It’s Time To Review Negative Gearing

From time to time there are people calling for the axing of Negative Gearing or at least a comprehensive review.

We totally agree with John Symonds from Aussie Home Loans who said “Negative Gearing is a great tax break, but it needs an overhaul to make it fairer”.

While it’s been good for our business too, we feel the time has come for changes so that it boosts the economy as it originally was meant to and provides more affordable housing which was the reason for its introduction in 1936.

Negative Gearing underpins all property investing as it allows you to reduce your taxable income by offsetting costs related to the investment against your taxable income.

Commonly called Negative Gearing, it is a tax reduction on capital gains. As such investors who borrow to buy property can claim tax deductions for interest, reducing tax bills on rent and other income.

In a very recent report to the Australian Government, respected economist Saul Eslake (chief economist at Bank of America Merrill Lynch) wrote a scathing criticism of the lack of affordable housing caused by the fall in the number of homes built compared to population increases.

Eslake said Negative Gearing “had served to inflate demand for existing housing whilst doing little to increase overall supply”. In failing to promote the supply of new homes the Government has therefore limited the potential of this key driver of economic growth.

Clearly Negative Gearing was intended to deliver economic growth whilst increasing the supply of affordable homes but its impact has been greatly diluted by its use in selling old existing houses and in doing so driving up prices and eventually inflation.

As such we support John Symonds, Saul Eslake and others like ANZ Bank head of property research Paul Braddick who said in The Australian recently that the Government needed to support the construction of new dwellings to make housing more affordable.

Eslake and others go further in calling for the scrapping of first home owner grants and apply this money to help councils work with developers to fast track housing.

Clearly changes are needed as the current policy has also cost the nation $5 billion in lost revenue without a corresponding economic boost. As such we believe Negative Gearing should only apply to new housing that will supply the growing population with an adequate stock of housing.

In 2001-12 for the first time since World War II, stock nationally grew at a slower rate than the population – 15.2% compared to 15.9%.

Now is the time to act and encourage the Government to return Negative Gearing to its original purposes – stimulating economic growth through the housing construction industry and deliver more affordable housing for those that need it.

And it’s also time to act as an investor as their is bound to be a greater Government focus on building new houses to meet the shortage and all at a time when interest rates are as low as they are right now.

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