Joe Hockey lies again about negative gearing

By Leith van Onselen

The negative gearing ‘whack-a-mole’ continues, with Treasurer Joe Hockey repeating the lie over the weekend that negative gearing is being used primarily by ordinary workers. From The Australian:

In his strongest warning yet against changing the tax breaks, the Treasurer told The Weekend Australian there was “no merit” to amending the rules on negative gearing for residential property…

“Negative gearing is a way for people on medium incomes to get into the property market,” Mr Hockey told The Weekend Australian. “Many hard-working Australians have invested money in real estate … to give themselves some financial security”…

The government analysis shows that 22.6 per cent of police use negative gearing, a bigger proportion than the 17.3 per cent of tax accountants, 16.7 per cent of management consultants and 11.9 per cent of university lecturers. It also finds that 19.2 per cent of ambulance officers and paramedics use negative gearing compared with 17.4 per cent of financial advisers and 15.6 per cent of economists.

And it concludes that 18.9 per cent of train and tram drivers use negative gearing compared with 17.2 per cent of solicitors and 18.6 per cent of real estate agents.

Just because the Abbott Government repeats a lie often enough does not make it true. The ATO data which the government relies on to claim that negative gearing is used primarily by “middle Australians” is fatally flawed because it relates to “taxable income”, which is what is left after deductions such as negative gearing are accounted for.

Even using this flawed data, those with taxable earnings below the average of $55,228 in 2012-13 (the latest available data) claimed only $4,645 million, or 39% of the total negative gearing losses, with those earning above the average claiming $7,400 million, or 61% of total negative gearing losses:

ScreenHunter_7923 Jun. 22 14.28

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 Australians” is false. 61% of losses were recorded by those with above average income, even after their reportable incomes were reduced by far more than the average due to negative gearing deductions.

Other analysis that correctly measures gross income or household income is even more damning of the Coalition’s claim.

For example, the RBA noted the following 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…

ScreenHunter_8352 Jul. 15 16.48

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…

ScreenHunter_8353 Jul. 15 16.50

So, the top 40% of income earners hold nearly 80% of all investor mortgage debt, according to the RBA.

Modelling from the National Centre for Social and Economic Modelling (NATSEM) also revealed that one third (34.1%) of the benefits of negative gearing were captured by the top 10% of income earners, whereas 15.7% of negative gearing benefits goes to the next 10% of income earners (see next chart).

ScreenHunter_7244 Apr. 28 13.45

So that’s the top 20% of income earners receiving around half of the negative gearing benefits, according to NATSEM.

Stop lying Joe.

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Comments

  1. What do you expect? The man owns multiple properties, and comes from a family of real estate agents. He won’t change his tune under any circumstances, and he will point the finger of fear at anyone who dares propose otherwise. And the finger of fear will work, too. It always does; that’s what happens when your populace are motivated by rapacious self-entitlement on one hand, and fear of missing out on the other.

    This is the best form of regulatory capture there is! Go Joe! Keep shovelling Australia’s wealth into the gaping maw of the housing bubble. Sooner or later you’ll run out of wealth to shovel, and the hangover will be epic. I’m looking forward to the ‘national conversation’ that will ensue.

    This is actually the best case scenario playing out (I’m not kidding); any tweaks to negative gearing now, no matter how mild, will trigger recency bias, and will be blamed for problems down the road. The best thing that can happen now is to leave the brick on the accelerator and crash into the wall, lest people think removing the brick was the cause.

    • Excellent thinking! So round about now, Leith has to get the mantra going of “This crash wouldn’t have happened IF we had cut Negative Gearing years ago, and held prices steady with MP”…. When this whole lot comes unglued, the bits that gave way must not be allowed to be put back in place again. (NB: I know that’s what he already kind of does, but it’s been from the “get the brick of the pedal’ present tense perspective. Perhaps now he has to write in the pluperfect (?!) and try to write from the future, looking back)

    • This is why RE agent should have to have an AFSL. The sheer bullshit they can spruik without consequence needs addressing ASAP. I mean it’s only the biggest purchase / largest debt one will likely ever have… Parliamentary privilege needs to go too.

    • I’d have to agree, lets let it all crash and burn (at which point negative gearing becomes a terrible strategy) then fix it down the road. Otherwise we’ll be in for a repeat of the 80’s attempt to quarantine

    • Yep!
      They’re getting too much mileage out of it already to worry about all the graunchy noises & smoke billowing out of it. Better to let it blow itself up now so a thorough elemental analysis can be conducted to see just what failed & where it could be improved before rebuilding. But denial being what it is, they won’t do that either, they’ll likely try to cover their arses & maintain speed & direction……… Buy the dip?

  2. Tassie TomMEMBER

    The ALP are conspicuously silent on the issue. I guess they’re still trying to interpret the public opinion focus groups so they can decide which side of the fence to stand.

