Negative gearing back in the limelight as investor losses mount to $13 billion

Among the backdrop of growing budget deficits, the government struggling to fund Gonski and the National Disability Insurance Scheme (NDIS), the Australian Taxation Office (ATO) yesterday released figures showing negatively geared property investors lost a cool $13.285 billion in 2010-11 with much of this loss funded by the taxpayer. It wasn’t good timing for the government, but it has help propelled the issue to the forefront for more debate.

An article featured today on Fairfax online portals titled, “Negative gearing losses a key drain on revenues” is glowing hot with 248 comments. It reports on comments from Bank of America economist Saul Eslake saying “I have to translate the words ‘negative gearing’ to people overseas because it just sounds crazy to have a system that rewards people for losing money.”

According to the tax office, Australia had 1,811,174 property investors in 2010-11. Of those, 1,213,597 made losses totalling $13.285 billion.

But any debate is likely to be fruitless. Simply, Australia is experiencing the largest property bubble in its history. Any government which abolishes negative gearing is likely to instantly pop the bubble and be blamed for plunging Australia into a severe recession. Throw in a slowing mining boom, and a manufacturing sector decimated by the high Aussie and it could easily turn into a depression. It’s a lot of blood to have on your hands for $13 billion.

Should Negative Gearing be an election issue?

» Negative gearing losses jump – Macrobusiness, 30th April 2013.
» Negative gearing losses a key drain on revenues – The Age, 1st May 2013.


  1. Australia: 1.25 million people negatively geared. 14 million (approx) registered voters.

    USA: 4 million NRA members. 225 million (approx) registered voters.

    With statistics like that, if the US can’t get background checks on semi-automatic weapons passed, do you really think NG will disappear here at home?

    Here’s hoping…

  2. I think they should limit the amount of negative gearing a person can have by income or amount of property. The problem is if you abolish the whole thing then the rental market will really become tight then. The same thing will happen when they got rid of it before. My 2 cents worth.

  3. LBS says: > The problem is if you abolish the whole thing then the rental market will really become tight then.

    No it won’t. The houses don’t disappear — they are bought either by other investors, or by someone who is currently in the rental market.

    > The same thing will happen when they got rid of it before.

    Wrong. Show me the evidence. To quote Saul Eslake: “It’s true, according to Real Estate Institute data, that rents went up in Sydney and Perth. But the same data doesn’t show any discernable increase in the other State capitals. I would say that, if negative gearing had been responsible for a surge in rents, then you should have observed it everywhere, not just two capitals. In fact, if you dig into other parts of the REI database, what you find is that vacancy rates were unusually low at that time before negative gearing was abolished.”

    Almost every other country in the world manages to provide cheaper rents than Aus without negative gearing.


  4. @LBS – I don’t think the rental market will become tight. Under Hawke/Keating last time, rents only went up in Sydney. There were heading upward anyway, because people were being priced out of buying. The rest of the country then didn’t become expensive because of demand, but because of tax incentives to buy. Suddenly regular people could feel like ‘investors’ and house prices soared. Australia has some of the most expensive real estate in the world. This is not a good thing.

    The media are spinning this ‘rents will soar’ story way too much. Rents can only go as high as the market can stand. That’s capitalism. If landlords get too greedy, people have recourse through Fair Trading. A market rent is a market rent and has nothing to do with NG. No other country in the world has NG and rents are lower everywhere else. Go figure.

    Abolishing NG will make houses more affordable and therefore you will need fewer renters. It is utterly absurd that the tax-payer should fund the losses of property investors. All it has done has fuelled house-price growth. It’s got to go.

    If landlords then want to dump their ‘stock’, their tenants will be in a better position to buy the property from them. No-one is made homeless and everyone walks away relatively unscathed.

