Negative gearing decision 'hard but fair'

tryagain on 13/02/2016 - 11:40

http://www.skynews.com.au/news/top-stories/2016/02/13/shorte…

I am not a "Labor Person" but I think this isn't really hard but more so common sense, the only downfall I can see is a spike due to people trying to get in before its implemented. I also think it would make sense for the Turnbull government to grab it and implement it this year while there would be bipartisan support, Hockey was once attributed as saying that the easiest savings to implement are the ones the opposition has proposed, doing it for the coming financial year would also limit the time to a point where the a spike would be unlikely. I am interested to hear what the arguments against it would be both from a policy and politics point of view and what people think about it in general.

Poll Options

195
I think this is a good policy.
97
I think this is bad policy.

Financial

Comments

meowbert on 15/02/2016 - 10:37

I think the government should look at what the primary cause of housing affordability and target accordingly. While removing negative gearing for new purchases will likely push some investments to other channels, it won't necessarily solve affordability challenges. The government collectively tends to provide no information on broader initiatives and how they are tracked so this makes it hard to determine how effective it will actually be.

As other people said, there are a lot of strawmen around here about negative gearing; the reason why you would negatively gear a property is to:
- Get money from the capital gain. e.g. my house was worth $100,000, a year later it is worth $200,000. If I am down $5,000 in the first year with negative gearing I still make money.
- Long term investment in a property will usually see a break even on rental prices vs interest repayments in a relatively short period. Even if the capital gains aren't there at least the property ways for itself.
- etc

disclaimer - I am not an authorised adviser and this is not financial advice.
- gringo on 15/02/2016 - 11:15
  
  Always people assume increasing prices and rental yields - why?
  
  The underlying reason to NG property is that it maximizes your income relative to the tax you would otherwise owe.
  - meowbert on 15/02/2016 - 22:58
    
    +1
    
    Hi, this is the assumption based on stock quantity and demand, and for a long time this has been a correct assumption.
    
    You are wrong about tax being the only reason to invest - you invest to maximise your capital, the tax stuff is a nice value add.
    - gringo on 16/02/2016 - 01:10
      
      Stock and demand are not what is driving prices - hence the scare over the removal of tax breaks.
      
      I didn't say it was the only reason to invest - just that it is the optimal tax solution for almost everyone who pays tax. The fact that there is a house involved is almost irrelevant.
      
      For each dollar deducted pre tax, you get a dollar of value to help invest in a property - instead of 0.7 (or as low as 0.55) after tax.
      
      You don't need many other reasons to justify the investment - as you are already getting a 30-45% return on your dollar (plus all the other perks).
    - meowbert on 16/02/2016 - 12:48
      
      @gringo: Okay, I hope you're not an investment advisor.
Stphen on 15/02/2016 - 11:43

Liberal party Treasurer Morrison to crack down on excessive negative gearing, whatever that means?

Whenever the Liberals want to change something they always blame the people who are legally using the system the government put in place. Remember when they cracked down on maternity leave calling it double dipping and yet everything people were doing was legal and implemented by the government? They always try make out some people are doing the wrong thing and that is why they are changing it. Now people negatively gearing excessively are bad…

http://www.abc.net.au/news/2016-02-15/treasurer-hints-at-neg…
- tryagain on 15/02/2016 - 12:17
  
  Not saying this is the case here but just because something is legal doesn't always make it right. It also often takes the law a while to catch up which I think is what they are alluding to here. Will wait until they provide details as to decide if I agree with them or not on this one.
  - burningrage on 15/02/2016 - 16:56
    
    -1
    
    What is "right" is relative. Having 10% of australians paid for 50% of total income tax is also not "right" to me but obviously "right" to you.
    - Frozensage on 15/02/2016 - 17:11
      
      especially when I see my tax money being given to ppl for drinking and cig allowances and still those ppl have the balls to come ask me for coins everyday I walk down the city street. Reason why I pay as little tax as possible.
    - burningrage on 15/02/2016 - 17:29
      
      @Frozensage:
      I am on your side
    - tryagain on 15/02/2016 - 20:07
      
      I can't really decifer what you are attributing to me finding right or how you get that from my comment but yes as you say "right" is relative
etherspin on 15/02/2016 - 18:07

