Major parties target changes to negative gearing

Negative gearing has taken centre stage in federal politics with the Opposition and now the Government foreshadowing changes to the tax concession, but opinion is divided over its merits for property investors.

Major parties target changes to negative gearingMajor parties target changes to negative gearing

File photo Source: AAP

While the industry argues any cuts will hit middle-income earners, economists say reform is long overdue.

Christopher Koren has been representing property investors for more than 30 years and knows well what motivates his clients.

The buyers' advocate is a staunch defender of negative gearing.

"Negative gearing is one of the few opportunities that the average Australian has to actually get involved in some sort of saving."

But the practice of using money spent on property investments to reduce paying tax is being considered by politicians.

Treasurer Scott Morrison has hinted at limiting the amount of deductions investors can claim, while Labor has unveiled plans to abolish negative gearing on existing homes.

John Daley is the chief executive of the policy analysis centre, the Grattan Institute.

"This is a long overdue step. Negative gearing is a tax policy that doesn't have a lot going for it. It costs the budget a lot of money. It's very unfair. It winds up as a tax policy primarily benefiting those who have already got a lot of resources."

Christopher Koren doesn't see it as a tax dodge for the rich.

"The super-wealthy are not interested in buying little two-bedroom apartments. It's generally the average Joe Australian who says, 'If I don't do something about saving money I am going to be on the pension.' "

Industry experts also say there may be an unintended consequence of any government delay in introducing changes to negative gearing, now that they've flagged possible changes.

They say there could be a sharp rise in property prices as investors rush into the housing market before the tax concessions are taken away.

If Labor wins power, its cuts wouldn't apply to property purchased until July next year.

After that, says Christopher Koren, any artificially-inflated housing bubble could burst.

"What will happen afterwards is the market may just drop dead on the spot because everyone says, well it's now too hard."

Other analysts argue property tax changes are needed aimed at buyers other than investors.

Professor Jamie Alcock, from Sydney University, says generous tax concessions enjoyed by homeowner-occupiers should be looked at as well.

"We are one of the very few countries in the world that has infinite tenure, strong property rights and tax-free status of owner-occupiers. So that's where most people invest the majoirty of their wealth and that's creating a distortion which we see with higher demand and consequently higher prices."

Professor Alcock is calling for a tax re-think as part of much wider reform, but he acknowledges it takes brave politicians indeed to tinker with the great Australian home ownership dream.

 






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