Another day, another worst ever negative gearing reform attack

By Leith van Onselen

Peter Gleeson’s moronic attack yesterday on Labor’s negative gearing policy has found company, with Australian Taxpayers Alliance (ATA) director, Satya Marar, also claiming Labor’s policy would somehow “slam the vulnerable”:

…renters and retirees on self-managed super funds are set to take the greatest hits…

While existing investors and super fund holders can still negatively gear their current properties, the properties’ values will take a major hit on top of cooling investor demand that is already sweeping the property markets…

Contrary to Labor’s spin, most of these people are not wealthy investors. Those on taxable incomes of less than $80,000 a year are a vast majority of those currently benefiting from negative gearing – including many professionals, teachers, firefighters and nurses who worked and saved to enter the property market on the hope of building long-term wealth for themselves and their families. Many are retirees…
Many of these lower or middle-class owners and investors would be left stuck with stranded assets, forced to service ongoing debts despite the benefit of negative gearing…
As for renters, it is unlikely that new stock from future constructions and the movement of renters into home ownership will deliver immediate benefits. Rather, rents on properties no longer susceptible to negative gearing will rise to cover the costs incurred by the owners. Future constructions are likely to be concentrated in city fringes or recently rezoned areas for higher density housing. These properties may not be suitable for renters commuting to the city for work or those with larger families.
It must be noted at the outset that the ATA is a lobby group for lower income taxes and smaller government, as noted on its website:

The Australian Taxpayers’ Alliance is a unique grassroots advocacy & activist organisation, dedicated to standing up for hardworking Australian taxpayers.

We oppose high taxes, wasteful spending, and crippling red tape that is hurting Aussie families and businesses, and provide a voice for everyone who opposes the big-government agenda.

So it’s no surprise that it has come out with these claims and is pushing so hard to retain negative gearing – effectively a tax subsidy.

Regardless, the ATA’s claim that most negative gearers are ordinary middle-income earners earning less than $80,000 is highly misleading. Taxable income is what is left after deductions like negative gearing have been applied. Thus, using negative gearing reduces taxable income. Further, the average taxable income in Australia is $59,000, which is 26% below this $80,000 threshold!

A year ago, the ABS has released its Housing Occupancy and Costs, 2015-16, which revealed that it is not ordinary “mums and dads” that are primarily engaged in negative gearing, but rather higher income earners. Specifically, the top 40% of households accounted for 61.8% of all housing investors in 2015-16, comprising 38.4% in the highest income quintile and 23.4% in the fourth income quintile:

Many Australians own a residential property other than the one they currently reside in. In 2015–16 there were 1.78 million households that owned residential property other than their usual residence. Such properties include those that are being rented out as residential investment properties and those used for other purposes, such as holiday homes…

Almost four in ten households who owned another residential property, excluding their current dwelling (38%) belonged to the highest quintile of equivalised disposable household income, while just over one in 10 of those households (11%) were in the lowest quintile of equivalised disposable household income.

Moreover, according to the RBA, nearly 80% of investment property debt is held by the top 40% of income earners:

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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Second, the ATA’s claim that there will be fewer potential buyers and, therefore, “many of these lower or middle-class owners and investors would be left stuck with stranded assets” is banal. Fewer investors competing with first home buyers for existing dwellings is a good outcome and should be embraced. It will give younger Australians a better chance to achieve the dream of home ownership, rather than being stuck on the insecure rental market and headed into retirement in poverty.

Most existing property owners also sell and buy into the same market, so won’t be all that effected. Heck, to the extent that property prices moderate, they will pay less stamp duty on changeover costs, which is beneficial.

Third, the ATA’s claims that “rents on properties no longer susceptible to negative gearing will rise to cover the costs incurred by the owners” and that new negatively geared “properties may not be suitable for renters commuting to the city for work or those with larger families” are moronic.

Rents are set by supply and demand, as well as income growth (seeing as you cannot leverage rent). Labor’s ‘new homes only’ policy will increase construction, other things equal, resulting in more supply and lower rents. There will also be zero impact in existing areas, because as renters transition into home ownership, rental demand for established dwellings will fall in the same proportion as rental supply, leaving the rental supply-demand balance unchanged. This is economics 101.

Ultimately, the ATA endorses making life more difficult for the other 90% of taxpayers that are not negatively geared by bleeding the Budget of billions of dollars in tax revenue and/or inflating the cost of their housing. It is selfishness writ large.

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Leith van Onselen

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