Saul skewers negative gearing…again

By Leith van Onselen

The Business last night ran a great segment (video above) questioning the merits of negative gearing – a question that I have posed many times over the past two years on MacroBusiness and my old blog.

The transcript is provided below, along with key charts extracted from the video (the original transcript & HD video are available here):

TICKY FULLERTON, PRESENTER: While the Federal Government is going to extraordinary lengths to protect its Budget surplus, one saving still seems untouchable.

Negative gearing is estimated to cost the Federal coffers up to $5 billion a year.

Many economists argue it distorts the tax system for little discernible benefit.

But abolition is a teeny bit problematic with the very real risk of a voter backlash.

Neal Woolrich reports.

NEAL WOOLRICH, REPORTER: House prices and auction clearance rates might be picking up, if only slightly, but the housing market is still in the doldrums.

CRAIG DELANEY, LONG ISLAND HOMES: We’ve already seen a bit of a clean out in the markets. Some well known brands have … are now no longer around and, you know, I think that will continue.

NEAL WOOLRICH: And given that confidence is already brittle, Melbourne-based property developer Craig Delany can’t understand why some are pushing to remove negative gearing.

CRAIG DELANEY: When residential construction is down the industry relies on investment property construction to prop it up.

NEAL WOOLRICH: Negative gearing allows taxpayers to offset losses from an investment such as property or shares against other income like their wages. Over the years there have been many calls to scrap negative gearing, and now it’s also being seen as a saving that would help Wayne Swan protect his promised budget surplus.

SAUL ESLAKE, CHIEF ECONOMIST, BANK OF AMERICA MERRILL LYNCH: It would reduce the loss of revenue arising from negative gearing that, according to my own estimates, runs in excess of $5 billion per annum, and since negative gearing is overwhelmingly availed of by high income taxpayers, it would also improve the equity of the tax system as well.

NEAL WOOLRICH: Property developers argue that negative gearing helps attract investment in new homes. However the Reserve Bank’s statistics show over 90 per cent of property investors buy existing houses rather than building a new home.

SAUL ESLAKE: So, to a much greater extender than owner-occupiers, demand from geared investors pushes up the price of established housing rather than leading to the creation of new housing.

NEAL WOOLRICH: But the Housing Industry Association’s chief economist Harley Dale argues that high charges on new home building is the main factor driving investors away.

HARLEY DALE, CHIEF ECONOMIST, HOUSING INDUSTRY AUSTRALIA: The low levels of investment and new residential property reflects structural obstacles to new housing supply that reflect the fact that of all the sectors in the Australian economy, the new home building sector is the second most heavily taxed.

NEAL WOOLRICH: Some in the property industry have also argued there would be a spike in rents if negative gearing was removed. The Hawke government abolished negative gearing in 1985, but reinstated it before the 1987 election fearing a voter backlash. During that period rents rose in Sydney and Perth, were steady in Melbourne and Adelaide and fell in Brisbane.

SAUL ESLAKE: In truth the reason why rents rose so much in Sydney and Perth at that time was because of rental vacancy rates in those two cities was below 2 per cent on those occasions.

NEAL WOOLRICH: But Harley Dale argues you can’t compare 2012 with the 1980s.

HARLEY DALE: We have extremely tight rental markets around the country that have been tight for a very long time. We have a new home building sector that’s in recession for the second time in four years.

NEAL WOOLRICH: While Saul Eslake says negative gearing could be phased out for a number of years to minimise inequity and market distortions, political reality is another matter. With the business community still bristling over Wayne Swan’s changes to company tax, it might be some time before any Treasurer takes on the 1.7 million taxpayers who rely on negative gearing deductions.

Obviously, I strongly agree with Saul Eslake’s view that negative gearing should be wound-back, since it deprives the government of precious tax revenue, pushes-up the cost of housing, and does little to increase the supply of dwellings or improve rental affordability.

And while I agree with Harley Dale and Craig Delaney that planning restrictions and taxes lumped on new housing developments have adversely impacted new home construction, these are separate issues that have little to do with negative gearing per se.

