Negative gearing debate continues to simmer

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


  1. Folks, $ 6.5 billion is a LOT of taxpayer’s (i.e. your, “worked for”) money being used to subsidise a poor, badly thought-out investment choice.

    Seems not to concern “our Leaders” though and the hidden message here might be that, once things start to unravel, the taxpayer may well be “expected” to ameliorate the financial problems faced by future “underwater” investors.

    Happy to privatise their gains (and mock those of us who chose to invest elsewhere in productive asset classes, and continue to rent ridiculously over-valued Aussie property), but expecting to socialise any losses – so we all end up paying for their greed and stupidity.

    Depends whether the Politicians of the day have the guts to say “No” – and in light of past decisions, the answer to this is probably not. Property owners are a politically powerful bloc, so when they say jump, we’ll all be expected to ask “how high” and meekly oblige.

  2. They won’t do it because they will lose their voters the baby boomers who have kept them in power for so long (both parties).

  3. It’s far too late to worry about economic stability. Our bubble is coming down.

    I would think negative gearing will accelerate the decline in house prices in Australia, Canada and New Zealand. If the prospect is falling house prices for a decade or more, then negative gearing becomes ineffective.

  4. Looks like the Ponzi scheme is bursting. Negative gearing will be a dirty word by the next election.
    Things are looking good for those that have not committed to a mortgage and just wait in their landlord subsidised dwellings and enjoy.
    Going to be alot of pissed off people working hard all year just to pay interest only loans while watching the equity dissappear in front of their eyes.

    By the way no use blaming the current government as this is neither liberal or labor policy. It is the long term objective of the UN (australian government) to destroy wealth and seize control with one world government.
    Welcome to the New World Order. How about the Carbon tax – the first world tax is in Australia from 1/7/2012.
    Amazing what happens when your asleep at the wheel?????????
    Who do you vote for now?

    Like I have said before, it is the aim of the government to destroy your wealth so you have np power, and what a fantastic job they are doing.

  5. Not only does the government need to reform the Negative gearing laws, they also need to place limits on how many dwellings any one individual or company can own. This may help in returning some sanity to the housing market. For people who currently own more than 5 properties, make land tax mandatory or make them pay higher Capital gains tax.

  6. Yoda – I agree with you, Australia lost its sovereignty long ago and it does not matter which political party is in government. Nothing will change with the next election because it does not matter who is in government because the same people control both parties. This is why nothing ever changes. Democray creates the illusion that we have a say in how the country is governed but in reality we have no say. The housing bubble was created with the intention of transferring more wealth to the elite, it was not an accident but a deliberate act made possible because the majority of people cannot think for themselves.

    Aussie Battler – I agree with you, I have always said that the so called shortage is caused by the unfair distribution of housing because of so many people who own multiple properties. This is what creates the shortage and what drives up the price. My opinion has always been that most residential property investing is unethical for this very reason and should be discouraged. My view is that property investors are no different to fraudsters, common thieves etc.

  7. @Yoda and Craig – I third your opinions.

    @Aussiebattler – I think the increased capital gains tax is a good idea, but NOT a property tax. This is in effect handing ownership of your property to the government, rather than holding it free and clear yourself once it is paid for. Think about this: You are taxed on goods/services that the government PROVIDES to you. There should be no idea that the government PROVIDES your land to you, which you bought, fully paid for, and should be able to live, prosper, raise family, go bankrupt, become rich, or starve on. It should be yours and no government should have the power to kick you off for not paying them “rent” in the form of a property tax.

    The US provides a fine example of what a bad idea a property tax is, as old people are sometimes kicked out of homes they have owned for years, for failure to pay taxes. Then the home is sold at a “tax auction” where anyone who pays the taxes outstanding can become the new homeowner.

    To my mind, this is an outrage to property rights and to civil autonomy, and I sincerely hope that Australia has the foresight to reject the inevitable attempts that the government will make to seize their property rights away from them.