    And before the landlords and property investors moan that it’s not fair and that they’ll lose money, I say this to them: it was an ‘investment’. Values can go up as well as down. Governments can change legislation. It was in the small print when you took out your mortgages. No-one held a gun to your head. The rest of the country does not exist to support your loss-making decisions because you fell for the hyperbole of the media, the greedy banks and idiot real estate agents.

    And while we’re at it, get rid of the baby bonus too! If anything we should be encouraging people to NOT have kids. Over-population is the elephant in the room that no-one wants to talk about. But that’s another topic.

  5. @LBS: that’s just a boogie-man which gets paraded out every time the NG discussion comes about. That did t happen in the eighties, and it’s not happening in countries where NG doesn’t exist. If nothing else, there ought to be more accommodation coming available, as specufestors can no longer afford keeping something empty in the vain hope that CG fairy will turn their loss making “investment” into a shiny gold pile after doing nothing to earn it!

    And don’t tell me that the rents will go up either, that’s another boogie-man of the same ilk as the one above!

  6. It is only in Australia that such a big lie (NG) could last so long systematically!

    Rent has nothing to do with NG for that NG does not slow down rent growth at all. Fundamental logics could prove this. Let alone the numbers.

    This amusing country makes people sick of the lies more often in modern times.

  7. Maybe the popping of a bubble by removing negative gearing would as Paul Keating would say create the recession we had to have.

    It has been my opinion for some time that the government should draw a line in the sand. For example all properties purchased from 1/7/14 are ineligible for negative gearing. That way there is less downward pressure put on property prices.

    If we were to abolish negative gearing altogether, there would be a dumping of Australian property the likes of which we couldn’t imagine. However with my idea, the existing owners of negatively geared properties would be incentivized to hold their properties as they will want to hold onto their tax breaks.

    There would obviously be a significant drop in investor demand on property and a fall in people moving homes as many would want to hold off on moving, just in the hope they could get the inflated prices they thought their homes were worth.

    Now I am not saying there wouldn’t be significant pain for most property owners, but we would see a less precipitous fall in property prices than would be seen if we were to ban negative gearing in its entirety.

  8. The hypocritical nerve of instututional government to suggest that all Australians should continue to subsidise negative gearing on the excuse that if cut it will lead us into economic depression. What further from the truth. Already Australia is facing massive budget deficits and is in a recession. But institutional government prefers to cut many medical and social programs that benefits the majority of Australians while a minority(home investors) will continue to make personal fortunes at the expense of many of us. Institunional government will add more debt to Australia just so it will keep the same special interest groups(real estate agents and banks) that funded their political campaigns happy with overflowing profits while many of are in debt forever, by buying and paying for unjustifiably high home and land prices. I cannot believe voters place politicians with such views into positions of power. They are obviously not competent and realistic to hold power.

  9. Theo, I’m with you. Agree wholeheartedly.

    Adrian, yes it would create a recession, and this time we would really need it. Sure, a lot of investors would suffer, and while I am not wishing suffering on anyone in particular, it is just ludicrous that this country which is in deficit due to Labor’s gross mismanagement insists on continuing to subsidise investors who would otherwise take a loss on their investment, just to keep prices up.

    While I would have no argument with it being scrapped in a one fell swoop, I know that if (and that’s a big if) it was ever dealt with, it would be cut slowly. Mind you, I think even the slightest cut would scare many investors out of property, which would still be a good thing.

    Today, Jon Faine on ABC 774 asked Julia Gillard whether she would ever consider doing something about negative gearing. Of course she said she wouldn’t. He then said, “But it’s bleeding the country dry.” She made a snide comment about him being smart enough to know better, and repeated that she would not change anything. Not that I was surprised, but she refused to give any reason as to why she was not touching it.

  10. @10 It’s a good thing Julia Gillard said she wouldn’t touch NG. We all know what happens when she makes decisions – she changes her mind. Come on Julia, we’re waiting.

  11. Still Waiting, I see you are anti Labor, but I would suggest that the Liberals know this is a poison pill as well and will likely not touch it as well. So you can criticise the Labor Government, but both parties will not use this as an election campaign issue as neither wants to be responsible for popping the bubble.