The Business also deserves some praise for running such a balanced story.

Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.

 

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Comments

  1. Political suicide. Even those that don’t understand the concept of “negative gearing” are in love with it (correction: those that don’t actually understand it, but think they do, are in love with it).

    This is reflected in the age and income profile of those with neg geared residential property.

    What we need is a govt. who knows they’re going to lose the next election, to press ahead & abolish it. They will go down in the flames of public opinion, but as a nation we’ll all be better off for it.

    • Or….

      Reduce interest rates to ZIRP, use macro prudential tools to regulate lending standards to stop a bubble forming, maybe 65% minimum deposit. Once interest rates are low enough and negative gearing is irrelevant then just remove it. Slowly raise interest rates and remove earlier introduced macro prudential restrictions or just water down.

      With interest rates at ZIRP the $AU will fall/crash, with a low $AU we can increase our competitiveness, improve our industries and rid ourselves of dutch disease.

      Kill like 5 birds with 1 stone 😀

      • GunnamattaMEMBER

        I like the idea mate, but I think that sans a government knowing it will crash and burn and opting for the ‘greater good’ (roughly the same odds as getting an aurora to broadcast Julia and TestosterTone kissing in the skies above Canberra one night) it aint going to happen.

        But I do think the combination of almost blown budget surplus, the economic insanity of the AUD where it is, and the banks desperation to keep RE prices high enough to be viable on their balance sheets (not to mention the balance sheets of the Baby Boomers) is likely to leave us susceptible to someone stepping on something they shouldnt and the whole shebang having a correction in the economy, the RE market and the AUD at about the same time – and in amidst the chaos someone with an eye for a chance could butter up negative gearing, and hand it out the window.

      • Except that ZIRP would risk further inflating land values (…I mean, prices).

        Also ZIRP doesn’t = ZIR borrowing costs…. the bank’s still got to make their spread!

        …and with ZIRP, what happens when our economy’s back to firing on all four cylinders & we need a little bit of monetary intervention to control inflation?

        To reflect federal economic/budgetary management, parliament house is being converted to a windmill, and all pollies are being issued clogs

    • Political suicide

      I don’t think so. We had a silent revolution when most of the states removed FHOG and stamp duty concessions on existing first home purchase.

      Now, we didn’t have riots on the streets, did we?

      Government can restrict NG for existing dwellings first, with some grand-fathering provisions, to make the bitter medicine easier to swallow.

      • Or have it only on new dwellings, existing dwellings will have negative gearing perks extinguished in two years. In unison change the FHOG to existing property and watch all those investment properties flood onto the market and into the hands of FHOG at reasonable prices.

        This would also help improve the construction industry as investors switch to buying new properties which would in turn help the construction industry & the supply of dwellings.

        • What this tells me is that the govt should be looking to MB forums for ideas!!

          MAV – agree, but FHOG was only targeted to a relative minority (plus I think most people saw it for what it was, adding another $14k (etc) to the listed price). I feel there is far more hype/lover for negative gearing….even though the concept of the “negative” element is almost universally misunderstood by the average Aussie IP investor.

          Labrynth – even if the govt. doesn’t get rid of negative gearing, we might see this flood happen anyway….. startling proportion of IP owners are heavily neg geared, and rapidly approaching retirement… most seem to have the same idea: sell when they retire to extinguish debt + provide a cash base to live of in retirement…. Problem arises when a few hundred thousand have the same idea at the same time

          • What this tells me is that the govt should be looking to MB forums for ideas!! This government is devoid of ideas – take one look at MYEFO!

            I’d like A Government, any Government, to phase out negative gearing on existing dwellings and ring fence negative gearing offsets to rental incomes only.

            Which party has the stones to do the right thing and not the popular thing? None of them.

        • Hmmm, beware the unintended outcomes….

          1. Proporty prices fall as negatively geared investors rush to exist the market, reducing demand for new property and sending the construction sector into a severe depression.