I have voted for both majors and the greens as well, in pretty similar proportion, coalition I never touched once Abbott rose and I won't with Turnbull in there after watching the NBN closely.
being currently fed up with them (coalition) I would love to see them really really attack this and get bitten back by Labor saying that the coalition want to continue to allow the extinction of the Aussie dream of home ownership.
I can't find fault with this policy (not sure about the superannuation stuff yet) - stimulates new property development, staggered in to protect current investors from short term losses - Morrison actually attacked it because it generates small government revenue in the first 3 years but thats actually a feature of the grandfathering, if it weren't this way Morrison would be more aggressively knocking it for ripping money out from the investments of 'teachers and nurses'
it is true that people in these professions often manage to get an investment property but its more important to see who benefits the most from negative gearing as its currently set up, I believe biggest slice of the savings go to the top 10% of earners in Australia so as regards people like teachers and nurses (earning ~40 to 80k) they will be able to afford property more generally when this policy (if labor win, a bloody big if!!) kicks off new building all over the country
thechemist on 15/02/2016 - 21:09
As a follower of the Melbourne Market (Easter suburbs) over the last 10 years and having skin in the game, If this is implemented these things will happen

Decrease the growth in prices especially for B, C graders (location,location,location) then if it didn't get implemented but how much depends on other factors like migration etc. It will become a two speed market (explained later)

More people will get into shares (overall better for the share market) as people will move to that as borrowing to invest (margins), as interest will still be tax deductible

The smart money has never been to buy off the plan (OTP) unless lifestyle choice or can't afford it. There is already stamp duty savings and other incentives and still not good. Anyone serious in real estate know that it is the dirt that is worth investing in (most of the time). Some apartments have not gone up in value in 10 years and find me a piece of decent land that hasn't at least doubled if not tripled

Good luck being able to buy a good house (location as can always rebuild) as no reason to sell any of my current investments as I get to negative gear it and get 50% CGT break as well. If I swap to another then the new investment will not be as good. This will lead to decrease in supply of quality houses so market will become even more multi speed

Off the plan already sucks and if I now know the next buyer of my OTP (I don't own any) won't be able negative gear then that would affect the resale in a massive way (can't get much worst then now)

A grade property (I mean over 1.5M) unless you are mega rich does not make sense as an investment as rental yields are so low any way <2% and even in the current situation (low interest rate) it is very hard to do. Most buyers live in these or if they rent out it is often just for short period until they do something there (renovate/build/develop).

Many first home buyers are becoming investors by buying and negative gearing by moving back home until they can afford to live in there so I guess they will have to stay at home a bit longer now

From the reasons above transactions will decrease so less stamp duty for government so State governments will be in serious trouble as they make so much out of it.

In regards to rent I will stay out of this one as we live in a different environment than that of the 80's that many people mention
- gringo on 15/02/2016 - 23:03
  
  +1
  
  Any moderation in growth is a good start.
  
  You want to leverage up and buy shares? Get prepared for a margin call.
  
  The value of "dirt" is just waiting for an "emperor has no clothes" moment. That happens once growth plateaus and begins to fall.
  
  Till the economy tanks and you see your investment fall as quickly as it rose. Take the loss now or a bigger loss later (with NG)?
  
  If you think it can't get worse than now - think again.
  
  Till they lose their jobs when economy tanks - these are marginal buyers vulnerable to being liquidated at any price.
  
  Growth based on stamp duty is a house of cards and encourages corruption.
Windows98 on 16/02/2016 - 08:19

God this argument is stupid.

People who purchase rental properties or think they will have the capacity to do so will be against this
And people who don't fall into that category and want affordable housing will be for it.
- tomleonhart on 16/02/2016 - 08:25
  
  so judging by the poll, there are a lot of people fall into the second category o.O
  - Windows98 on 16/02/2016 - 09:44
    
    This is ozbargain =P Where people want things for cheap.
- tryagain on 16/02/2016 - 09:34
  
  +1
  
  I think there is definitely a decent percentage of people who that would be true for, there are also those however who can debate it on its merits regardless of their personal situation. Going by your rationale we could say all policy discussions are pointless due to self interests.
- Stphen on 17/02/2016 - 17:13
  
  It is like asking corporations like Google and Apple if they would like tighter tax laws, then they could pay more tax.
  