    • Frightened diesel mechanics who have been earning $180k and have 5 IPs are twitchy and unpredictable. I imagine their sentiment can change from ‘MOAR tax breaks for entreprenurial job-creating property investors of awesomeness like me!’ to ‘MOAR welfare and debt-relief for about to be (or already) unemployed salt-of-the-earth workers like me!’.

      I imagine some of them could even change their tune during the duration of the focus group. Makes for very difficult data to analyse.

    • Like their Liberal counterparts, Labor members will have one foot either side of their investment property fences.

  3. Whats left to say about this incessant negative gearing bullsh8t?

    …Other than keep up the good work UE.

  4. SamscoutMEMBER

    The article in the Oz was misleading as it was quoting relative numbers not absolute numbers. Whilst there may be the same percentage of police as there are accountants there are a lot more accountants then police. Furthermore the average wage of the accountant/doctor/lawyer and the amount they are negatively geared would be a lot higher than the policeman.

  5. ceteris paribus

    St Joe, patron saint to the entitled tax concession demographic. It is nothing more than a cargo cult.

  6. surflessMEMBER

    This is getting painful, is there not some legal principle here where you can take some to court for spreading misinformation in the public domain?
    After all, politicians are quick to be take legal action against any one who they don’t like?

    • Amazing combination, isnt it, Politicians and Estate agents can legally ie about the financial investment of a lifetime with zero recourse if anything goes wrong. You need more ID, proof of income, etc etc to buy an online lottery ticket than to become a politician or buy a house. Both of these groups should be locked up for life due to the total lack of integrity and honesty.

  7. You haven’t shown he is lying, just that he is wrong. He may genuinely believe what he is saying or may be too stupid to understand, in which case he would not be lying. He’d be incompetent and unsuitable for the job of Treasurer. Time to go Joe!

    • LabrynthMEMBER

      As the treasurer of a country he should know the correct information, I am sure this information has been forwarded many a time to his office since he started the lie. His minions who get the emails have probably brought it up at the weekly catch up meeting but it has been dismissed as there were more pressing issues such as the Grocery Code of Conduct.

  8. SupernovaMEMBER

    Another excellent article linking (in this case unintentionally) to yet another issues of “public-sector entitlements”! Take notice of the use of “negative-gearing by public servants”…..politicians, university lecturers (whose super Hockey just rescued) police, ambulance workers etc. What is going on here Treasurer, when do we get this entitlement review? Here we have a clear example of public sector entitlements flooding straight into negative gearing entitlements. No wonder Joe doesn’t want to rock the boat because negative gearing appears to be used more with public servants than other members of the community. Public sector Unions do have benefits eh Joe!

  9. TheRedEconomistMEMBER

    Plenty of For Lease Signs in Sydney North West.

    I drove past this strip of new terraces in one of Rouse Hills Masterplan estates

    Not sure if they are owned by the one individual. But they are strategically being leased through different agents.

    They are basically your entry level 3 bedda’s on a postage stamp not far from the Rouse Hill town centre on Sydney Urban edges (43km from Sydney CBD)

    39 Caddies Boulevard Rouse Hill NSW 2155

    http://www.realestate.com.au/property-house-nsw-rouse+hill-416298293

    37 Caddies Boulevard Rouse Hill NSW 2155

    http://www.realestate.com.au/property-terrace-nsw-rouse+hill-416181425

    35 Caddies Boulevard Rouse Hill NSW 2155

    http://www.realestate.com.au/property-house-nsw-rouse+hill-416313669

    33 Caddies Boulevard Rouse Hill NSW 2155

    http://www.realestate.com.au/property-duplex+semi+detached-nsw-rouse+hill-416163097

    27 Caddies Boulevard Rouse Hill NSW 2155

    http://www.realestate.com.au/property-house-nsw-rouse+hill-416268585

    Looks like number 37 has been lease at $560 per week. The rest are fishing for $590 to $600.

    But you do have access to a community Function room, kids park, Pool and Tennis court.

    All other houses surrounding are on 400 sqm blocks max. Many are either under construction, for sale and for lease.

    These terrace for lease should be a for first home buyers to purchase.

    I am all for investors to build new, but I still think first home buyers are crowded out here, as the entry level stuff is monopolised by investors.

    • They are all for lease now because they have just been built. They would have been perfect first home buyer stock. Why didn’t the first timers buy them? Maybe they did, but initially as investors while living with Mum & Dad?

      • TheRedEconomistMEMBER

        They might be first home investors .. But I doubt it very much

        A young investor could not hold out for very long without rental income.

        With new releases out in the north west I have heard rumours of investors paying Queenslanders Up to 5k to come down and camp on new lot release to ensure they, the investor, get one of the limited release block.

