Negative gearing is a tax shelter for fat cats

By Leith van Onselen

After demolishing Treasurer Joe Hockey’s claim on Friday that unwinding negative would cause a significant increase in rents, The AFR quoted my work in an article entitled: Negative gearing: what’s true and what’s not?

This AFR article also contained analysis from the Property Council of Australia (PCA), which claimed that Australia’s lower-paid workers are the primary beneficiaries of negative gearing, rather than it being the domain of the rich.

Below is the PCA’s argument, which comes from the original article posted on its website that the AFR quoted:

The latest available data from the Australian Taxation Office is indisputable and it shows that some of Australia’s most valued, but lower paid workers are the primary beneficiaries of negative gearing.

This includes the 42,000 nurses, midwives and aged care workers, 62,000 teachers and child carers, 12,300 emergency service workers and 83,000 clerical staff, who all earned around or under $80,000 p.a. and negatively geared a property in the 2012 Financial Year.

It is misleading to claim that these people only earn under $80,000 p.a. because they substantially reduce their gross taxable income.

A detailed analysis of the ATO Tax Statistics shows, for example, that 8,885 registered nurses, 3,120 primary school teachers, 2,880 secondary school teachers, 3,350 education aides, and 2,945 child care workers all declared a net rental loss and had a taxable income of between $6,001 and $37,000 p.a.

ScreenHunter_7208 Apr. 27 07.03

“The data clearly shows that negative gearing is something middle Australia uses to help build their household wealth, build for their future, and provide security for their families,” said Chief Executive Ken Morrison.

“Negative gearing provides an opportunity for average working Australians to save to get ahead.

“Demonising negative gearing, or disregarding its substantial benefits – in terms of household and retirement savings, stimulating housing supply and rental affordability – willfully disadvantages some of the hardest working, lowest paid people in the country…

“These people aren’t the rich and famous, nor are they property barons, but they do deserve a fair go and that’s why negative gearing must remain.”

It’s another excellent piece of propaganda run by the Property Industry, isn’t it? Because there are 325,585 ‘Aussie battlers’ with taxable incomes below 80,000 – i.e. incomes below $80,000 after deducting their negative gearing losses – negative gearing should not be touched, despite its significant cost to the Budget and its inflationary impact on house prices, which of course means that the battlers the PCA cares so much about must also pay more to put a roof over their head!

The problem for the PCA is that there were 1.26 million Australians that claimed rental losses in 2011-12 (see next chart), and any objective analysis shows that the lion’s share of these negatively geared investors were higher income earners.

ScreenHunter_7209 Apr. 27 07.14

To illustrate, consider the next chart showing the breakdown of Australians that lodged tax returns in 2011-12 broken down by taxable income:

ScreenHunter_7210 Apr. 27 07.16

According to the ATO there were 12,736,030 individuals that lodged tax returns in 2011-12 with the average taxable income just $53,778 – well below the $80,000 threshold used by the PCA.

Now consider the next chart showing the distribution of negatively geared investors by taxable income range, whereby each negatively geared investor claiming an average loss of $10,894 in 2011-12, which of course reduced their taxable income:

ScreenHunter_7211 Apr. 27 07.20

Combining these two charts, and converting each series into their percentage share of the total gives the following distribution:

ScreenHunter_7212 Apr. 27 07.22

As you can see, negative gearing was significantly under-represented at the lower income levels and over-represented at the higher income levels in 2011-12.

The picture gets even worse when one considers the share of total negative losses claimed at each taxable income level. As shown below, higher income earners – who are already over-represented in their negative gearing activities – claim an even higher share of the negative gearing losses:

ScreenHunter_7213 Apr. 27 07.25

All of which smashes the PCA’s claim that negative gearing is primarily the domain of the ‘Aussie battler’, which is clearly false. The number of negatively geared property investors increases with income, and the value of losses claimed even more so.

Of course, the ABC’s Michael Janda already debunked the PCA’s claims 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:

ScreenHunter_7214 Apr. 27 07.31

Make no mistake, negative gearing is used disproportionately by higher-income Australia’s to avoid paying tax by speculating on housing.

It is a wasteful use of scarce taxpayer funds that has forced-up the cost of housing in Australia to the detriment of middle and lower income families.