  If the government could get the corporations to pay their fair share (normal persons definition of fair) of tax, I do not think we would be having this discussion.
- Odin on 20/02/2016 - 15:25
  
  +1
  
  "People who purchase rental properties or think they will have the capacity to do so will be against this "
  
  Uh, I'm in that category but I'm still for this change.
Donaldhump on 16/02/2016 - 11:09

I think limit it to one property only. End of the day people will vote for what suits them.
I have no house, but keen to buy soon, all this talk makes me think to wait now.

so if CGT discount is reducing from 50% to 25%, will there be a flurry of houses being sold off dec 2016-jun 2017, and post this date people just wont sell them.
- JohnHowardsEyebrows on 16/02/2016 - 11:15
  
  The CGT discount will also be grandfathered.
  - Donaldhump on 16/02/2016 - 11:17
    
    +1
    
    ok, so maybe the opposite heaps of people sneaking in before july 2017
    - JohnHowardsEyebrows on 16/02/2016 - 11:18
      
      You can bet there will be. June 2017 might be a good time to sell your stocks, too. :)
    - Donaldhump on 16/02/2016 - 11:22
      
      @JohnHowardsEyebrows: why is that?
      
      im basically ready to buy right now, then this announcement i was wondering whether to wait post july 2017, as surely less people will be buying post july 2017. I will never own two properties (been there and done that , hate dealing with renters) so this is just a PPOR so no big deal for me, but then again i might change my mind.
    - JohnHowardsEyebrows on 16/02/2016 - 11:31
      
      @unclesnake: A better time to buy houses in future if negative gearing and CGT changes, no doubt.
      
      I'm simply saying June 2017 - the end of the concession - would be a good time to sell assets like shares, as people will want to get their portfolios finalised for the long term, in order to avail of the 50% CGT discount.
Cluster on 16/02/2016 - 15:35

+4

Opponents of changes to negative gearing talk about 'mum and dad' investors being hit hard. The only 'mums and dads' I know who own investment properties also happen to be lawyers and doctors (2 each). Your average worker is very unlikely to have signed up for another $400k mortgage on top of their existing house.

Having negative gearing apply to new housing makes sense. It increases housing stock. Shuffling the same house between multiple owners does not. What about current investors who are enjoying negative gearing? They'll be grandfathered from the changes, and when it's time to sell their property they will find a ready supply of renters to sell it to.
- Molebag on 16/02/2016 - 15:47
  
  +2
  
  "Your average worker is very unlikely to have signed up for another $400k mortgage on top of their existing house." <= What leads you to draw that conclusion? Based on 4 of your friends?
  
  Again, there is an illusion that negative gearing is only for high income earners. That's nonsense. Any tax payer is eligible to take advantage of it, and it can work for anyone really. Regardless of their income.
- nx1nx1 on 17/02/2016 - 13:10
  
  most of my friends are in their early 30s, whether single or as a couple, they all have IPs.
  
  it comes down to decisions you make. do you want to save and invest or do you want to "enjoy" life.
  - JohnHowardsEyebrows on 17/02/2016 - 13:25
    
    +1
    
    So why should any investment be subsidised by taxpayers? If people can't make money without a free kick from dodging tax, that's their problem, not the honest taxpayer's problem. Investment's meant to involve risk, not mindless speculation by those with capital.
    - nx1nx1 on 17/02/2016 - 13:31
      
      +1
      
      because all investments are. if you opened a business, the same applies and cost of running it is deducted from the income.
      
      the government bails out all sorts of businesses. they are currently trying to come up with a plan to help taxi drivers that missed the boat and made a loss since ubers introduction. why should tax payers pay for that? theres a million examples like this
    - JohnHowardsEyebrows on 17/02/2016 - 14:07
      
      @nx1nx1: You don't know what you're talking about. Businesses deduct expenses of business against income of the business. Negative gearing is crossing swords.
      
      The question is why should the government give welfare to new people who haven't missed a boat, but just want to stay on the gravy train? There's no economic case for negative gearing - in fact the opposite is true. The only people who argue otherwise are the self-interested and the ignorant (and that venn diagram overlaps a fair bit).
    - nx1nx1 on 17/02/2016 - 17:55
      
      @JohnHowardsEyebrows: how is it any different if i rent you a fork lift compared to me renting you a house? if the person renting out forklifts can claim his expenses, why shouldn't the person renting out the house do the same?
    - Molebag on 17/02/2016 - 18:05
      
      +1
      
      I think one reason is that it provides housing which the government doesn't provide. They're effectively pushing public housing into the private sector. If you see how some tenants treat their rentals then I understand why!
      