  8. Stupidity begets stupidity. Oz, like the USA or the UK, is populated by uneducated fools who’d rather be brick-layers or plumbers than change the politics in these respective s#!t holes for future generations…

    The end result? Politicians who’ve gathered enough wealth and power to know that they cannot be stopped from practicing Christian terrorism and neo-colonialism within their states.

    Why didn’t anyone protest when the property market was spruiked in 1988 (the beginning of this 30-yr cycle)? I read an article from the NY Times about an 1895 property bust in Melbourne VIC. Back then it was the British pigs. Now it’s our own home grown swine.

    Have to agree with Donald Horne (1964, in his book) “Australia is a lucky country, run by half rate people who share its luck” —- luck, that one may note, we stole from the native Australians.

    A nation of thieves begets a polity of thieves, I say.

  9. Hi Renfield, yes I understand your point, however it’s not the owner occupiers that are the problem. Obviously the people that only have one dwelling which is their primary residence would be exempt from any of these suggested reforms. I certainly don’t have any answers as I am not an economist, but I have a great deal of intuition and logic which enables me to see the bigger picture quite easily. The issues are many and varied and the solutions complex but my main objection is why are some people greedily squandering more than their fair share & then wanting to write off the losses using NG??? Why should the hard working tax payers be subsidising this?? The govenment need to step in and tax the #%@* out of these people and limit the number of houses you are legally able to purchase to remove the incentive from doing it. I have no issue with peope wanting to invest and build a nest egg for the future but for goodness sake invest in productive assets and leave housing as what is was designed for, a shelter, a human need. This Country is doomed unles we do something about this and NEVER allow it to happen again. I just wish the politicians would pay attention, but like YODA say’s, we are being controlled like little puppets on a string, the government want everyone to be in debt so they can have power over us, NO DEBT means freedom…Only the clever people can see this, wake up Australia, we need to start a revolution!

  10. @Undercover Brother,

    The penalty for failing to part take in Politics is, you end up governed by your inferiors.
    – Plato

    Lot of houses for sale in the Cremorne, Mosman area in Sydney. Just no for sale signs. Many businesses in the this general area have shut down and more closing down. Except for one Solicitor on Military road Cremorne who is flat out with work, not from divorce cases, nor any other litigation cases but, from people selling their houses as they can’t afford their mortgage anymore. There is something you can do legally if you can’t afford you mortgage and still live in your (no not your) the house for a certain period of time, given you make some agreement. Can’t remember the details of it.

  11. Please watch this film on DVD if you can get hold of it in Australia – it’s seriously good:

    We made this mess and we have the power to change it. Youngsters now are no longer interested in becoming bankers or politicians – and the ones that are are revolutionaries, not puppets. There will be a revolution, but I think it will be an intellectual one. People have had enough, and the more of us who keep spreading the truth that the mass media refuses to acknowledge, the quicker change will happen from within.

    We have to change our ways first. At election time, we need to vote for the best candidate (or run for office ourselves!), not vote tactically to prevent the worst from winning. We need to withdraw our money from the big banks tomorrow and open accounts with ethical banks or credit unions. We need to absolutely and utterly refuse to buy property that we cannot afford, and only ever borrow 3.5 x income as leverage. Rent instead! I know it’s expensive to rent, but we are the pioneers of the new world we’re trying to make, so we must take the financial hit for the sake of our children. We need to stop accumulating ‘stuff’ we don’t want and don’t need. And most importantly, we need to talk about this with everyone we meet. Eventually people will change their habits and realise it’s not the bankers and political class who pull the strings, but us. We have the power to change the system, but we cannot do it on this forum alone. We must go out and lead by example.

    It’s your money. It’s your vote. It’s your children’s future.

    You want a revolution? LET’S START ONE NOW!

  12. 70% of people aged under 35 cannot afford a home in Sydney. The greed and stupidity of the Australian government knows no bounds. There is no hope that lies with either political party, whilst in opposition they might champion the debate on negative gearing, but once in power they revert into the same gutless greedy mindless pigs feeding from the property bubble trough as the ones before them.

    The bursting of the property bubble is the most natural form of social justice that this country would experience in a lifetime.

