Despite being schooled last month by the Grattan Institute’s John Daley and last week on this blog, Treasurer Joe Hockey continues to ignore the evidence on negative gearing.
Yesterday, in response to evidence presented by The Australia Institute and on this blog, which comprehensively proved that negative gearing losses are claimed primarily by the rich, in turn lowering their tax bills, Joe Hockey yesterday disputed these findings. From The Australian:
“I read a story this morning that said, that suggested, that rich people get most of the negative gearing so-called pie. Well, it’s not right. In fact, most people who access negative gearing are in fact middle-income Australians,” Mr Hockey said on radio.
I recognise all politicians fib, but Joe Hockey’s denial around negative gearing is palpable. One can only wonder at what role his own multiple investment properties play.
Still, his latest porky pie does behove me to once again call him out by showing the evidence on who the primary beneficiaries of negative gearing are: higher income earners.
First consider the ATO statistics, which show negative gearing by “taxable income”. Now it is important to note that taxable income is what is left after deductions like negative gearing are removed, so it is not exactly a reliable measure. For example, if someone earning $90,000 a year in 2011-12 (the latest available ATO data) claimed the average negative gearing loss of $10,894 that year, then their taxable income would be reduced to $79,106, thus making them appear to be a lower income earner than they actually were.
Nevertheless, what the ATO statistics for 2011-12 showed was that the number of negative geared taxpayers was significantly under-represented at the lower taxable income levels and over-represented at the higher taxable income levels (see next chart).
The picture gets even worse when one considers the share of total negative losses claimed at each taxable income level. As shown below, higher taxable income earners claimed an even higher share of the negative gearing losses in 2011-12 (see next chart).
So, based purely on the ATO statistics, which are flawed due to negative gearing’s lowering of taxable income, Joe Hockey’s claim that most people who access negative gearing are in fact middle-income Australians is wrong. The use of negative gearing increases with income, and the value of losses claimed even more so.
Of course, the ABC’s Michael Janda already debunked Hockey’s claim last year when he used Household Income and Labour Dynamics in Australia (HILDA) data to show that a whopping 60% of investment housing debt is held by the top fifth of income earners and that investment housing loans are more than twice as common amongst the top 20% of income-earning households than any other income group (see next chart).
The bottom 20% of taxpayers, by contrast, owed just 2% of investment property debt, according to the HILDA data.
And then there is The Australia Institute’s data released yesterday, which showed that more than half of the $7.7 billion of tax benefits derived from negative gearing and the capital gains tax (CGT) discount flow to the top 10% of income earners:
…one third (34%) of the benefits of negative gearing were captured by the top 10%, while a staggering three quarters (73%) of capital gains discount went to the top 10%.
Negative gearing reduces tax revenue by $3.7 billion and the capital gains discount by $4 billion…
The majority of the lost revenue accrues to high income households, with 56 per cent going to the top 10 per cent of income households and 67 per cent going to the top 20 per cent.
By comparison relatively little flows to low income households with just four per cent going to the bottom 20 per cent of households. The bottom half of Australian households only get 13 per cent.
The evidence is irrefutable. Negative gearing, and its partner in crime the CGT discount, are egregious tax lurks that flow predominantly to higher income earners.