      Another reason is that it simply boosts the economy. Whether new or old the whole real estate industry thrives, trades thrive and the stamp duty bank account fattens. The banks make a killing out of interest that they pay tax on. People think it's just a pointless handout, but I don't think so. Look at the bigger picture.
      
      And you should be careful about using the word honest. Negative gearing is well within the bounds of law. It's an honest way of making a buck. Morally dubious though.
    - JohnHowardsEyebrows on 17/02/2016 - 18:12
      
      +3
      
      @SpasticBus: 93% of properties negatively geared aren't new. It's not providing any supply of note. It's just bidding up houses for people wanting to buy a home.
    - Notalotofmoney on 17/02/2016 - 18:29
      
      +2
      
      @nx1nx1: You still don't get it. If you rent out a forklift, you can claim expenses against income generated by your forklift business only. When you rent out a house, you can claim expenses against your other income, including the forklift renting business. People with high income (high marginal tax rate) benefit the most from the current negative gearing rules.
    - Molebag on 17/02/2016 - 22:44
      
      @JohnHowardsEyebrows: And that figure is why labour are proposing new properties can only be negatively geared. Which is why I support that policy.
      
      Negative gearing has been around a lot longer than the current housing affordability crisis though. So blaming high prices on negative gearing doesn't make a whole lot of sense. Will the removal of negative gearing increase housing affordability? Don't know. It might but I wouldn't bet on it.
    - JohnHowardsEyebrows on 17/02/2016 - 23:50
      
      @SpasticBus: In combination with the CGT discount halving, yes. The days of wealthy people halving their losses each year then halving their tax bill on sale being over, the value just won't be there in property, not when the yields are so low (and the ability of people to service mortgages or pay rents stagnates in this very glum Australian economy we have right now).
    - nx1nx1 on 19/02/2016 - 13:38
      
      @JohnHowardsEyebrows:
      
      a business borrows money, claims the interest as an expense against income.
      
      a persons buys an investment, claims interest as an expense against income which in this case is rent.
      
      its the same.
      
      my problem is the government put this in place, to encourage investing in property. they people then make decisions based on this. then they suddenly want to change it because they can't manage a country properly and this sounds better than introducing a new tax
    - JohnHowardsEyebrows on 19/02/2016 - 13:43
      
      @nx1nx1: If the rule isn't working,the rule must change. There's nothing sudden about the end of this rort.
      One principle of taxation is that one type of income shouldn't be mixed with another. Make a capital loss? You can only offset against a capital gain. So why should interest on an asset be deductible against personal exertion income?
      There is zero taxation principle behind ng. It's just a rort perpetuated by the sense of entitlement of the real estate industry and self centred voters.
plentifoo on 16/02/2016 - 17:12

just signed a 2 year lease to rent out my IP a day before this was announced!

Can someone explain to me how a news article can be so grossly misleading by saying:

"Analysis by the McKell Institute shows the negative gearing changes could create up to 25,000 new construction jobs annually and add $4.5 billion to economic growth.

Costs for renters would also drop."

Where are these ‘new construction jobs’ gonna come from when demand falls off when prospective IP investors discover they can no longer tax deduct on their incessant new home purchases? Where does McKell institute derive their logic?

“Costs for renters would also drop”…this is the biggest crock of b$ I’ve heard, how exactly do you get to this conclusion? Simple supply vs demand curve logic, supply of IP will fall because neg gear incentive has been snatched out from under investors, demand stays the same = cost of rent goes up.
- Molebag on 16/02/2016 - 18:08
  
  +5
  
  If NG is restricted to new properties then the demand for new properties would increase . That seems quite logical, no? People will still want to negatively gear and if new properties are the only way to do so, then that's where people will go
  
  The follow on is that with more construction and properties on the market that with increased supply, rents should ease.
  - plentifoo on 16/02/2016 - 19:39
    
    Right I thought they were eliminating NG altogether for IPs regardless of new/old premises.
    
