More negative gearing myths busted

By Leith van Onselen

Social Services Minister, Scott Morrison’s claim (here and here) that negative gearing is used primarily by ‘battlers’ has received more punishment today, with new research from The Australia Institute (TAI) revealing that more than half the tax concessions from negative gearing are flowing to the richest 10% of households. From The Australian:

About $4.2bn of the [$8bn] annual tax break goes to households earning more than $206,000 a year, putting them in the top 10 per cent of the country by income…

The conclusions also build a case for scrapping a discount for taxpayers on the capital gains tax they pay on investment properties, which currently ensures that only 50 per cent of the gain is taxed. “A good tax is efficient and equitable. Negative gearing and the CGT discount fail on both those criteria,” the Australia ­Institute says in a report to be ­issued today based on data from the National Centre for Social and Economic Modelling.

“These two tax policies are highly inefficient as they distort the residential housing market by encouraging speculation. The benefits also overwhelmingly flow to high income households. These are taxes that are ripe for reform.”

Absolutely. As I illustrated yesterday, the distribution of Australians utilising negative gearing to invest in housing is over-represented at higher income levels:

ScreenHunter_7212 Apr. 27 07.22

And to make matters worse, higher income earners also claim a higher share of the negative gearing losses:

ScreenHunter_7213 Apr. 27 07.25

All of which has prompted Fairfax’s Peter Martin to question why Scott Morrison has chosen to believe the Property Council’s dodgy claims that negative gearing benefits lower income earners the most, rather than relying on the advice of the RBA:

Reserve Bank calculations suggest the top 20 per cent of earners owe the bulk of investor housing debt (60 per cent). The bottom 20 per cent owe just 2 per cent.

It is disturbing that a government minister would prefer the assessment of the Property Council to that of the Reserve Bank – all the more so when that minister is in charge of social services, the department responsible for working out who really is a battler…

The ANU Tax and Transfer Policy Institute says dumping negative gearing could save up to $7 billion and fund “Reagan-style tax cuts”. The US president Ronald Reagan moved against negative gearing in 1986.

What do we get for it? Very few new homes. The more popular negative gearing has become, the less it has been used to build new homes and the more it has been used to bid up the price of existing ones. Back in the 1980s, every fifth new investor loan built a home. It is now every 15th.

That the Social Services Minister publicly supports a wasteful policy that uses scarce taxpayer funds to force-up the cost of housing to the detriment of middle and lower income families is an indictment on both him and the Abbott Government.

So much for the Coalition ending the age of entitlement, which obviously doesn’t extend to the rich.

[email protected]

Unconventional Economist

Comments are hidden for Membership Subscribers only.