Mathias Cormann’s negative gearing lies grow


By Leith van Onselen

Following his shoddy effort on Lateline last month, Finance Minister Mathias Cormann appeared on Radio National’s Drive program last night, whereby he continued to lie about negative gearing’s impacts on rents, as well as wrongly claiming that negative gearing is utilised primarily by middle income earners:

Interviewer: How can you ignore the advice of the Reserve Bank to have a look at this system [i.e. negative gearing and CGT concessions]?

Mathias Cormann: The RBA is responsible for… principally the setting of the official cash rate… Tax laws are a matter for the Government…

Interviewer: So you will not listen to any of their advice?

Mathias Cormann: Well we certainly will not make any changes to remove negative gearing. We’ve been very clear about that and I have actually heard the shadow Treasurer say today that Labor does not intend to abolish negative gearing either.

I mean, the truth is this has been something that has been tried before with bad consequences. If negative gearing… was removed you’d reduce the supply of rental accommodation and all other things being equal push up the cost of rents. And that is not something in our view that is desirable and it is not something that we will do.

Interviewer: This is not an academic or an analyst or a lobby group. But it is the country’s central bank calling for this review. Won’t voters expect you to heed the Bank’s advice given its central role in our economy?

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.

Let’s first examine Cormann’s claim that “bad consequences” for the rental market happened the last time negative gearing was abolished, between 1985 and 1987.

Sure, real rents rose in Sydney and Perth (see red line):

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However, rental growth was flat or fell elsewhere:

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Surely, if abolishing negative gearing caused “bad consequences”, then shouldn’t rents have risen uniformly across Australia, or at least in the majority of jurisdictions?

Don’t just take my word for it. Here’s what the 1987 Cabinet Submission on negative gearing said about rental growth (my emphasis):


“Data for individual capital cities suggest that, as might be expected, rents have risen more rapidly in those cities where vacancy rates have been tightest. In the twelve months to March quarter 1987, rent increases in six of the eight capitals lagged the CPI“.

Moreover, rents only rose in Sydney and Perth because rental vacancy rates were very low at the time in these two cities – as shown in the 1987 Cabinet Submission on negative gearing (see below table) – not because of negative gearing’s temporary ‘abolition’.

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Cormann’s argument that if “negative gearing… was removed you’d reduce the supply of rental accommodation and, all other things being equal, push up the cost of rents”, is also complete and utter bunkum.

As shown below, nearly 95% of investor mortgages are used to purchase existing dwellings. Hence, they are not increasing housing supply, but instead are substituting homes for sale into homes for let.

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If negative gearing was abolished, and some investors sold off their homes, who does Cormann think they would sell to? That’s right, renters (or other investors). In turn, those renters would be turned into owner-occupiers, thereby reducing the demand for rental properties, leaving the rental supply-demand balance (and rents) unchanged.

This is precisely why there would be no material impact on rents from negative gearing’s removal.

Cormann’s claim that negative gearing is being used primarily by middle income earners is equally devious.


The Tax Office data that he mentions is based on “taxable income”, which is what is left after deductions such as negative gearing are accounted for. Accordingly, the average taxable income in 2012-13 was only $55,228.

If it was true that middle income earners were the primary users of negative gearing, then we would expect to see around half of all rental losses declared by those earning less than the average.

However, the ATO statistics clearly shows that those with taxable earnings below the average of $55,228 claimed only $4,645 million, or 39% of the total negative gearing losses in 2012-13, with those earning above average claiming $7,400 million, or 61% of total negative gearing losses:

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So, based on the ATO statistics, which significantly understate the magnitude of the issue because negative gearing lowers taxable income, the claim that most people who access negative gearing are middle-income Australians is false. 61% of losses were recorded by those with above average income, even after their reportable incomes were reduced by more than the average due to negative gearing deductions.

But don’t just take my word for it. Here’s what the RBA said on the matter in its submission to the House of Representative’s Inquiry into Home Ownership:


Tax data also show that the incidence of property investment and the incidence of geared property investment… increase with income…

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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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That’s right, the top 40% of income earners hold nearly 80% of all investor mortgage debt, according to the RBA.

As I keep saying, if the Coalition was serious about “ending the age of entitlement”, improving the Budget bottom line, and improving housing affordability, tax concessions like negative gearing and its partner in crime, the CGT discount, would be up for review.


Instead, we have the Coalition defending the status quo with blatant propaganda. Australians deserve better.

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About the author
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.