    My bad.
    - tryagain on 16/02/2016 - 23:16
      
      Your not the first, I am curious now knowing that they are proposing in just for new properties do you think it would be a good thing?
poppit88 on 16/02/2016 - 19:50

-3

Hmmm……can someone tell me what is going to happen to all the people renting these properties that are negatively geared? When this happened under Hawke/Keating, rents went through the roof and the vacancy rate just plummeted to like -0000%. Real life talk, you couldn't find a place to rent if your life depended on it.
- serpserpserp on 16/02/2016 - 20:07
  
  Life is a little bit different to back then mate. I think you'll find if they institute it in the way they want to, not much will actually change right now, but over time, construction growth will slow a little.
- [Deactivated] on 18/02/2016 - 17:34
  
  +2
  
  Rents did not go through the roof, you've been listening to property lobby groups too much. And why would they: existing investors will still be claining NG and BUYERS will be on a level playing field for once, which means less people renting and more people buying.
  - poppit88 on 18/02/2016 - 22:08
    
    W8 - I'm not listening to 'property lobby groups'. I actually lived through it. I actually remember it when it happened. Landlords just took their properties of the market! Renting a place(well certainly in Sydney) was almost impossible. Hence the reason it was reversed by labor.
    - [Deactivated] on 19/02/2016 - 13:18
      
      Have you tried to rent in Sydney recently? It's already near impossible with dozens of other "hopefuls" applying for eavh vacant unit, resulting in soaring rents. Negative Gearing is supposed to stop this happening, so it's failing (*) and something should be done. It also results in more investors buying properties purely for a tax break where these investments could otherwise go into more productive enterprise.
      
      (*) = approx 90% of NG claims are against existing properties so it is not increasing supply and thus not reducing rents. This needs to change, which is what Labor is trying.
poppit88 on 16/02/2016 - 20:23

Sorry, my post is confusing. What do you think is going to happen to all those people renting properties that are currently negatively geared, if those properties are suddenly no longer allowed to be negatively geared. There is no incentive for owners to keep them as a rental. Perhaps better as an owner to consider having no tenant (notwithstanding that you reduce the risk of rental arrears and the tenants who wreck the place.) and rely solely on capital gain as your plan.
- JohnHowardsEyebrows on 16/02/2016 - 20:25
  
  +2
  
  Those who are already negatively geared at July 1, 2017 will still enjoy the tax benefits. It will simply be the case that nobody will be able to access the tax dedcutions on existing properties from that date onwards.
poppit88 on 16/02/2016 - 21:05

+1

Ok, I want to play devils advocate. And correct me if I'm wrong here. One of the things we complain about is a) 'all the rich people accessing negatively gearing' on rental properties and 2) first home owners not being able to break into the market.

This is how I see it. By grandfathering 'negative gearing.' Individuals holding those properties that will continue to enjoy the tax benefits but won't give them up or sell them anytime soon. Essentially exacerbating further liquidity in the property market.(Which will in turn effect house prices. Because only a stupid person or a desperate one would sell one of these properties with grandfathered negative gearing.) If negative gearing is then only allowed for new properties, investors will then turn their eye to buying new to obtain the negative gearing. This in turn will further drive up property prices and further price first home owners out of the property market even more. So, you are suddenly going to have two ends of the market being squeezed.

Personally I think it will make the housing market even less affordable.

Apart from the savings to gov't from supposedly abolishing negative gearing - one question not being asked is how much extra money does the government intend in investing into public government housing if they intend to abolish negative gearing (with these millions/billions of dollars that they will be saving.) Bearing in mind that private owners/investors claiming negative gearing, are in fact (with the current state of play) actually subsiding the government. In simple language - the private sector is currently doing what the government should be doing and investing in housing for people like to live in and rent. Does the government actually have the funds available to invest in public housing? Do they intend to invest in public housing with all that money they will save by abolishing negative gearing?

In short, our population isn't falling, it's growing. The news today said our population is currently 24 million, way ahead of expectations.

My own view is that if you scrapped negative gearing, but also scrapped capital gains tax on properties, and scrapped stamp duty on property purchases (especially for mum and dad investors) that you would see a huge change in market liquidity and property prices. Essentially people will buy and sell a property at a moments notice, and won't be reliant on trying to make huge capital gains. If property development is your business and something you do professionally, yes you should be paying tax like the rest of us.

Perhaps a better game plan would be to generally scrap tax deductions altogether but have a far lower rate of PAYE and company tax.
dji1111111 on 16/02/2016 - 21:38

A little fed up with the constant talk of being fair to everyone. Guess what? We are not all equal. We all have different level of talent in different fields and therefore you can't expect everyone to be able to buy their dream home.

If everyone gets the same, what's the point in trying harder than others? Also worth noting that two different individuals putting in the same amount of effort is not going to return the same result.

Often the less fortunate people talk as if everyone doing better than themselves have had everything handed to them on a silver platter.
- gringo on 17/02/2016 - 03:19
  
  +2
  
  You seem a bit confused here.
  