  10. There is a pragmatic solution for this, 1) End NG for existing properties and use for new builds only 2) grandfather in existing NGers – this will lead to reduced inflation of the housing asset bubble, while keeping NGing for those that entered into it in ‘good faith’ and help recoup some of the Billions lost to NG in the budget.

    As this route is not suggested by ALP – it is clear that it is being used as a political platform. Us vs Them, i.e. we will protect your investments and the value of your property (for mom and pop non the less) while Labour will take them away. The scary part is that this may actually be an effective approach!

  11. So police officers, tram drivers and medics are the reason I can’t afford a house? Damn those public servants :).

  12. If negative gearing is ended or restricted for individual taxpayers operating as an unincorporated entity, won’t that simply mean that investors will simply incorporate and operate their investment properties as a incorporated business entity, where the losses, costs etc will be written off against the profits and capital gains.

    I cannot imagine that any government will single out a particular type of investment for special rules when it comes to a company owning that investment.

    Meanwhile, for professional service providers (ie doctors, lawyers, accountants, dentists, engineers etc) they would still be in a position to arrange their company tax affairs in the most effective way possible.

    I fail to see how ending negative gearing will achieve much more than restricting the practice to the already wealthy who already operate their “employment” activities within a legitimate business entity. And the unintended consequences of all this focus on negative gearing will simply lead to the rich getting richer.

    While, it might have some short term marginal impact on the property market I am yet to see how any changes to the tax law or regulations pertaining to unincorporated individuals will have any significant impact on property prices. IMO the only way to drive down property prices is to flood the market with new land releases and speed up overbuilding of railways stations, freeways etc for apartment complexes.

    Moreover, the notion that a particular asset class can be singled out for special tax treatment and has any chance of surviving legal challenges is also fanciful. I realise others will readily disagree but ideology is all very well, but it can’t change how this will all pan out should any government be foolish enough to pursue the matter beyond a cosmetic level of rules tightening.

    • Fine by me; If they start operating the rental properties through a business, they would automatically lose their exemption from the non-commercial loss provisions. The only reason they have the exemption now, is because of a stupid ruling that they are not carrying out a business.
      In the ATO’s eyes this guy *isn’t* carrying out a business:
      http://www.news.com.au/finance/real-estate/nathan-birch-went-from-pouring-beers-to-owning-a-property-portfolio-worth-millions/story-fnd91nhy-1227051194576
      Yet your standard hobby farmer is, because they put up a few fences.

      “Moreover, the notion that a particular asset class can be singled out for special tax treatment and has any chance of surviving legal challenges is also fanciful”.

      This would have to be the biggest myth in the whole NG debate. Henry Ergas & Judith Sloan have made this point on behalf of the Liberal party. It is horseshit. The reality is NG rental properties are the exception to the rule. There are at least 3 reasons why NG losses should be quarantined under a consistent interpretation of existing tax law. ie. without requiring any new / amendments to legislation.

    • “Moreover, the notion that a particular asset class can be singled out for special tax treatment and has any chance of surviving legal challenges is also fanciful.”

      Easy. Quarantine negative gearing losses for every asset class to that same asset class. No special treatment for property.

  13. The government analysis shows that 22.6 per cent of police use negative gearing, a bigger proportion than the 17.3 per cent of tax accountants…

    Interesting. This reminds me of the tactics used by housing shortage-deniers. Find some obscure statistic that, at a glace, might be thought to support their case. Treat this statistic as the “be all and end all” of the matter. When the statistic is debunked, mock the debunker and then search for another statistic to cling to.

    Let us assume the statistic is true and let us analyse the reason why that would be the case.
    Why would a higher percentage of police use negative gearing than tax accountants?

    1) At this point in time with today’s high prices, low yields and record low interest rates, negative gearing is dumb and risky. Police tend to be dumber and more risk-taking than accountants.
    2) Police tend to be younger than the average worker. Anecdotally many workers have been with the police and then moved on to something else, whereas few workers start elsewhere and then end-up as old policemen. It is a profession that does not suit older workers.
    By contrast a tax accountant tends to be a senior accountant. One who has worked as an accountant for years and gradually developed knowledge of our dog’s breakfast tax codes. For this reason tax accountants tend to be older. They would have tended to buy property years ago. The huge rise in rents would have tended to make their properties positively geared. Whereas police being younger would have tended to buy property more recently, which would be cashflow negative.

    Now that we have an idea why “more” police than accountants do it, should this make us less likely or more likely to support changing it?
    I say no. We should judge the policy on its merits and then keep a good policy and scrap a bad policy.

    What if government statistics found that a higher percentage of police than tax accountants took bribes to report false information to the government? Would this statistic change the way we think about the practice of reporting false information?

  14. Joe says: “Negative gearing is a way for people on medium incomes to get into the property market,”

    I say: “If you’re on a medium income and need negative gearing as a way to get into the property market, then the market is bloody well broken mate”