[email protected]

Comments

    • From the outset, reiterate I don’t think NG is a good idea unless you capture the beginning of the cycle. But there are some flaws in the analysis above, and some conclusions made that the data does not back up.

      (a) Firstly, you don’t explain how NG is suddenly such an important of leverage now given its been around for decades. In respect, is not NG structural, rather than cyclical? And has little or no affect on house prices currently. Look at Japan, they have had the benefit of 24 years of price declines in the midst of NG..

      (b) Houses prices and NG on its own, with reference to increasing leverage, higher debts – all the result of lowering interest rates, lower lending standards and increased property participation from overseas buyers? Throughout – NG has remained the same, but other variables have changed…

      (c) I don’t think anyone is suggesting that NG is primarily used for battlers, rather than the rich. I think NG is probably used across the spectrum. BUT – DO WE REALLY KNOW??? Which brings me to the next few points…

      (d) Trying to prove a double negative. Yes good comparative analysis suggesting that the rich are over represented with NG (although marginally so according to Figure 4) – but here is the crux, if what you say is true, how do you differentiate real income from those using NG to offset??? the answer is you cannot! And the data above give some indications why (i) You assume that high wage earners use NG to offset wages, but in many cases, high wage earners don’t have incomes, they have investments, which benefit from CG’s concessions negating the need for NG – and although anecdotal, that fits with what I have seen; (ii) Higher income earners should have multiple properties, so their small number they make should make up a disproportionate amount of houses – but they don’t according with the data above, just a marginal increase which could be explained that they bought a more expensive investment property; (iii) The amount of debt to the wealth you own is substantially larger – is like saying milk is white. But here is the rub, that difference is not demonstrated via debt levels and NG housing from your data!!! Which implies they either have very expensive homes that they live in – or the debt is used elsewhere… investments, businesses?

      My conclusions are that (1) NG does not seem to be responsible for this bubble, rather its debt and interest rates and animal sports gone mad; (2) that although some more wealthily are probably using NG for some tax shelters, your own numbers (and we don’t know what we are measuring – aka Point d above) suggest they are not large portion. The only piece of evidence backing what you are saying possibly, which you did not address, is the large numbers of people using NG that earn >$20k. Mathematically impossible???? Needs further investigation (3) There seems to be a disproportionate bulge of people from $20-100k peaking at around $50-60k who are involved with negative gearing – who appear represent the battlers who will get wiped out in this coming correction. Again anecdotal, this is clearly the largest group entering the NG market – people leveraged to the hilt, afraid to miss the bubble, and relying on NG to pay the bills. I am sure we all know someone who has gone down this road… family maybe??

      Look, I think NG is a silly idea, and history dictates prone to failure (illiquid asset, timing, enormous debt – and let us not forget, it relies on losses, for marginal benefit elsewhere).. Maybe it should be scrapped. But it in no way have caused this recent bubble (rather thats all you out there buying), because its structural and been around for decades.

      Who knows… what will be, will be. Crash coming IMHO – but not before interest rates fall to zero (6-18 months time).

      • What will be the effect of dropping rents in Perth and maybe later the eastern cities in this environment? I see NG blowing a much much bigger hole in the budget.

      • RT,

        Yes – the negative gearing mania in Australia is largely a symptom of a bigger problem as without an expectation of capital gains no one would be getting excited about losing money on an investment property.

        An economic model whereby the economy is driven with ‘bait rates’ and household debt is the core of the problem. That was the great ‘invention’ of politicians on both sides over the last 20 years. They would run surpluses or small deficits while the household ran themselves into the ground with larger and larger levels of debt. The economy bubbled along nicely on all that household debt and the pollies got to have photo ops as ‘fiscal conservatives’ – again both sides – after all Mr Rudd invented that particular phrase.

        The pollies have simply loved milking the mountain of household debt (first user pays all costs of developing new land, stamp duties etc) and bait rates were the single most powerful stimulant of the process.

        Of course the tax rules regard negative gearing and capital gains discounts gave it a push along with the incompetence of the NIMBY / BANANA whipped land supply authorities but those factors would not have produced the mania we have experienced (right around the world) without the RBA (and their central bank buddies) administered ‘bait rates’ and the swelling mountain of household debt that was driving prices.

        Now we are in the end game of the model because an economy run on expanding household debt will collapse if the mountain stops growing.

