Ben Phillips from the Australian National University’s (ANU) Centre for Social Research and Methods has released new modelling estimating that capping negative losses at $10,000 could impact 300,000 property investors and could raise $1.5 billion for the Federal Budget. From The AFR:
Ben Phillips from the Australian National University’s Centre for Social Research and Methods modelled the imposition of caps at $10,000, $20,000 and $50,000…
These limits would cap the amount of net rental loss that can be claimed against income.
If negative gearing was abolished altogether, 1.15 million families would be affected but the federal budget would get a $4 billion boost, the modelling shows.
A $10,000 limit would increase revenue by $1.5 billion a year.
Lifting that to $20,000 would see revenue gain of $751 million. In this scenario 113,844 families would be affected.
A $50,000 limit would raise $172 million and affect 19,000 families.
Capping negative gearing losses has merit, but its effectiveness would obviously depend on what level the cap is set at.
As shown in the next chart, which comes from the FY2015 Australian Taxation Office Statistics (latest available), the average negative gearing loss was $8,700:
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Thus, placing a $10,000 cap would impact those claiming just above average negative gearing losses, whereas applying caps at $20,000 or above would only impact heavy users of negative gearing.
The only way that I can see the Turnbull Government applying caps is if they do so at a very high level, thus making them largely ineffective and a fig leaf to cover ongoing rorting of the tax system.
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Early last year, it was reported treasurer Scott Morrison was considering applying “caps of $30,000 or $50,000 on the amounts that workers can claim on their investment properties, in order to target the changes at those who gain the lion’s share of tax breaks“. But even these modest reforms were scuttled by Cabinet.
So don’t expect anything of worth from the Coalition this time around.
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.