          2. Construction sector unemployment rises significantly (see above) and so does finance sector unemployment as banks and financial services firms lay off thousands involved in mortgage origination and management.

          3. Rising unemployment positively feeds back into property prices, causing a severe depression in property prices (down 40% within 12 months).

          4. The negative wealth effect of a burst property bubble results in a signifciant downturn in consumer sentiment.

          5. Rising unemployment in the retail and tourism sectors (sue to depressed consumer sentiment) significantly impacts demand and leads Australia into a pronounced and prolonged recession (similar to the eurozone).

          Hmmm, maybe we should keep negative gearing.

          • Even without stripping out negative gearing we’re on that path. Few other catalysts* out there, such as lower wages/credit growth etc…

            *Don’t blame China. Thank them for providing a multi-decade commodities book

          • Please, Greconomics.
            After admonishing intelligent adults about the unintended consequences of contemplating a rapid correction of overinflated property prices, OFFER A PLAUSIBLE ALTERNATIVE STRATEGY FOR A RETURN TO EQUILIBRIUM.
            “Be careful what you wish for” is tantamount to property spruiking in this context of a gravely unfair intergenerational wealth transfer. It’s the new “rent money is dead money”.
            The can-kinking era is breeding its very own doublethink/doublespeak, and I’m sorry someone who has commented on this issue so sensibly in the past has fallen for it.

          • Greco, did you even read what I wrote?

            I said, keep NG for new housing constructed, but with reducing % as years go by and investors recoupe some of their losses.

            Remove NG (I.e. quarantine the losses) completely for EXISTING HOUSES, but with some grand fathering provisions to ensure the changes aren’t sudden.

          • OK, lets mark this..

            1. Proporty prices fall as negatively geared investors rush to exist the market, reducing demand for new property and sending the construction sector into a severe depression.

            If a boom existed previously, then it is fair to say the sector is over capitalised. Both in terms of its labour force and wages.

            Can you foresee how the sector would voluntarily shred its labour force and reduce its wages?

            History shows it doesn’t happen. That is the desired and necessary part of ‘creative destruction’ of capitalism.

            0/1

            2. Construction sector unemployment rises significantly (see above) and so does finance sector unemployment as banks and financial services firms lay off thousands involved in mortgage origination and management.

            If a sector that is reliant of leverage, such as construction, bubbles then it is fair to assume the sector that enables leverage would also become overcapitalised.

            Read above, thus creative destruction x2

            0/2

            3. Rising unemployment positively feeds back into property prices, causing a severe depression in property prices (down 40% within 12 months).

            You’ve failed to describe a negative impact with falling housing prices.

            0/3

            4. The negative wealth effect of a burst property bubble results in a signifciant downturn in consumer sentiment.

            We run CAD’s via rampant consumerism obtaining crap we don’t need from China.

            Unemployment can be alleviated via short term income support from the government.

            0/4

            5. Rising unemployment in the retail and tourism sectors (sue to depressed consumer sentiment) significantly impacts demand and leads Australia into a pronounced and prolonged recession (similar to the eurozone).

            No, it does not.

            Enduring recessions only occur when the otherside of the equation is allowed to face up to its deserved consequences.

            Bond holders forfeith their claim to all future interest payments, and take hold of the secured items if need be.

            If those lenders falls, then their creditos take possession, until all claims are settled.

            I have a $1 coin in my pocket, and it is unbridled to any claim against it.

            I will bid for all big 4 banks for that $1 coin to take ownership of all the big 4’s assets.

            I do not care about their impaired loans, I believe the remaining good ones will be worth the $1 I spend.

            I am sure someone will outbid my $1, and so on until the highest clearance price is settled.

            At bottom, enterprise builds up from their once again, hiring people and bringing more product to market.

            This all takes place in the matter of months and all is done.

            Why it doesn’t get downe is because VERY rich bond holders, and corporations have their welfare looked after by government to the detriment of most of us.

