Negative gearing and capital gains survey

The current state of the housing market where an average house in a major city is costing a record multiple of average income is caused by many factors; low interest rates, lack of other investment options, the traditional Australian love of "bricks and mortar" and fear of another GFC. Negative gearing and the concessional treatment of capital gains play a part as well. The plain fact is that this has resulted in very high house prices and, relative to other countries, very high personal indebtedness. Not a good set of circumstances from an economic standpoint. Should Australia suffer an external shock, a sharp decline in Chinese growth for instance, the financial system could be brutally exposed. We can only pay each other ever more for each others houses before world capital markets raise the price of lending to Australian banks. Then its game over. Viewing it this way any policy that reduces debt and housing costs gradually is economically responsible. Policies that continue to encourage debt build up are very irresponsible.

Was it Winston Churchill who said "Those who fail to learn the mistakes of history are bound to repeat them." Am I the only person in Australia who recalls that 'The World's Greatest Treasurer' tried this in the early 80's but reversed the decision after 9 months. Rents in our area doubled as investors looked to compensate the loss. Who is to house the renters if enough investors decide to quit? The government can't.

Almost 300 responses so far, here's a sample.

I am a self funded senior who worked for a very small wage however the benefit of purchasing/selling over years gives me the benefit of being independent, not having to claim a pension from the Government

Australian taxpayers have relied on an investment property to save for their retirement using the income earning years to do so. This has restricted business investment as well as alternative investment which would add growth to the economy.

I negatively geared and paid off an investment property over 20 years. But all the while I was worrying about the renters and their plight. Now I worry for my own children and plan to sell the investment property to help them get into their own homes.

Society in general would be better served by home prices being stable in relation to incomes not subject to wild speculatibe swings.

How do we have any faith in our long term planning when governments are going to tinker with everything? It would be nice if they focused on their spending habits rather than constantly searching for the next "pot of gold". I used to be a big fan of super but now it is making me nervous.

Negative gearing has become the holy grail tax dodge for the great unwashed. There is a massive misunderstanding of tax rules out there by the general populous, as a result buying an investment property has become the only way that they see they can 'get ahead'. Get rid of negative gearing and people might start investing in productive assets, rather than Australia's property ponzi.

The system is not broken so apart from more taxation why change it.

current investments are not to make income but capital gains therefore after 3 years losses should be required to be carried forward to offset the income from capital gain being sought

As much as residential property has been an outstanding performer as an 'asset class', ultimately this is about what is best for our society. When a young family has to rent to try and stay above water but both their rent and part of their tax subsidises their landlord, thats unfair. When other assets, with more productive value to the economy and greater intrinsic value are overlooked because they are viewed as too volatile, our economy loses and the multiplier effect is reduced. Our current system favours people who actually seek out property in which they lose money from paycheque to paycheque, simply because their fellow taxpayers will subsidise their ongoing losses and then subsidise their profits as well, when they sell. Labor's policy meets the needs of the past, present and future perfectly. It protects current investors, who have invested under a certain set of laws but will mean that from July 2017, people should take more notice of exactly what they are investing in. Further, it will mean the real purpose of housing (shelter, safety and security) will take more precedence over tax minimsation strategies, that are purely reliant on higher and higher leverage and greater and greater ongoing speculation. The structural risks to the economy if negative gearing is to be allowed to continue unchanged (Liberal Policy) are far greater than any short term adjustments that will be felt by the intriduction of any changes (Labor Policy). Investing is about making money. Negaitive gearing is about losing money because someone else pays. It relies on speculation.

Smells of class envy and populist without considering overall economic potential from allowing gearing

As a policy measure, negative gearing should be retained (I don't utilise it), the theory seems sound. But we've just seen from the Libs recent Budget announcements, that some measures are taken to protect the Budget's bottom line, rather than being a good policy measure per se.

Capital Gains Tax under the current system those holding assets for long lengths of time are disadvantaged. A sliding scale reducing the taxable amount by 10% a year, with no CGT after ten years would be good. We have now had thirty years of CGT. Expecting people to keep records for over thirty years is unreasonable and unrealistic. Under the current system you would have to keep records for ever and pass the records on to your children eg for a holiday home or shares that you left to your children. Negative gearing If the government is losing tax revenue overall, ie deductions are higher than CGT collected, then taxpayers are subsidising investors. My suggestion is to make residential property a tax free space, so for small investors (max 2 houses) there is no tax on rent received, no deductions claimable and no CGT to pay. This would reduce rents and reduce house prices as investors could make the same amount of profit with lower prices as tax would not be payable. It would ensure investors only bought houses that were a real investment, not just as a tax dodge. Those investors with three or more houses would be treated as a rental business and could claim deductions but would receive no discount on their CGT when they sold the property.

As an investment publisher, I expect Cuffelinks to form a strong opinion about this. It has to do with risk, should we protect risk takers or compensate risk takers for their choices if their investments turn bad? No. You would not advocate this treatment for banks, so you should not advocate it for individual households.