        The RBA is on the path to ZIRP simply because the ‘bait’ to attract the heavily indebted when asset prices are already inflated must be made tastier and tastier. It is however trying to dawdle on the path to ZIRP as much as it can by cutting rates just enough to keep household debt growing slowly without stalling but not enough to make the problem of excessive debt any worse than it already is.

        The problem of course is that keeping it alive means making the situation worse.

        The government is sacred stiff of fiddling with ANY of the secondary factors contributing to the problem (thus the assurances by Joe and Abbott that they will not touch negative gearing) but the one factor they need to talk about – driving the economy on debt based money produced by the private banking sector is the one they are not talking about.

        Yet.

        They have no choice – the current model is broken. Someone somewhere is going to have to bite the bullet and start supplying economies with money that is not debt based. Doubt it will be Australia as our pollies – both sides – just are not up to the job of resolving the failures of 20 years of bi-partisan policy.

        What is likely in Australia is that our hopeless pollies will try to ignore the problem by first running up a mountain of public debt and selling it to off shore central banks and others. This is exactly what Joe is doing (while claiming it is the ALP’s fault) and Abbott seems keen on the idea now as well. End result – the model remains broken but we will have a mountain of private AND public debt when we finally do something about it.

        The dumbest excuse trotted out is that we “should make use” of all those cheap off shore savings to build “infrastructure” white elephants. Infrastructure would be better than simple consumption but we DO NOT need to borrow off shore to build the infrastructure that we need.

      • @RT

        Had the convo before. The combination of NG and CGT discount establish teh CG model of housing investment. Yields don’t matter because NG provides cash flow and CG converts taxable dollars into tax “free” dollars. The other factors impact on the price yes but not the model.

      • FF – Of course yields matter – its either via income (i.e. rent) or capital gains. It has to be one or the other or a combination of both. No one makes losses to claim against other income – it may be a marginal benefit, but thats its… its periphery to the investment decision.

        Trust me – when this market starts falling in a big way – NG will mean absolutely nothing to whether the investor/speculator holds or sells. And why should it? NG has been around for at least two minor property cycles – with both ups and downs!

        007 – NG has an impact, if you removed it it would have an affect. But as I have argued before, probably not as much as if you stopped illegal foreign investment purchases, and even more so, if interest rates started rising again. The truth is, virtually no one by definition gets rich via NG. For two reasons, (a) most don’t pick the beginning of the cycle, and the whole concept relies on capital gains out-weighing costs, which typically means that houses have to increase in vale 6-7% pa at a minimum, depending on equity held at current interest rates; and (b) like those who use margin share trading accounts, if you do make a bundle leveraging up, your modus operandi also means that you will suffer major losses when the market turns against you (i.e. the way you make your money also sows the seeds of your destruction).

        NG in that respect is a red herring. This property crash will occur – at the bottom policy makers could drop NG if they want. But I would suggest, politely of course, they won’t because they then would see it as an avenue to encourage housing investment again. And so the story rolls on…

      • RT, I don’t think NG alone is responsible for the bubble, but it has definitely acted to amplify it by offering a tax incentive in a rising market, it encourages even more investors to join in, creating something of a positive feedback loop of ever rising prices encouraging ever more investors.

      • I think the evidence says otherwise – its traction for sure, but NG has been around for decades… the recent property boom is something else!

      • RT
        “Look at Japan, they have had the benefit of 24 years of price declines in the midst of NG..”

        It’s sloppy to make such a statement without adequate research. In Japan they have a form of negative gearing but it’s more complicated and is not the same as ours. Therefore, one can not make such a comparison and definitely one can not use the Japan negative gearing/house price correlation (or lack of) and apply it here. I stopped reading the rest of your argument after this bogus assertion.

        See this link which illustrates the differences: (they make a distinction between loan interest attributed to land portion vs building portion of the property).
        http://japantax.org/?p=3997

        From the link:
        Example where interest paid to land is non deductible

        Below is an example of a calculation of the Interest Attributable to Land showing how the limit on the set off operates. Amounts are in JPY thousands.

        Assume that real estate income from a property is 11,000, total Necessary Expenses are 15,000 and the property cost 120,000, split between land of 80,000 and building of 40,000. The 120,000 purchase price was paid for by cash 20,000 and a loan of 100,000 on which 6,000 interest was paid (included in the 15,000 of Necessary Expenses). How much of the overall loss can be set off against other income of the taxpayer?