            A person on the dole getting $34.50 a day isn’t the welfare recipient stuffing your life up, the welfare that big business and priviliged elite is.

          • I’d dispute points 1 & 2, on the basis that construction levels are already very low, and investors exiting wouldn’t have a great direct effect, because only about 5% of the properties they buy are new. It’s a boom in land values, not building.

        • the concept of the “negative” element is almost universally misunderstood by the average Aussie IP investor.

          As is the consequence of gearing when the value of your investment goes down.

        • Good idea.
          Banks would not like it but they have behaved like spoiled debtslave-creators for long enough.
          Most ‘investors’, read speculators, will have made 200-300% depending on how long they have been in the market. Only recent or over-leveraged ones might be in a pickle – they can sue the banks for reckless lending if they like 🙂

    • +1 IW. If you’re going out at least find some integrity in the end. You never know – those that aren’t in the 1.7mil pile might even respect you for it.

  2. The simplest way to get rid of negative gearing (losing money in the hope of an abnormal capital gain) is to remove the capital gains that make it attractive.

    Negative gearing will evaporate (especially on existing homes) if the spigots (excessive charges and regulations) are removed from the supply of new land and the further sub-division (horizontal and vertical) of existing land.

    If we solve the problem that way then it can be ‘banned’ when no one is doing it.

    Naturally of course the process I describe above will not be painless as the existing hoard of negative gearers are smokin’ their rosaries hoping for past capital gains performances to be repeated.

    Abundant new housing supply will be a wooden stake to much of the ‘existing dwelling’ market so beloved of the negative gearing fraternity.

    • And that’s not to mention you get taxed on inflation!

      Buy @ $1m. In 10 years the inflation adjusted value is $1.5m. You sell for $1.5 m. You pay tax on $250k.

      • innocent bystanderMEMBER

        actualy that is why the original CGT was halved, they removed adjustments for inflation and other deductions – seem to remember at the time it was just about revenue neutral, ie full CGT – allowable deductions versus 50% CGT no deductions. probably not revenue neutral tho when CG on houses was rampant.
        so, all those posters who carry on about halving CGT foget that at the time it was a trade off against abolishing other deductions to offset CG.

  3. i agree as well – remove negative gaering from property 10% increments over 10 years

    also, let GST be on rents – of course a person with only 1 property for lease wouldnt need to charge GST because it would be below the threshold…

  4. What if we just abolished negative gearing for NEW home purchases? ie. people that buy an investment property after the implementation date will not receive the tax benefits of negative gearing.

    Surely this would be more politically palatable, since anyone that has an existing investment property wouldn’t feel they have been done over by the government. Could also observe the impacts it would have on the market at a slower pace?

    Or would this just encourage people to hold onto their properties longer, in a market of declining prices they just decide not to sell at all? The real estate broker industry would obviously not like the decline in transaction volumes.

    I agree negative gearing is potentially positive for building new homes.

    • The developers, HIA and most importantly, unions won’t like It.

      The above vested interests are more powerful than the REIA. We need a creeping revolution .. Can’t tackle all the 800 pound gorillas in the room at once.

      • As proved in ’87 when the govt reintroduced neg gearing to keep the real estate lobby groups on side, buy votes

        Which 800 lb gorilla should we start with? 🙂

    • “Surely this would be more politically palatable, since anyone that has an existing investment property wouldn’t feel they have been done over by the government. ”

      I think they would still feel done-over since the re-sale price would drop and the capital gain is the major point of negative gearing.

  5. I just cannot believe we are still having this debate.

    Not just negative gearing. Just make it plain unappetising to buy existing residential housing. Get rid of the CGT exemptions and put a punitive tax on it. Get the damn speculators out of the existing residential housing market.

    Give the new housing market some incentives. And even free up some of the regulatory constraints on new housing.

    Housing is not a financial asset. I just cannot understand why the other 20 million people in Australia are letting 1.7mil negative gearing property investors run the show?

    • Agree.

