As housing affordability hits crisis point in Sydney, NSW Opposition Leader John Robertson has called for a debate on the effect negative gearing is playing on housing affordability.
A report released last week from the McKell Institute showed seventy precent of under 35s can no longer afford to buy a home.
He told Sky News he has yet to discuss the idea with the Gillard government, but we believe further support should be welcome. This time last year, reports surfaced that the Gillard government was in talks with Senior Federal Labor figures and unions about winding back negative gearing as one way to tackle housing affordability.
A two day tax forum in October last year re-ignited the debate where Saul Eslake, an economist for the Grattan Institute said our tax system was “riddled” with loopholes, taking aim at negative gearing. “There is no country in the world that allows negative gearing as generously as the Australian tax system does” said Eslake.
Negative gearing is thought to be one aspect of Australia’s flawed tax system which has caused a large mis-allocation of capital to be directed towards the unproductive residential property sector. On many metrics, Australia’s house prices today are more unaffordable than at the peak of the American housing bubble.
The much ignored Ken Henry tax review in 2009 warned elements of our tax could affect macroeconomic stability. It stated “The existing tax system is also likely to encourage excessive leveraging in pursuit of tax-preferred income. Where capital inflow is used to finance less productive assets, this can also affect long term macroeconomic stability. In this regard, recommendations to provide a more neutral tax treatment of savings, to reduce the benefits from negative gearing and eventually abolish stamp duties on housing would also help improve macroeconomic stability.”
The report recommended a more uniform savings income discount be applied across most asset classes to prevent tax distortions created from negative gearing.
Figures from the Australian Taxation Office show Australia had 1.7 million loss making property investors in 2008-09, losing collectively $6.5 billion.
9th April : Wayne Swan has quickly entered the debate, ruling out any changes to negative gearing.
» NSW leader John Robertson calls for debate on changes to negative gearing – The Australian, 8th April 2012.
» Wayne Swan stands by negative gearing – The Australian, 9th April 2012.
» Negative gearing still on the chopping block agenda – Who crashed the economy?, 5th October 2011.
» Negative gearing rort added to endangered species list – Who crashed the economy?, 21st April 2011