    In fact you could (and I emphasise could) argue that the Liberals stance on this issue is far more questionable. We know that the Labor Government loves big Government and in effect thinks they should run everything as they know better than us mere mortals, however the Liberal party believes in the individual, free markets and small Government (yes I know I am over simplifying what each party stands for, but I am just making a point), yet NG is the complete opposite of a free market and it should be the Liberals standing up saying this policy is madness, but you don’t see this anywhere. I know a couple of Liberal candidates and I know they don’t see any problem with NG, yet will tell you that free markets and small Government are the best outcome for all citizens.

  12. Abolish NG will save budget a fortune. Investors who sell in panic will help budget with massive capital gains tax. Go for it any govt with guts.

  13. Rupert, that’s because this discussion is about negative gearing, but yes, I can talk about baby bonus and over-population which are two other methods of trying to create a shortage of properties in order to keep the bubble going. The baby bonus, like negative gearing is middle and upper-class welfare we cannot afford, and the massive immigration policy is there to keep feeding the Ponzi scheme,

  14. Can’t they just gradually phase it out like what they’re doing with the grants?

  15. @10. Still Waiting,

    If Australians seems laid (layed?) back, hard to motivate when it comes to various issues. Take Negative Gearing away from them, and watch a Government overthrow like a revolutionary movement, in an early election.

    Nobody will touch Negative Gearing out of fear of losing the next 15 elections.

    Personally, I think it should go all together, or at least set it up so it doesn’t become a big burden on the economy.

  16. has anyone got a link to that podcast of the John Faine ABC interview with our gutless wonder of a prime minister?

  17. Ultimately it will all collapse not due to the choices Government, banks and the moron REIV make but because they will eventually have NO choice.

    When things go to hell these institutions will go all out to save themselves and throw the garden variety investor and the gullible to the lions.

    Look who Cyprus is picking on? Their voters! The people who make up their country. They are shafting everyone to save the uber-greedy.

  18. Ha yeah, I heard that the Prime MInister stated that “nothing was off the table” in dealing with the billion dollar budget deficit. What she meant to say was that nothing was off the table except Negative Gearing.

  19. I know it is probably a pipe dream, but, if Labor is going to get belted (and it would certainly seem that way). Maybe they should decrease the amount Gearers can claim. It would send the message that its days are numbered and you had better beware in the future that it will eventually go. I am sure the Libs would like a start on it as well because it is hurting the govt bottom line and it is also hurting the economy having so much debt and bank funding tied up in unproductive means. Investors are just going to have to suck it up. At the moment they are going all in on property and the debt is just going to pile higher, just as out currency is about to start dropping.

  20. I’d like to see negative gearing quarantined to the income of the asset purchased. That should drive a much bigger focus on the yield of the asset rather than on speculating that capital gains will eventually make up for any interest cost losses.

    As for removing NG causing issues within the rental market, I don’t follow the logic of this. It may stop the construction of new property over the short term, but if property “investors” start to sell then either they sell to a renter, or they sell to another investor.

    Howard and Costello have a huge black mark on their economic record with the halving of the CGT. Since 2000 investment properties have only racked up losses EVERY year. Prior to 2000 you would see very small positive or negative incomes for rental properties, but over a few years years they would pretty much balance each other out.

    Abolition of NG could nearly pay for Gonsky and NDIS!

  21. Abolishing ng will be the last change these failures in charge will enact. Wheres the accountability in politics? Half of them belong in jail for their mismanagement.

  22. Yes it is time NG was abolished.NG is in effect subsidising the banks as 90% of investors have borrowed money and 75% of those make a loss and 80% of that loss comes from the interest rate costs.Once again the taxpayer subsidy helps the banks profit and their unsustainable share prices.

