Push within Labor Party to clip negative gearing

A new push within the Labor Party for a change to Australia’s generous negative gearing laws looks set for discussion at July’s national conference, in a development likely to add to the headaches for Bill Shorten heading into the next election.

Sources within the broader labour movement confirmed there was a growing appetite for change along with an awareness that the arrangements, which allow losses on interest repayments for investment properties to be written off against income, are too generous.

Critics argue negative gearing has disproportionately advantaged the rich and encouraged property acquisition by investors, raising demand and therefore prices.

However, the longstanding policy has been regarded as “political kryptonite” by the major parties due to its widespread use by middle-Australian households who have taken advantage of it in concert with the 50 per cent discount on capital gains tax.

“Labor shouldn’t miss the opportunity to recraft its approach to that great Australian shibboleth, negative gearing,” said Tim Ayers, New South Wales secretary of the left-aligned Australian Manufacturing Workers Union.

It is believed other unions are also preparing to argue the case on equity grounds for a gradual winding in of the negative gearing rules amid fears it has skewed the property market, fuelling an unsustainable property bubble and harming housing affordability.

Statistical analyses of the income earned by landlords over the last 20 years shows rental income remained generally positive between 1994-95 and 1999-2000 after deductions for depreciation and interest repayments, but then dropped dramatically into negative territory from that time until now.

That reflects the date at which time the Howard-Costello government introduced the 50 per cent concession on capital gains tax which encouraged property investors to borrow larger sums and run rental properties at a loss – with the intention of retaining a greater share of any capital gain from eventual disposal.

The Australia Institute’s Richard Denniss, said the policy mix was ripe for reform as it was abundantly clear the two concessions were working together – against low income earners, and against the budget.

“The only reason you would want to run a rental property at a loss is if you get to keep more of the profit from the eventual sale,” he said.

“Despite costing billions of dollars per year, negative gearing and capital gains tax concessions have done nothing to lower the price of houses in Australia and they never will.”

Dr Denniss said the combination of generous negative gearing arrangements and capital gains tax concessions were clearly of greater advantage to those with the capacity to own second and subsequent properties.

“In fact, negative gearing only makes sense if investors believe that house prices are going to continue to rise. If investors think house prices are going to rise how can the government believe they are going to become more affordable? ”

Mr Ayers said the debate should be confronted, even though there are political risks.

“Negative gearing currently costs the budget bottom line around $14 billion per year. It is a massive dent in Commonwealth revenues, it provides little to no incentive for construction of new dwellings, and it is a considerable upward pressure on Australian housing affordability, particular in our major capital cities,” he wrote in an opinion piece for Fairfax Media.

He said care should be taken to ensure those households who have used property investment as a legitimate part of their retirement income plan, are not disadvantaged.

“A smart phase-out of negative gearing is a long term positive for the budget position, protects current investors and reduces structural inequity in the housing market. It is a good idea whose time has come,” he said.

Labor shadow treasurer Chris Bowen flagged last month that the party could wind back negative gearing, although it would not affect existing landlords. Treasurer Joe Hockey responded by ruling out any possible changes under a Coalition government, saying that altering the system could drive up rents.

SMH / May 29, 2015

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