      The fact that they are a MINORITY of taxpayers, in effect being subsidised by the majority, needs to be pointed out.

    • Actually we shouldn’t just get distracted on negative gearing.

      Any passive investment in existing residential property should be non-preferred ie should be slightly higher than tax neutral, reflecting the fact that passive investment in residential property is potentially very parasitic.

      This combined with much more onerous constraints on landlords.

    • Ronin8317MEMBER

      While Australia have 23 million people, there are only 11 million votes. Almost all of the 1.7mil properties investors can vote, so it is around 15% of the population.

      No government will survive a 15% swing against it.

      • Whats more, in addition to the be 1.7m voters who would be directly impacted by the abolition of negative gearing you also have those voters who will be indirectly impacted as a result of the subsequent drop in property prices bought about by the removal of negative gearing.

        How many voters are there who are property owners or have some financial interest in property regardless of whether they are investors who may or may not be negatively geared?

        Whilst we all backslap and agree it is the best way forward for our country, the abolition of negative gearing would be political suicide for a government.

        How many of you would put your job on the line for the betterment of the company you work for?

    • Too true.
      Houses are shelter but have been given the status of casino chips – with full facilitation by numerous govt agencies, including Treasury, ATO, APRA to name a few.
      I look forward to the day the majority of people realise they are being duded by the system as it is now.

  6. Plenty of contributions above on what to do with negative gearing for housing investment. What about negative gearing for shares? My two bobs worth: only allow negative gearing for venture capital, new listings or capital raisings. No negative gearing for existing listed shares.

    • Yes. Negative gearing for passive investments is a crock of sh8t – it allows the asset rich to shelter tax and leaves those without a strong asset backing out in the cold.

      Arguably it also contributes to financialisation and not investment in any form where it occurs.

      Existing residential housing is a particularly insidious variant however.

  7. Get rid of negative gearing and replace it with a tax deductible interest for Fist Home Owners who buy new builds. No more grants.

    This will also allevaite the need to constantly fiddle with superannuation. Superannuation should actually be more politically sensitive than negative gearing.

  8. Diogenes the CynicMEMBER

    Swannie could have solved his MYEFO problems by ditching negative gearing – $5bn a year for 4 years would just about cover his $21bn hole over forward estimates.

    Then he could have fiddled and tweaked the rest…

    • Yeah, sure, like raising taxes and closing deductions ever raises the revenue predicted.

      Didn’t you learn anything from the mining tax ?

      You simply can’t assume that people will continue to do the same activities in the same volumes when faced with higher taxes.

      The French raised the tax on millionaires, so the millionaires fled the country.

      The Swedish tried taxing all financial transactions in the 1980s. It brought in less than 1 tenth of the desired revenue as all financial activity moved to England.

      Stop tweaking the system, each intervention moves behaviour more and more away from a normal market.

      Better to remove existing interventions than invent new ones.

      • Better to remove existing interventions than invent new ones.

        How is eliminating negative gearing *not* “removing existing [market] interventions” ?

      • You are correct in one sense, raising taxes rarely raises the expected revenue. Aside from the usual things like incentives people move overseas, move income elsewhere, suddenly don’t make as much etc…

        For example, the government recently made interest on commercial hire purchases subject to GST, but I’d be surprised if this raised anything at all as everyone just sets commercial loans up as chattel mortgages or finance leases now. Some bureaucrat probably thought it was a great idea too.

        As for negative gearing, it’s a little different. If it was no longer deductable against employment income then everyone doing so would have to pay tax on their income anyway. So unless they all stop working or start getting paid less then it would stop most of the deductions.

  9. The analysis is correct, but the suggestion to abolish negative gearing is terrible.

    Is this government really starved of precious tax revenues ?

    The sheer greed and endless appetite of our bureaucrats and public sector parasites knows no bounds. If you account across all levels of government, they spend nearly 50cents in every dollar earned.

    • It would be far wiser to reduce all income tax rates so that the deduction of negative gearing.. and all deductions for that matter, have less of a distortive effect on markets.