        Assuming that the 100,000 loan was first applied to purchase the building then 40,000 of the loan is allocable to the building and so the remainder, 60,000, must be allocable to the land.

        The amount of interest expense allocable to the land is, therefore, 6,000 interest times 60,000 of loan allocated to land divided by 100,000 total loan = 6,000 x ( 60,000/100,000) = 3,600.

        Therefore of the total loss on real estate income of 11,000 income less 15,000 Necessary Expenses gives a 4,000 loss, however since 3, 600 is Interest Attributable to Land only the remaining 400 out of this 4,000 loss can be offset against income other than real estate income.

      • @RT

        No one makes losses to claim against other income

        Clearly you haven’t spoken to too many Aussie property investors.

      • You actually make a couple of reasonable points in places RT. Your point about the rich not necessarily having a high income are certainly not without basis. http://www.smh.com.au/comment/budget-pain-not-for-millionaires-who-pay-no-tax-20140513-zr9o3.html. Although calling them “wage earners” is not particularly accurate (rent earners perhaps). That should also alert you to the fact that Leith’s analysis is more likely to understate the number of “fat cats” using NG as a shelter and that there aren’t as many holes in Leith’s logic as you think (although I do agree there are some low/middle wage earners dangerously leveraged – as does Leith given his past posts). I would also add that falling interest rates in recent years and perceived uncertainty in other investment classes have simply further amplified the effects of NG and CGT concessions which came later.

        On another level, given this is government revenue foregone and that the cost of NG to budget revenues was estimated in 2005/6 to be $3.5 billion (and growing), quarantining it to new builds it is common sense given the budget pressures. There are other dimensions to this issue.

        @ Pfh007: Nice post

    • The lower the interest rates and inflation, the less are the benefits of negative gearing. So with our lowest ever interest rates, why is it that negative gearing is now getting so much press? If it is such a great idea to remove it, why did Labor abolish it and then shortly later bring it back in? If you truly are a wealthy investor, you would be positively geared into the Sharemarket , not negatively gearing into property. In addition, when “generous” tax treatment of Capital gains is mentioned; it is only generous for assets held for a year or 2. Long term, there is no allowance for inflation and you can be left with a tax bill despite no real gain. Personal income tax is too high and the only “fair” solution is an increase in the GST. At least then, if you don’t wish to pay tax, you just don’t spend any money!!

    • Bingo PFH.. like that way you put it

      That was the great ‘invention’ of politicians on both sides over the last 20 years. They would run surpluses or small deficits while the household ran themselves into the ground with larger and larger levels of debt. The economy bubbled along nicely on all that household debt and the pollies got to have photo ops as ‘fiscal conservatives’ – again both sides

      House hunting on a Saturday and Sunday shopping are now the norm and have been for the past 15 years, you could be institutionalised for asking why we need shops open every day and for asking why anyone needs more than one property?

      In the meantime, we have the pop Ponzi that has made our morning commute to work double over the years, we now need both parents working while little Jimmy spends 11 hours daily in childcare and we never seem to “get there”.. few if any blink for a moment and think hang on.. this ain’t right, or god forbid think of themselves as part of the problem

      Moment over.. time to buy IP 3, NG that out for a bit then get IP 4 and maybe pick up that LX 470 on 1.8% finance.. I’ve never felt so wealthy

  1. “unwinding negative would cause a significant increase in rents” But that could be right….in Real Terms!
    Rents could nominally stay-put, or even fall, and real rents could rise. Of course, that would be into the scenario that Joe wants to avoid…. at all costs……nominally falling property prices….

    • Janet I am confident that the rental assistance to lower middle income bracket will be expanded to rescue the ponzi from correction. Tony and Joe helping the battlers pay their rent which will grow (initially and perhaps) as a percentage of household income.

      At the end of the day, if we are to be competitive, our shelter must have comparable costs to those of our competitors and that means 70+ percent adjustment either nominal or via exchange collapse.

      Take your pick.