  23. We are all in agreement here that negative gearing should go. But what to do when the majority of the population want to keep it, and the government won’t even talk about it? So we just wait, give up or do something about it? We are only preaching to the converted here. I don’t have the answer; I’m just asking.

  24. @27 Only 1.25 million people are negatively geared. Why does the majority of the population give a shit? Surely those 1.25 million people can’t decide the general election!

    I think the government are talking about it – behind closed doors. Looking at the figures, it really is a very stupid piece of fiscal policy. It rewards losses! How daft is that? It’s not a matter of ‘if’ but ‘when’ it’ll go. Labour may lose 1.25 million votes if they abolish it, but equally they may gain many more. It could be a major manifesto pledge. That’ll divert Hockey and Abbot from the usual mid-slinging rhetoric.

    Here’s hoping.

  25. Rupert, it would be great if the govt were talking about it, but so far, no side of govt has given any indication of that whatsoever. While it may be “only” 1.25 million negatively geared, a lot of people who are positively geared now, started off as negatively geared.

    The thing is that no investor, either positively or negatively geared would like to see it go because property prices would drop dramatically. Unfortunately, there isn’t enough people in Australia who want to see the bubble burst. And not only that, if the illusion of wealth disappeared with falling property prices, then spending would drop, and without a doubt, we would go into recession.

    I wish I could be as optimistic as you about them talking about it behind closed doors, but sorry, I don’t think they are.

  26. Still Waiting – we’re going into recession anyway, right, with or without NG. It’s going to happen. Australia is not immune to the global fallout. First there are drops in interest rates, then QE, then austerity, it’s commmiiiiiinng…

    Look, as voters we are entitled to lobby our MPs and other candidates from other parties at hustings and clinics and demand answers on NG right? The more of us who do it, and the more it becomes an ‘issue’, then the media will take an interest, and then it becomes an ISSUE. We just mustn’t be lazy and apathetic about it. We must be heard on other platforms outside if this forum. We have to take action. I’m the guy at the dinner party that gets an argument going about NG. Then I sit back and watch the mess unfold while I finish my glass of Pinot. No-one has a clue. They just think what the media tells them to think. So, stir up people you talk to, write to your MP, write an article in the local paper, get on the news. Turn the media around – and you’ve won half the battle.

    Even with all the property investors in Australia who would see a drop in prices, it is still a small number compared with the number of people who cannot afford to own their own home. The trick is for people like us to shout loud and clear that we will vote for the party who promises to abolish NG. That could be millions of registered voters.

    We live in a democracy, (at least it seemed that way the last time I looked), so if there are more people who can’t buy property than those with shrinking property portfolios, the former have the majority voice. Everyone I meet says they hate NG, EVERYONE, but they say that it’ll never go because the majority of Australians want to keep it. Really? Where are all these people? I’ve not met one Australian who thinks NG is a good idea. Not one! It’s like trying to find all these so-called boat people that we’re told are ‘invading’ our shores. They’re simply not there. It’s a myth stirred up by the media to control policy. News and Fairfax are full of shit!

    At the end of the day, politicians want to get elected. All they care about are the numbers. If they thought for one minute that the media was against NG – it would go.

    Keep the faith brother.

    However, if we’re all pessimistic and too bloody lazy to demand that our MPs work for us, and not the property lobby, then maybe you’re right. But I live in hope.

  27. Yeh, I think the reason NG is taboo is because

    1. the average punter doesn’t understand it
    2. The housing-politico complex doesnt want them to understand it
    3. Property Investors don’t want to see it go and they make threats and lies to keep the status quo.

    I can understand why print,commercial radio and tv won’t discuss NG because some of their biggest clients are Real Estate businesses. For example why would Ch9 do a 60mins story on AUstralia’s most distructive tax rort when they want to promote “The Block” ? The same goes for Ch7 and “Hot Auctions”.
    However it does surprise me that 4corners or some other ABC current affairs program won’t do a proper story on NG. Heck I’ve even emailed them twice asking if they would do a story on it and nothing has happened…. whats going on at the ABC?