  In the current system the "less fortunate" get nothing, the richest get the most. As all the wealth/houses will be inherited without taxation, many of the current generation won't even have worked for it.
  
  These are not the incentives that should exist in a modern democracy (pre-revolutionary France maybe).
  
  Australia's GDP is still based largely on miners scooping up $100 notes from the ground (not housing) - so the poorest should expect some support, rather than helping pay for the houses of people wealthier than them.
  
  Note: I am talking about people earning 20k or so - not people on welfare (who also should be helped).
  - dji1111111 on 17/02/2016 - 05:27
    
    +1
    
    Housing prices are partly to do with the overall cost of labour in Australia. It would be stupid to think that negative gearing is solely driving the increase in house prices.
    
    Have you even checked how much it costs to build houses these days? I'm talking about just the build cost. Even if the house price comes down, it will lead to a sudden drop in construction activities of new properties and also renovation of existing properties. After all who's going to spend 400-600k to build if the house price is in the toilet? After that, the only outcomes will be for people in the construction industry to take a massive cut in pay or price will start going up again due to no new supply coming on.
    
    People have short memory. When has Labour ever been successful in their attempts to support the "working families" by artificially targeting certain groups? The latest failure was the MRRT.
    This will probably not even achieve what they want and/or even if they do, it will come with other unwanted side effects.
    
    Negative gearing is in line with the overall design of the taxation system where assessable income is taxed and the expenses incurred in generation of that income is deductible, so I don't see the issue. It is already a rort that ATO expressly disallow the deduction of cost incurred in commuting to/from workplace for people on salary and people want another rort in place to override the overall design of our tax system? It is just a veiled way of introducing a new tax without the backlash usually associated with introducing a new tax or increasing the tax rates.
    - gringo on 17/02/2016 - 06:14
      
      If you think houses cost 400-600k to build you are off in lala land.
      
      People were happy with fibro shacks not so long ago and would be happy with them again today (not using asbestos obviously). Wood framed houses in America are built today for almost nothing.
      
      House and land packages in unpopular suburbs in Australia are well under that too.
      
      The failure of the MRRT was due to interest groups first compromising the design and then lobbying for it's destruction (prior to 2003, iron ore was $10 per tonne - BHP was still profitable). Did its abolition "keep mining strong"?
      
      NG is a rort - any true free market Liberal would see it. You are right though, there are many other rorts to be eliminated also.
    - dji1111111 on 17/02/2016 - 10:42
      
      -1
      
      @gringo:
      Lala land? I think you are.
      A double story house will cost 400k to build and that's not including everything like curtains, landscaping etc.
      
      I have friends and family who has built their homes and that's what cost them. The next door lifted their Queenslander and built underneath and that alone cost more than 400k. It costs a fortune to get any renovation or building work done here because labour cost is so high.
      
      You have truly shown your lack of intelligence by blaming the failure of MRRT on lobbying. Haha even if MRRT was abolished, mining industry fell through the bottom soon after. All those talk about mining super profit tax lol everything labour does is short sighted. Tell me why they don't go after the banks. They seem to be making super profit all the time and not even cyclic like mining.
    - gringo on 17/02/2016 - 11:16
      
      +2
      
      @djc926:
      
      Why not put in a pool and underground bowling alley? Remember when a million dollars was a lot of money? It still is. Those who just want a house to live in don't need to spend so much if they don't want to. When the people who pay cash run out it might be very hard to shift.
      
      RE: MRRT - exactly, it was a super profits tax - only in effect when profits are outsized. It shouldn't have been opposed. Instead BHP used the money to make a boneheaded decision investing in US shale oil at the top of the market.
      
      Go after the banks.. another good idea. Financial transactions tax - why not?
  - nx1nx1 on 17/02/2016 - 13:16
    
    20k is like 2.5 days or work a week on minimum wage. if you're not even working full time. how can expect to purchase a house? An I'm sure many welfare payments are higher than this.
    - gringo on 17/02/2016 - 13:37
      
      You can't - therefore you derive no benefit from the current tax regime. Is that fair?
      
      People who are casual workers may get only a few hours of work a day or have seasonal work. They may work a couple of jobs even - or be exploited workers (labour hire). These people exist.
      