There needs to be limits and increase fairness and opportunity for new housing entrants

Tax savings should be directed at 1st home buyers - not property investors.

Negative gearing favours wealthy investors and Australia can no longer afford to do without the tax take it denies the Governmemt. It also makes home buying much harder for those on low incomes as they are forced to compete with investors for the same properties. Grossly unfair. We are out of step with other countries. For so many reasons it should be removed.

Look its simple either the Government pays you by creating a Government Job or pays you as benefits (unemployment, pension etc) or business pays you either a small business or big business by giving you a job or share of the profits (dividends). Governments fund their Payroll by raising taxes. Business fund their payrolls by making profits and risking their capital. Taxing business capital will mean that you reduce the reward for a business risking it. Simply put Investors will move to a better market where they will get a better return. Australia will end in recession as private jobs will become harder as less investors will want to risk their capital that creates them on a poor return. This spirals into more being on the government payroll and you get the Greece effect. The more you have on the Government "payroll" the more taxes you need to raise and the bigger the drain on the economy which leads you the Greece experience. The best way to turn Australia into a healthy economy is to give business a break. Lower tax, less capital taxes, create wealth and investment, lower government "payroll" there by lowering the need to tax. Business (and investors) who risk their capital create wealth by creating jobs and lower the requirement to raise taxes. They create tax payers. From the Government viewpoint they should be gold, heroes, world champions and in Australia they are treated like oh lets just tax that capital you made??? Is it no wonder we are heading for disaster ...

I am really concerned that too much of australian investment is tied up in non-productive assets.

Negative gearing was introduced to stimulate markets-they are over heated now so time to withdraw negative gearing-don't need it anymore
6/2/2016 8:16 PM View respondent's answers Categorize as... œ

Present NG should be retained but reined in but the concession on tax deductibility should be limited to a maximum of the company tax rate. CGT should revert to the old system which took account of inflation. The CGT tax rate should also be concessional to encourage and acknowledge investment risk.

Owning a rental property is not all beer and skittles. Sometimes the capital gains don't cover the accumulated annual losses. Tenants can be a nightmare. Individuals that take on this risk should be rewarded. Furthermore, taking some responsibility for your financial future should be encouraged. The opposite seems to be the case at the moment.

This is the 21st Century. The economy has matured since the inception of negative gearing, housing types and sizes have changed and the demographics have changed. Therefore it is time to rethink how best to provide low cost housing for those in need. Let the market do it's job for the general rental market - as is the case everywhere else in the world.

Despite the rhetoric, this area does mostly benefit the wealthy and encourage investment in non-productive sector of the economy (existing housing).

probably help my kids to afford a house if we get rid of negative gearing.

there is different types of gearing negative,positive and neutral it's for the an average family.with capital gains tax you can't claim a capital loss until have a loss which is crap because no one wants to have a capital loss.your the one taking the risk not the govt.

It is skewed to Australians' obsession with housing and needs to stop. Get available capital working productively in new housing only and other productive assets like infrastructure. Politicians and the RBA only know how to blow useless bubbles an not grow the economy. They are all full of it!

There is much misinformation about. Unfortunately both negative gearing and capital gains have been abused and this has led to the current criticism. The modifications I have suggested in Q 1 and in Q 6 would have the effect of reducing the worst excesses, while still allowing incentive for those willing to invest.

The public forgets Labor tried all this years ago, but subsequently had to reinstate the incentives to reverse the negative effect on rents.

Let's try to give people from all walks of life a chance to build their assets.

Current policies are sucking up productive investment dollars. A German engineer will tell you about his latest product idea. A Sydney engineer will tell you about his latest investment property.

Meddling with long established and thoroughly justifiable tax deductions is no way to reform our tax system.

It's about time the Howard era middle income and above welfare benefits were reigned in...they are unsustainable

Negative gearing and capital gains tax rules are skewed to benefit the wealthy

CGT should be applied to the family home where it is bought/sold under 3 years. There are many questionable areas of personal/business taxation that need further scrutiny but I doubt the Govt has the political will to address such issues.

Who benefits from negative gearing ("the rich" or "ordinary workers") is totally irrelevant. Its a failed policy which costs the budget a significant amount, and has a crushing impact on young people trying to buy their first home.

Current residential housing tax rules strongly favours investors over first home buyers.

The level of negativeggearing should be reduced but not to the extent Labor proposes and CGT should be left the same

Property negative gearing has led to extreme leveraging with no prospects of income from rental exceeding interest expenses. This has created artificial pricing and needs to be addressed.

Why not adjust the capital gains tax reduction to 5% per year, capped at 50% reduction after 10 years. Easy to calculate and a compromise between the two policies.

Tinkering with these is fraught with uncertainty. I fear that the ALP's policy will lead to major unintended consequences.

Theres no question its a rort, which I have taken advantage of. But the money put into negative gearing would be better invested in more useful (for the economy) ways than bricks and mortar.

Tinkering with these is fraught with uncertainty. I fear that the ALP's policy will lead to major unintended consequences.