    Anyway I think the only solution is for someone to form a political party. Is there an affordable housing party?

  28. @31 The Australian Greens are the only party who seem concerned by the extent to which our current taxation system (in particular capital gains tax and negative gearing) acts as a driver of higher rental costs, and the manner in which those looking to invest in rental properties compete with aspirant home owners. The Greens would change our system of taxation in order to discourage some of this speculation by reducing taxation incentives at the higher end of the market while encouraging investment in affordable rental accommodation.

    There’s your ‘Affordable Housing Party’!

  29. Rupert, just to reply to your post May 6th, 2013 at 11:36 pm. In the past, I have written to politicians about NG but either don’t receive a reply or the reply is just the usual bulls..t which doesn’t address the problem.

    You obviously move in different circles to me. Everyone I know is all for negative gearing. I must admit I don’t bring up the subject very often but I know a lot of people with rental properties who are taking advantage of, who have taken advantage of NG. Even if they weren’t, anybody with a property wants it to go up in price.

    Like you, I would vote for a party that gets rid of NG but it would be you, me and a sprinkling of others.

    You understand that removing NG would pop the bubble that most people don’t even realise we are in. You and I might celebrate but it would cause untold misery for many. As house prices plunge, many first home owners would find themselves in negative equity, as would those who have borrowed heavily from their PPOR to buy more properties. The construction industry would collapse. Recession would be a certainty. Much of Australia’s economy is built and is dependent on keeping the bubble alive.

    You say we are going into recession anyway. Maybe, but if we do, the government can always blame world events. Or we can blame the government for their wastage and stupidity. But no government will knowingly and purposely cause a recession.

    It’s always good when NG is discussed in the MSM. At least some publicity about how it has contributed to unaffordable housing is better than nothing. But whether anything can change…. sadly, I don’t think so, short of some world event that will eventually pop the bubble.

  30. Rob, it’s not even as though NG is up for discussion as far as either party is concerned, so while it might be a good idea, it’s all academic.

  31. People are discontent that NG deductions are in the billions and
    they have their right to be. what about CGT? How much is the government going to receive when these investors finally dispose of their property assets? My thought is, we cannot look at removing NG on its own without taking other factors into consideration such as CGT, which if eliminate concurrently could make it fairer for all parties concerned.

  32. Would the Remove of NG raise rents ? Sure would, I have an investment property that is NG. If NG was removed i would raise the rent about 10% per week or $30 as i would now be forced to cover the cost of the investment.

    This does not seem much, but what alternative would i have ? The property market would be floods with units for sale and yes these maybe purchused by ex-renters, but an equal number of renters would be through out of their rental home as it in now owned by an ex-renter.

    There will be less rentals on the market and while you might say there will be less people looking for rent. There is always people looking to rent for 1000’s of reasons and many new people looking to rent as we progress forward in time (young people moving out etc). In the end, the situation will be like the USA, whereas i could buy a unit for $100k, but to rent the same unit is $1000 per month, as there is still going to be a pool of people that cannot save the $20k for the deposit.

  33. How about Scrap Negative Gearing after June 30th 2014.

    Allow the Investors to sell their Rental Property to the existing tenant, if sold this way NO Capital Gains Tax. Ban the real estate agent from acting on the sale..

    That way the renters get to own the property they already live at!
    The Investor gets to dump the asset before the big price drop and the Government Stops rewarding those huge Losses Investors have with their property!

    WIN WIN all round!

    As long as it does not drive an Obama style Sub Prime crisis, ( Poor renters forced to buy houses where they can’t service the loans! ).

  34. @38 – I dig your idea, but as a renter, why would I want to buy the property I live in for more than it’ll be worth when there’s a house price crash? Also, if I couldn’t afford it, how could I buy it? You have some great ideas, but there are practicality issues. Worth investigating further though. I especially love the idea of cutting out the leech real estate agents!

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