      The dole is about $9K per year - think again.
    - nx1nx1 on 17/02/2016 - 13:44
      
      +1
      
      @gringo: how many house do you think you're buying if you're on 9k a year? or even 20. I assume your 9k comes from personal experience? also… newstart is closer to 17k a year for single person, and austudy is around 11k. its all listed on the centrelink website. and this is beofre rent assistance and all that.
      
      you shouldn't get these tax breaks because your not paying tax. and those paying tax are paying your social security.
      
      Also, at 20k, if u had an investment property that was negatively geared. you would be able to claim some as the taxfree threshold is at 18k.
    - gringo on 17/02/2016 - 13:48
      
      @nx1nx1:
      
      No I don't get the dole. Don't assume.
      
      Well it has gone up a bit (seen rents/bills recently?).. $523 p/f = $13598 p/a . There's a whole bunch of crap you have to go through to get it also - unlike with NG.
      
      https://www.humanservices.gov.au/customer/services/centrelin…
      
      You're just not understanding me.. you're buying no houses at that level ($20-$30K), nor are you getting super concessions or any other of the rorts - that is my entire point. But through GST etc, you are subsidizing everyone who is. And then people imply you are the parasite?
    - nx1nx1 on 17/02/2016 - 18:14
      
      +1
      
      @gringo:
      By your logic, it can be said about any concession. I don't get family tax benefits since I'm single with no kids, but my GST/taxes goes towards that! Then there's paid parental leave where my taxes go towards paying for someones personal decision. All this may not be fair, but you need to provide people with a way of creating wealth so as to be self sufficient in retirement.
      
      And these people who aren't working full time, who are perfectly healthy and capable should stop blaming the government and start looking internally.
      
      plus i don't know if you have any property, but NG isn't that great. plus it doesn't last that long. they go into positive pretty quick.
    - gringo on 18/02/2016 - 00:53
      
      +2
      
      @nx1nx1:
      
      So you expect poor people to pay for the concessions of the rich, while also blaming them for their circumstance.
      
      This is so utterly wrong - I don't think I need to say any more.
    - nx1nx1 on 19/02/2016 - 13:33
      
      @gringo:
      
      dont the rich pay for a lot of what the poor are entitled to? so whats wrong with these people who pay the most tax, get a few breaks.
  - poppit88 on 18/02/2016 - 22:24
    
    +2
    
    @GRINGO, Yes and everyone who has purchased a house or shares or any other form of investment has done so through very hard work, and a lot of sacrifice! All the properties in Australia are not owned by the top 1% of wealthy people. Most of them are owned by average people like you and I.
    
    Why should my beneficiaries then have to pay tax to be given something that I absolutely worked my back side off to own!
    
    Basically, they should hand over my money to the government (even though I'm dead) to help the so called less fortunate.
    
    I'm just starting to realise that I got the wrong end of the stick through my upbringing. Better to have been part of the welfare state at the start of my working life. Be on the dole, spit out a few kids, get public housing, get a few welfare benefits and go on to live the dream.
    
    And yes, there are people who are less fortunate than me, either through their upbringing, a lack of intellect, or mental health issues. Perhaps other individuals lack education or the drive to better themselves. The first three issues aren't an individuals fault, and a compassionate society helps those that are vulnerable. The last two issues are in your own hands. DO something about it to change to your destiny, but do not expect society to bail you out! Every single person living in low socioeconomic circumstances is not in the 1st category I have mentioned.
[Deactivated] on 16/02/2016 - 22:02

+3

Labor's policy is not retrospective so it is useless. IMHO negative gearing should be limited to a two premises per person and should be retrospective. Receiving negative gearing for more than two premises is a rort and therefore should be axed.
- Tseng on 17/02/2016 - 13:32
  
  agreed with this! simply limit the number of investment properties you are allowed to negatively gear. Either this or government should simply cut spending..
Chris12345 on 16/02/2016 - 22:09

Personally I worry about the effect Negative gearing changes would have on owner/occupiers. If scrapping negative gearing causes big losses in home values (which is what those in favour want to happen?) doesn't that leave owners, especially those who have only bought in the last few years, with mortgages in excess of the value of their home? Imagine having too sell at 50-60k under what you paid, not to mention the 20k or so in fees and stamp duty. Then another 10k or so for the real estate agent to sell it for you. It's either that or wait 7 or 8 years to sell when its back to the value you bought at…
FatBlanket on 16/02/2016 - 22:21

+5

I despise the opinion that we simply need to 'work harder' and aim lower and toughen up. There are plenty of hard working, tough people who can't afford anything decent while others have multiple investment homes. The difference, from my observation, has nothing to do with hard work. This is not me complaining, I'm extremely lucky. But I'm very aware of the many hardworking citizens of my country who are not!
- poppit88 on 16/02/2016 - 23:27
  
  +1
  
  Aim lower? Exactly the point! I had to buy a studio apartment when I started out. No, it wasn't big, and it wasn't flash. In fact I'd have struggled to swing a cat in it….(I like cats so would never attempt to swing one to work out the dimensions of a living space!)
  