      People might jump through hoops to avoid 30$ – 45% marginal taxes, but not as much as they would if they were faced with 10% – 20% marginal taxes.

      The problem is high taxes.

      • How is gutting the tax take going to help a situation of insufficient tax revenue ?

        The problem is high taxes.

        Australia already has some of the lowest tax rates in the OECD.

        Trickle-down economics was an absurd suggestion to start with, and history has comprehensively demonstrated it doesn’t work.

        • “Trickle-down economics was an absurd suggestion to start with, and history has comprehensively demonstrated it doesn’t work.”

          Yeah, we should just tax everyone 100% and let the government dole out the money. Trickle down economics is just silly, incentive to invest and employ? Bah humbug!

          Honestly, if trickle down economics was ‘absurd’ then the above statement wouldn’t be completely ridiculous. In fact it’s been shown comprehensively that it does work and a quick look around any modern city is your proof.

          • “Yeah, we should just tax everyone 100% and let the government dole out the money”

            Nice use of reductio ad absurdum. Bravo!

          • Erhh history hasn’t shown that at all.

            The most prosperous time in the entire western world was between 1946-1975, with relatively high tax rates atthe upper margins.

            It was the era of “all boats rise”.

            Trickle down doesn’t work because wealth is concentrated by those that seek to put zero monetary velocity on a margin.

            The way it ONLY works is when the maximum number of consumers spend high incomes (full employment, not this NAIRU crap we have lived for for 3 decades), and business competes for a margin by delivering desired product to market. Either by the smallest margin or the best product.

            This method minimises rent-seekers, and that is why is was dismantled.

          • The most fascinating part of the “trickle down economics” maxim is how the very rich (who are statists to their core) have convinced – mainly the narrowly read/experienced (I was one once) libertarians – that it works, in the face of evidence that it does not (or confusing its success, like the Laffer Curve, with other policies).

            What makes people more prosperous is not making the rich richer. Its making the middle class wealthy with low levels of debt servicing, higher levels of wage/output share, productivity/technology enhancements etc.

            Yes, if you increases taxes beyond a certain level, some rent seekers will jump on a boat. Its when you make an entire economy unproductive enticing those who want to be wealthy to seek endeavours overseas – not the already rich who can afford battalions of accountants – that the opposite of trickle down is “shown” to not work.

            All this focus on income tax is a rich mans astroturfing delight.

            The rich are wealthy because of land and capital goods…the income is secondary (but a great political football).

          • Honestly, if trickle down economics was ‘absurd’ then the above statement wouldn’t be completely ridiculous.

            Yes, it would.

          • “have convinced – mainly the narrowly read/experienced (I was one once) libertarians”

            Ditto Prince. I was one too…

            Seems to be a phase we go through huh?

          • TP, you understand that the whole point of “cutting taxes for the rich” is not to reward those who are already rich but to encourage the entrepreneurs who are trying to get rich by putting great new ideas in practice.

            “Cutting taxes for the rich” almost always refers to the marginal tax rate on high income earners. The rich already have wealth. Unless the tax is on “stocks” (what they already have) rather than on “flows”, the rish will remain rich. Remember, they do not need any extra income to stay that way!

          • TP, you understand that the whole point of “cutting taxes for the rich” is not to reward those who are already rich but to encourage the entrepreneurs who are trying to get rich by putting great new ideas in practice.

            That’s the marketing blurb.

            It bears precious little resemblance to reality.

          • @drsmithy

            You need to know some basic concepts of taxation to understand my point.

            The current taxation system is predominantly based on “flows”. A tax on “flows” does not take anything away from “haves” because they already have the wealth.

            A land tax is a primary example of a tax on “stocks”. As I had advocated elsewhere on this site, I am in favour of the introduction of broad based land tax (as recommended by the Henry tax review). It will encourage land oweners to optimum use of the land they hold.

          • The current taxation system is predominantly based on “flows”. A tax on “flows” does not take anything away from “haves” because they already have the wealth.