  2. Of course it is, haven’t you seen the dapper suit below reusachtige’s smiling face? He ain’t wearing a nurse’s outfit, but even if he did he’d still look marvellous while saving multiple lives

  3. You say rents didn’t rise last time except in Sydney. So are you saying screw Sydney renters ?

    • Mmmm…, interesting point, perhaps phase it out over a longer period for Sydney and Melbourne postcodes?

    • “So are you saying screw Sydney renters ?”
      No.
      The proposed reform is “NG for new builds only.”
      Increased Sydney new housing supply. Lower Sydney rents.

    • Leith has done multiple posts on this, going into why rents rose in Sydney (and Perth from memory) and that was due to a shortage that existed prior to NG removal and after reinstatement. If only the trolls followed the discourse rather then thumping their chests.

      • You are assuming everything Leith says is the gospel

        I don’t take anything Leith says as gospel. I agree with MB on many things and disagree on many others.

        I am assuming that people have enough of a mental capacity to read, look at data, follow or disprove the logic and make up their own minds. Obviously this is beyond some …

      • Everyone here is a skeptic. No one takes LVO as gospel.
        “Low rates + macro-prudential for the save”?
        Half the comments are “LOL”

    • Rents rose in Sydney because of supply issues, there is very little correlation with the removal of negative gearing.

    • “You say rents didn’t rise last time except in Sydney. So are you saying screw Sydney renters ?”

      So what are you suggesting? We not support a change in policy because it may or may not affect one state? Anyway, I suspect that status quo is already screwing Sydney renters.

      • Labor wins the next election anyway. They wind back NG and explain why the property bubble is hurting the Australian economy clearly, its a landslide.

  4. Keep up the good work Leith – I do feel the work you guys are doing to warn people about the dangers of the leverage in our system could be too late to avert what is coming but perhaps it has helped prepare the people including me – we are nearly debt free happily renting in an area that would cost twice as much to buy and building a good trading and investing portfolio with strong cash balances

    I have no regret in not being in Sydney property, it is a house of cards IMO

    IMO – everything that is happening in AUS, neg gearing, lower interest rates etc is all good and fine at the moment…until the next major overseas shock

    If you look at the cycles on the S&P it is getting close to the top in fact some people are saying the 7.5 year cycle top could be Riis week – anyway there has been significant market shakeouts every seven years since at least 1931 – 2008, 2001, 1994 bond crash, 1987 – etc and nearly always around Sept & Oct

    We are primer for it again IMO – what will be the catalyst – the Fed? Greece? Middle East? a Black Swan? Liquidity Crunch? I don’t know?

    But how many bullets do we have left to stop an almighty fall if we go through GFC 2 here?

  5. And in New Zealand we still search for The Answer….but, hey, at least we’re looking!
    “A less politically explosive and much simpler way to reduce the tax incentives for rental property investors”
    A Deemed Rate of Return solution offers:
    -Expected capital gains taxed on an ongoing (annual) basis
    -Impact on investment behavior occurs in the short term
    -A simple and easily administered calculation and collection of tax
    -A tax revenue stream that occurs immediately, and does not require the sale of a property to ascertain taxation liability and payment
    -The creation of a level playing field between property investors and home owners (neither can deduct interest or other property related expenses)

    http://tinyurl.com/px49n5c

    • A better option would be to make interest non-deductible for all negative geared properties. If an investors is investing in a loss making asset, and has no plans of improving it to make it profitable within say the next 2 years at the most, they should be denied a deduction for all finance costs on revenue account. On top of that, tax the expected CG on an accruals basis (without any concession) and allow them to deduct finance costs against the expected capital gain. If the CG doesn’t materialize (and it probably won’t under this setup) then they’ll have to suck it up.

  6. I am starting to get a clearer idea on what Joe Hockey was on about when he espoused the lifters and leaners terms. Clearly the majority of tax payers who do not -ve gear (the lifters) are helping increase the wealth of those that do (the leaners).

    • So now you may also get his age of entitlement speech.
      The next generation is not entitled to a house, education and jobs.

  7. Maybe we should start referring to it as a “tax minimisation strategy” for individuals…

  8. Well done L.
    I still fear that NG will go when the boomers can no longer need it. They will vote it out to divert funding to pensions.
    Thing is the current proposals are to only remove it for the following generations. It should be phased out for everyone over a 5 year period.

