One of the biggest lies peddled by the Coalition Government and the property lobby is that property investment – and negative gearing – is the purview of middle-income earners.
As an example of the types of lies peddled, here’s Finance Minister Mathias Cormann speaking in July:
Mathias Cormann: We are obviously quite respectful of the RBA. We’ve got great respect for their independence to make judgments on things that they are responsible for. But our tax laws obviously are the matter for the Government. Now, it’s important to remember that negative gearing… is an opportunity that is being used by middle-income earners to get ahead.
If you look at the tax office data and you look at who actually takes advantage of negative gearing, they’re police officers, they’re nurses, they’re teachers. This is something that obviously is being used by middle-income earners to get ahead.
“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.
In Australia, private rental accommodation is supported by a large pool of mum and dad investors making private rental stock available, through negative gearing. By number, almost 80% of these investors are middle income Australians earning $80,000 a year or less, owning just one property. They are school teachers, police officers, nurses and office workers saving and investing to provide for their financial security. In the Europe and the US, it is large institutional investors who often play this role. They are absent from our housing market.
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And here’s the Property Council’s Executive Director, Nick Proud, talking in April:
“The data is conclusive – negative gearing in Australia is primarily used by average workers who in the majority, own only one investment property,” Mr Proud said.
In August, the Reserve Bank of Australia (RBA) comprehensively debunked the Coalition’s claim that negative gearing is being used primarily by middle income earners, with head of financial stability, Luci Elliss, noting the following before the parliamentary inquiry into home ownership:
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The Property Council has cited Australian Taxation Office statistics to prove cutting negative gearing would hurt many people on low and middle incomes. It says 66.5 per cent of investors who made a loss on a rental property had taxable income of $80,000 or less.
But Dr Ellis said the RBA analysis was based on the Household, Income and Labour Dynamics survey which covers all income and all households while the Tax Office data cited by the Property Council only looked at the taxable incomes of people who lodged tax returns.
Dr Ellis said because of these limitations the ATO figures do not capture the fact that many negatively geared properties are owned by people with low taxable income but high “actual income”, mostly because they were drawing untaxable income from superannuation.
The chart Ellis referred to comes from the RBA’s submission to the home ownership inquiry, and shows that nearly 80% of investment property debt is held by the top 40% of income earners:
While the incidence of property investment increases with the level of income, the Household, Income and Labour Dynamics in Australia (HILDA) Survey also suggests that most investor households are in the top two income quintiles. These households hold nearly 80 per cent of all investor housing debt…
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On Friday, the Australian Bureau of Statistics (ABS) hammered another nail into the coffin of negative gearing lies via the release of its two-yearly housing occupancy and cost data.
The Guardian’s Greg Jericho has dissected this data and found that investment property ownership is clearly skewed towards the highest income earners, with the richest 20% of households accounting for 39% of all housing investors:
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It is abundantly clear that investment property ownership – and therefore negative gearing – is overwhelmingly a rich person’s game.
When will the Coalition and property lobby finally acknowledge this fact rather than spreading lies?
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