            Would you prefer the terminology “high income earners” rather than “rich” then ?

            There is precious little evidence a high marginal tax rate on individuals has a serious impact on entrepreneurialism. Like the 30-odd years post-WW2 in America where top marginal rates would make even the Swedish blush.

            A land tax is a primary example of a tax on “stocks”. As I had advocated elsewhere on this site, I am in favour of the introduction of broad based land tax (as recommended by the Henry tax review). It will encourage land oweners to optimum use of the land they hold.

            People who want to “cut [income] taxes for the rich” almost never have any interest in raising them elsewhere. They fundamentally want a net decrease in total taxation, not a more efficient way of collecting the same (or, horror of horrors, more!) tax revenue. They are nearly always just following the standard neo-lib “starve the beast” philosophy.

            It’s like the flat-taxers. As soon as you suggest a flat tax on *assets*, they go very quiet.

          • “Would you prefer the terminology “high income earners” rather than “rich” then ?”

            It is not a matter of my preference. One needs to distinguish a flow from a stock.

            And yes, the tax rate on a stock must be flat.

          • It is not a matter of my preference. One needs to distinguish a flow from a stock.
            I think you’ll find most of the top few percent have plenty high “flows” as well.

            And yes, the tax rate on a stock must be flat.
            I’ll freely admit I haven’t thought about this at all… Why ?

  10. “since negative gearing is overwhelmingly availed of by high income taxpayers”

    I thought the average neg gearer was on $80k income?

      • So he meant “the tax benefits of negative gearing are highly skewed toward high income taxpayers”?

        • Of course, the higher the marginal tax rate, the greater the perceived “benefit” of negative gearing (though I do not see how it can ever be a “benefit”).

          But I am not at all convinced that the ATO is worse off because of negative gearing. See my post at the bottom…

  11. Off Topic,

    Mav,
    What does this mean in the IT world? And the NBN for that matter?

    http://gizmodo.com/5954407/scientists-promise-ten-times-more-bandwidth-with-no-new-hardware

    “All that’s required, it claims, is a little extra math.

    Technology Review reports that the scientists have been developing algebraic techniques to eliminate the task of resending dropped packets of data—something that really clogs up networks. Creating a new way for devices to solve the problem of missing data eliminates the wasted effort of resending data—but also means devices can weave data streams from Wi-Fi and LTE together, instead of having to use one or the other”

    • Ronin8317MEMBER

      Physical noise operates on different levels to lost packets. The idea of using ‘parity bits’ to recompute the lost data has been around for a long time, and it’s good to see some improvement. However, the best that can be achieved is ‘lossless’ i.e. no data is lost in transmission. It cannot exceed the physical limit of the medium. If your phoneline can only handle 64k, then the data rate will never exceed 64k.

      • You are right in that you cannot increase the bandwidth beyond the capacity of the physical medium through which you are sending your data.

        The title of the article is perhaps slightly misleading “Scientists Promise Ten Times More Bandwidth With No New Hardware”

        What the scientists are actually promising is to increase the throughput by 10 times. A subtle by important difference.

        • rob barrattMEMBER

          Correct. In fact fibre optic cable offers 2 significant advantages over wire.
          1) It can transmit (bandwidth) something of the order of 2 terrabits/sec
          2) You can lay it next to a high tension cable – no problem as it is not affected by inductance as is wire.
          Having said that :
          a) Wombats will have no trouble getting through it (literally) if they don’t put something hardened around the cable bundle. Too bad it that’s a major conduit.
          b)You are still limited by how fast existing switches can work so you cannot make use of anything like the theoretical maximum
          c) I am still an agostic when it comes to this door-to-door business. You start getting subject to the law of diminishing returns,ie. cost of laying cable to fibro shack with one TV. I suspect a combination of FO + some wireless would be a lot more cost-effective.
          d) The government governance cockup factor – enough said.

    • What does this mean in the IT world? And the NBN for that matter?