    It is an utterly sickening thought that this Un-Australian Government continues to give free lap dances to the rich (both here and abroad), to ensure that ordinary hard working young people struggle and toil and continue to have thier lives dictated by a buch of grossly, morbid and foul smelling herd of pigs.

    I hope this bubble bursts and the smell of bacon fills the air!

  13. Hey aussiebattler – yeah, I agree that people tying up multiple houses is the issue, and not the owner-occupiers. I just don’t think taxation is the answer for that, because taxation works like the “camel’s nose in the tent” – you let the camel’s nose in, and pretty soon the whole camel is there. Let the government start taxing any property ownership, and guaranteed, within ten years everyone who owns property will be paying tax on it, because it all really belongs to the government, errr, ‘the country’, don’t you know!

    I think abolishing negative gearing, and raising capital gains tax, both of which you’ve suggested many times on this board, are themselves a good way to go to discourage ‘property as profit’. The main thing is to allow the bubble to collapse. Taxes tend to make things more pricey, not less; we need to do everything we can to encourage a DEFLATIONARY price effect in housing. As prices revert to mean (and that’s a long way to fall!), all these multiple-owner parasites you’re talking about will go bankrupt. They will scream to the gov to save them; it will be down to the voters to prevent gov from doing anything to interrupt this necessary change. You’ll be able to buy those properties then for a song, assuming you still want them, as deflating bubbles usually overshoot to the downside. What’s beginning now will have a snowball effect, provided we prevent the government from continuing its meddling, that just makes the inevitable landing even harder….

  14. Seems to me that there are many like minded views on this subject. We have had a gut full of the wrongs that everyday Australians have had served up to them, through the combined greed of all who have vested interests in keeping house prices inflated in this country.

    I hope someone influential in policy making reads some of these forums and maybe they’ll get the idea that people are becoming increasingly discontented with the in-action and ignorance of the so called leaders in this once lovely Country. (Not so much anymore.)

    To everyone who commented, thank you for sharing, and let’s all continue our quest for social justice. I for one, don’t think it’s fair that the generations to follow should have to endure life as it is now, where you get ripped off on every street corner and work like a dog only to go backwards. This should not be the way the Citizens of this country are treated and hopefully this greedy, self-interested, immoral way of living ceases and we can return to some normality. We need a nation where everyone gets the opportunity to prosper, not just the well connected few, who take, take, take.

    Best wishes it’s been reassuring reading all your comments. Let’s keep our fingers crossed that we get a positive outcome eventually! x

  15. I don’t know where all this bile comes from. The vast majority of the world are in far worse situations than anyone in Australia, the Outback excepted.

    I subscribed to a group “End Negative Gearing” because I wanted Australia to be even better than it is, and to stop having everyone’s tax dollars siphoned off to a landowning minority. However, I am an owner-occupier who lives 2 hours from where I work because my home was affordable. I have not benefitted at all from the housing boom in the years between my purchase and now because nobody wants to live more than 1.5 hours from where they work.

    From the rants on this page you’d think people were only eating one meal every two days and had to walk to get running water or they were in a war zone where the rich bastards have mobilized a militia out to cull your family or something. These things are happening elsewhere in the world.

    Australia is the best country in the world. the BEST country in the world! THE BEST! We can make it better and we should work hard to make it better, but let’s not delude ourselves that the r

  16. Rationalist is right. Both parties are prostitutes to the demographic that wants NG to stay as it is – so there is NO PARTY TO VOTE FOR ON THIS ISSUE.
    We really need an ‘Affordable Housing Party’. This really is a stupid country where we can have a Sex Party and a Fishing Party but no one wants to stand up for ordinary Australians who just want basic shelter.

  17. AverageBloke,

    Let’s a all those who wants negative gearing to end put the two major parties at the bottom of the preferences. Then they pick any party at random (including independents) at the top of their preferences. If enough people do that, then the election results will be unpredictable. Given that we already have a minority government, we may have a situation where no government can form until the negative gearing issue is resolved.

  18. ^ what? are you high?

    How does putting both parties at the bottom of the ballot address the NG issue when both parties won’t even discuss it?

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