    • Most likely that is correct. As boomers leaver the housing market over the next 15 – 20 years, the odds will be far higher than before that NG gets canned – especially when boomers work out that the tax foregone could be going into their pensions and/ or healthcare ‘entitlements’.

  9. mine-otour in a china shop

    I’d love to see an Economics based paper on the ATO / PCA analysis of occupations. Do Incentives to buy houses, push up service prices and damage competitiveness?

    Is it just possible that the reason we pay so much for carpenters, cleaners and hair cuts in our domestic economy is that we have to also help the service provider pay off large mortgages and support some of these people’s addiction to gambling on property?

    The house price,-wage – cost – price spiral is a disaster for any country’s competitiveness – even on a domestic basis. It all starts with policies to support property demand and irrational lending (which was previously the safety valve for these economic risks) .

  10. Worth noting that the RBA policy of driving down ‘bait rates’ has reached the point where the only people still taking on debt and playing the rising asset price speculation game are the rich high income earning investors and a macro-prudential chastity belt is unlikely to reduce their access to cheap money.

    Attempting to drive the economy with bait rates driving household debt is exactly what is driving the growing wealth inequalities.

    Those die hards still arguing that cutting interest rates is a better option than a combination of capital controls and printed deficits need to think again. Trying to manage the exchange rate in a currency war with interest rates is a fool’s errand.

    The current model produces one undeniable outcome – bilions of dollars of new bank baked deposits into the accounts of existing asset holders as they sell to new contestants.

    The most badly damaged by this process are those new contestants who buy a home at great expense simply to have a secure place to live and raise a family.

    One of the clearest indicators of the damage that the current model is causing to the long term health of the economy is the rise of the concept of the First Home Investor.

  11. actually about half of the NG’ers have a TI of <60k so it's a tax shelter for everyone not just the fat cats

    but anyway NG is a red herring, the real problem is the CGT discount which produces distortionary behaviour – people are willing to take a rental loss, not for the tax deduct, but because they think they can get juicy tax free capital gains

    • but anyway NG is a red herring, the real problem is the CGT discount which produces distortionary behaviour

      It’s the combination. Many will not be abel to sustain the cash flow at current prices to take advantage of the CGT discount without NG. But I agree. The CGT discount will actually have the larger impact of the two.

      • Australia has the 3rd highest CGT in the OECD already. Do we need to be the biggest taxing CGT state in the OECD – how will that help. IMHO it will discourage people from owning homes and reduce the new homes being built.

      • IMHO it will discourage people from owning homes and reduce the new homes being built.

        Why? Should make no difference to someone who wants to live in a house whether it goes up by 6%/annum or -0.6%/annum.

      • One in three homes are provided for rental by investment property owners. If you can see the federal and state governments stepping in to provide that as public housing as they did after WW2 then you’re on a winner, if not you’re on a loser.

        BTW there are many who want CGT on PPOR homes as well. Eliminate that and interest rates will have to fall to attract any buyers, and workforce mobility would grind to a halt.

      • One in three homes are provided for rental by investment property owners. If you can see the federal and state governments stepping in to provide that as public housing as they did after WW2 then you’re on a winner, if not you’re on a loser.

        How about we encourage the more sensible model where by the investment decision is governed by return based on rents and not on tax policy. The changes would scare away teh speculators and encourage a different type of investor. I would certainly consider investing in residential real estate under that model.

        BTW there are many who want CGT on PPOR homes as well. Eliminate that and interest rates will have to fall to attract any buyers, and workforce mobility would grind to a halt.

        Why not prices have to fall in both scenarios Peter? The Enterprise could have definitely made good use of your deflection shields.

      • Prices are not falling, and the measures you favour won’t help one little bit in the big picture.

      • and the measures you favour won’t help one little bit in the big picture.

        Then you should have no reason to oppose removal of NG (can claim against housing income) and CG discount to be linked to inflation. Lets see what happens …

  12. moderate mouse

    A quick back-of-the-envelope calc from the last chart shows that it is only 10% of the population with an investment property loan (and therefore affected by NG). The job now is convincing the other 90% that policy should not be made for the benefit of the 10% at the expense of the rest…..

    • Step 1: Convince the 90% that they’re not temporarily embarrassed millionaires, and that NG is doing more harm to them today than they are likely to gain if they get an IP at some point in the future.