      It means your home wifi and mobile 3G/4G will have more reliable performance sometime in the next 3-5 years. (Probably only if you buy new stuff though.)

      The NBN, being a wired network, a) doesn’t suffer from this problem in the first place and b) is already an order of magnitude (or more) faster and more reliable.

      • The NBN, being a wired network doesn’t suffer from this problem in the first place

        While generally true in that packet loss (non congestion packet loss) is much lower in a wired network (than wireless) errors can still occurr.

        Therefore

        The NBN, being a wired network rarely suffers from this problem in the first place and the performance improvement in converting from packet-switched to network-coded would be negligible.

        sorry for being such a pedantic PITA

    • Rather than data being ‘packetized’ and sent in unicast chunks from source to destination via a routed network, data is ‘coded’ and ‘diffused’* through the network.

      A significant performance improvement is also found because conventional TCP (that we all use) assumes that packets losses are caused by congestion (and when packets are lost it slows down the rate at which it sends packets through the network), however this is not always the case especially in wireless networks (where packet loss can be caused by noise, a poor channel or the devices are too far apart).

      * this word sort of describes how it happens, but not very well.

      a general description of network coding:
      http://en.wikipedia.org/wiki/Linear_network_coding

      For further information on this breakthrough:
      http://www.mit.edu/~medard/papers2011/Modeling%20Network%20Coded%20TCP.pdf

      Not a great explanation I know, as it is not my core area of research, but I do have some colleagues who are working in this space so I do have some familiarity with it.

  12. If you are going to reform negative gearing you have to reform CGT as well, I have to come to the view though that the only tax the Fed should get is the GST, get rid of the states , have regional government and have the bulk of the tax system where the bulk of the service delivery takes place. (ie cantons, copy the krauts and schweiss)
    But as some one said some where else squadrons of berkshire whites will fly before this happens

  13. Negative gearing only annoys me in a rising market. Right now, I’ve more sympathy than anger for the negative gearers; subsidising their tenants AND losing capital.

    So what if they can offset a bit of salary tax? How much use will that be if they lose their job?

  14. As boomers retire, they will not want or need NG. They will thenj vote to remove it and diovert funds to pensions and healh.

    it is just a matter of votes…

    • They will thenj vote to remove it and diovert funds to pensions and healh

      I can see that …

  15. From the mouth of a Bank of America economist. This would NEVER come out of the mouths of HSBC, CitiBank or the big 4, too much vested interest.

    Stunning.

  16. Hey, UE, how do you know that the ATO would be better off if the negative gearing were abolished?

    Let’s say there is an individual whose marginal tax rate is 15%. Suppose this individual has exactly “zero negative gearing” position (investment costs exactly match investment incomes) with, e.g., CBA. Now suppose CBA decides to increase its profit margin by hiking the effective rate (either not passing the RBA cut in full or jacking up extra on top of an RBA hike) so that this individual now needs to make $1 extra payment to CBA ($1 negatively geared).

    Now what will happen?

    Well, this individual deducts the $1 from his income statement. The ATO will then collect 15c less tax from this individual. But wait! The ATO will collect 30c more tax from CBA because CBA raised extra revenue of $1.

    You can play out a bunch of scenarios between the depositors, the borrowers, and the bank. If the income distributions of the depositors are the same as those of the borrowers, and if the profit margin of the bank does not change, then the ATO will not make or lose any revenue. If the income distributions of the depositors are higher than those of the borrowers, then the ATO will raise more revenue as the size of the negatively geared loans increases (and vice versa).

    The situation gets a bit complex once offshore funding is involved. But, then again, does not the ATO collect taxes from foreign depositors at the highest marginal tax rate? In which case, the ATO can a killing by increasing the size of the negatively geared loans!

  17. Stable Population

    Side question: Would Saul Eslake have criticised negative gearing while still working with the ANZ?

    BANK OF AMERICA MERRILL LYNCH not so reliant on housing mortgages for profit in Aus??

    Is this yet more evidence that who pays the piper (‘expert’) calls the tune?