Should Negative Gearing be Abolished?
Posted On March 25, 2019
The questions that need to be asked are NOT about the wealthy paying more tax, but about the ramifications of getting rid of negative gearing and who will be affected. It is not the wealthy who will be affected so journalists need to start asking better questions to write better stories.
Here are a few questions about negative gearing that need consideration.
A 2016 article showed that from the cost of constructing an average $450,000 new home, approximately $180,000 in tax is paid across the three levels of Government. So, when a person earning $100,000 saves less than $5,000 per year on tax through negative gearing, isn’t the government way ahead on tax collected anyway? And, if negative gearing was stopped, and consequently, one person does not buy a new home, doesn’t that leave the Government $175,000 worse off? Even though the Government would receive the $5000 in tax previously saved through negative gearing, it would not receive the $180,000 that would come to it through the construction of the new home. Either my maths is way out or the Government is missing the point. They should be encouraging people to buy new homes to rent out rather than taking away negative gearing.
Certainly, remove negative gearing on old homes as they do not boost employment in the building industry or create jobs. They do not even add to the housing supply to help bring down rents as they are already part of the housing supply! So by all means, take away negative gearing and tax deductions when people buy an established home to rent out, but they should be encouraging people to build and buy new homes to rent out.
There should also be a cap on the value of homes you can use for negative gearing of 120% of the average value of a home. Building multi-million dollar mansions for rent is not helping low-income families – it is only helping the wealthy who are able to build them in the first place!
When negative gearing was taken away back in the 1980s, rent on cheap properties increased because the landlords could not afford to pay the mortgages without receiving the tax benefits of negative gearing. As such, the low-income earners were affected way more than the wealthy and this was never the intent.
When negative gearing was taken away in the 1980s – the waiting list for Public Housing increased from 4 years to 14 years within a few months because of the escalating cost of cheap rental homes. The real question here is whether it is better for the Government to give a $5,000 tax deduction and receive $180,000 in new taxes or to have to fund the cost of new Government homes at a rate of $450,000 to house them?
Who will provide the low-income housing if negative gearing is taken away?
How would the tax income from the 100,000 homes be replaced if negative gearing is abolished? Collecting tax from 100,000 homes at $180,000 per home is $18 Billion a year, and that money needs to come from somewhere. One way or another, it will come from the people and businesses that the government can tax, so it will come from somewhere…
How many jobs would be lost from the construction industry, and how would they be replaced?
How could low-income earners afford to pay more in rent if rental properties become more expensive because of lower tax incentives?
Clearly, there is a story the Journos want to tell, but they need to answer these questions before suggesting that we need to get rid of negative gearing as it is the low-income earners, the middle class and the tradesmen that will be affected far more than the wealthy.