  13. Also, most of these high income earners have Salary Sacrificed Superannuation and Fringe Benefits, if these are added back in addition to the NG, we will get closer to their actual assessable income, actual salary after work related deductions. Further, there is still investment losses from share and managed funds investments.

    It does make a big difference, when you can salary sacrifice some $25k and claim some $20K losses from NG. If that person is on top marginal rate, then $25k will be taxed at 15% instead of some 46.5%.

  14. I guess if they don’t want to allow deductions they’re not going to tax the rent if it’s positively geared?

    imo, the equitable thing to do would be limit the number of years a loss can be claimed, or restrict loss to be offset against future rental income.

  15. Negative Gearing and its bother (the 50% CGT concession) are the governments sanctioned tax dodges.

    The Hockey’s of this world continue to bellow out that NG is required to assist in providing affordable rental accommodation. But in reality its the total opposite.

    NG results in higher rental costs as landlords sit back with empty properties advertising for higher above market rents while their nil cash flow is supplemented by the landlord receiving a subsequent lower tax bracket and increasing capital gains.

    NG has no room for cash flow concepts. It’s all about tax minimal-isation and capital gains. This is in direct contrast to Mr Hockey’s claim to provide affordable rent. Thats rubbish and he know’s it.

    NG results in fewer properties available at a fair market price.

  16. negative gearing is tax shelter not for truly rich but for wannabes (middle class people). Rich people don’t have mortgages, they don’t pay interest to anyone, … they collect interest from wannabes

    The largest beneficiaries of NG are banks that like to convince middle class fools to think getting more into the debt will help them become rich. It may be true that people who deduct NG earn 200k but they are much more far from being rich that from being poor.

    • Hence the key to changing public opinion is making more people understand that their invitation to lifelong residency in Richistan isn’t temporarily held up in the postal service, but will never come, because the existing residents don’t want them there.

      • but the ruling class knows that the promise for Richistan is enough to keep slaves distracted while they exploit them

      • Then they’ll be in big trouble if someone gets their hands on a big enough supply of Red PIlls to break the spell.

  17. Quick skim and thought the headline read; “Negative gearing is a tax shelter for fat cants” then thought, yeh, it is.

  18. truthisfashionable

    I think this may need to be applied to the Negative Gearing argument:
    https://theconversation.com/inoculating-against-science-denial-40465

    “When you present evidence that threatens a person’s worldview, it can actually strengthen their beliefs. This is called the “worldview backfire effect”.”

    “The response to science denial is not just more science. We stop science denial by exposing people to a weak form of science denial. We need to inoculate minds against misinformation.”

  19. The rich have surplus money and surplus income which they choose to invest in property, NG is hardly a consideration for them, they will invest regardless.

    On the graph above (negatively geared taxpayers) it appears that the number of high income earners claiming NG are rather few except for the $100-$150K segment. They are higher than median income earners but not rich.

    Removing NG won’t build one house.

    • Maybe i’m wrong, but I though the tactic to get rich was:

      1. Tax minimization
      2. Invest in profit making enterprises.

      If owning houses does not result in either 1 or 2 above, I doubt that rich people will still invest in property regardless.

      Surely it be better economic policy to drive investment away from passive rent seeking incomes into investment that drive growth and employment?

    • If it won’t make a difference, we might as well collect the tax, given the budget emergency.

      • Collect what tax? A deduction is a deduction even it has to be carried forward. Removing NG just changes the year some of the deductions are claimed in, it doesn’t eliminate them.

    • rich don’t invest much of their money into properties. In fact, top 1% income earners have less wealth (as %) in properties than all other income groups except bottom quintile (bottom 20% because they have nothing).

      So it’s middle class that invests into properties and they don’t invest money they have but money they borrow.

    • Removing NG won’t build one house.

      Removing NG won’t demolish one house either. So lets remove it. 🙂 .. The Merchant of Debt doth protest too much over a non-issue.

    • However removing it will have several positives
      1. The govt will get some more tax, enough to offset the penny pinching they are punishing the realy poor with.
      2. It will kill off the current round of house price inflation mania, get rid of some of the speculators and perhaps lower prices a bit.
      3. After that more landlords might try selling off theirs on account they can see the writing on the wall re future price drops.
      4. IT will be funny to watch and hear the squealing, entitled piggies who have had life handed to them on a velvet cushion this last few decades.