for many investors. As our economy starts to de-leverage and our housing bubble deflate, getting plans together to wind back negative gearing in a couple of years will coincide with a period where negative gearing may be ineffective for many investors.
The other housing related topic to come up in the Tax forum is from Nicholas Gruen, CEO of Lateral Economics. He has called on the First Home Saver Accounts to be canned, instead allowing young Australians in their 20s and 30s to be able to use their super towards a house.
» Let Generation Y buy a house with super savings, Nicholas Gruen says – News Limited, 5th October 2011.