  That said, society as it stands currently wants life to (including their house) be at the top of the pile.
  
  We all have to start somewhere - this includes buying somewhere that isn't as palatable as you'd like.
  
  Remember, it's not where you start out - it's where you finish. But you have to start somewhere.
  
  Toughen up is exactly the point some people are trying to make here!
  
  I kind of despise that everyone wants everything to be handed to them on a platter in the 21st Century!
ratking on 17/02/2016 - 09:22

+2

Lol I haven't dealt with old houses and I'm sure most investors would go for new house as the Tax offsets are greater. The only reason I would go for an old house is for future development or future growth. The rich don't need the offsets they always make money. This is all smoke and mirrors.
Houses will always be expensive do you think banks will allow a price drop on their security. What I mean it seems to me that if home prices go down then the investors would be in presure due to their 95% borrowing. As such that 95% would become 110% (just saying). As a bank I would want more money to secure not going bust and raise the interest. That would affect everyone.

I think most people just need to save a deposit and start very humble in a little home in a crapy place. That's what I did. Eventually I got to move to a nicer neighbor hood.

But for those who don't want to do that I suggest
Doing the investor renter strategy.
Where u rent where u wanna live and buy an investment property that eventually it will help u get into your own home
- poppit88 on 18/02/2016 - 22:34
  
  +1
  
  I'd go for an old house over a new house any day of the week. Modern construction is crap!(Particularly for high rise developments.) The list of repairs, maintenance and dodgy building practices is woeful. There was one article in the SMH recently stating that it would be cheaper to just knock some buildings down than try to have the defects fixed. Frankly, that is disgraceful.
SoBargainVerySave on 17/02/2016 - 10:08

+3

Even if banks lend at above 80% LVR, first home owners/investors without a 20% deposit will get crushed by LMI.

I work at a bank and have seen LMI cost these poor souls up to 26k, on top of paying a higher rate because of how "risky" it is for the bank to lend them money. On top of this they pay a joke we call stamp duty. Your 600k studio in the Eastern Suburbs (yep Sydney is a joke) has now suddenly cost you almost 650k.
AMLagonda on 17/02/2016 - 11:24

+1

I don't know if this will make any difference to me but yes I am now one of those "mum and dad" investors as I just bought a cheap second house and I can tell you now I am far from rich.

Im hoping this second home is going to be my superannuation one day.
ninetyNineCents on 17/02/2016 - 11:36

The truth is if negative gearing is removed, prices won't rise as much and more ordinary Aussies will be able to buy or build a home. Whenever the gov artificially interferes with benefits prices go up to consume those benefits. It happened before when they gave gifts for first home buyers. Sellers saw these buyers got a present and argued well we can now raise our prices by the same margin. As usual the people who weren't first home buyers now had to find that raise.
- edgar28 on 17/02/2016 - 16:01
  
  If the capital gain discount and negative gearing are removed.
  
  the future generation that is trying to move their current wealth to the next level will become harder. Hence poor will become poorer, those wealthy people will have minimum impact and the gap becomes bigger.
  
  when the gap becomes bigger, i.e. money value become higher, overall wealthy peoples are still better off.
  - JohnHowardsEyebrows on 17/02/2016 - 16:29
    
    +3
    
    Removing CGT and negative gearing will reduce house prices - short, medium or long term, they will be structurally lower.
    
    It will mean the 'future generation' won't have to play this game of chasing house prices higher each year, because the market won't be crowded out by speculators, but genuine home buyers.
    
    Most of the juice has been squeezed out of home buyers, so the speculation game can't go on forever, hence your statement about future generations not being able to participate in the tax dodge doesn't make much difference.
    
    The bottom line is that Baby Boomers and Gen X have had it easy - prices were low when they first bought, wages growth and inflation made it easy for them to pay their homes off, and tax dodges have allowed them to screw the younger generations.
    
    Nobody has the right to pay less than their fair share of tax, yet hundreds of thousands seem to think they're entitled to this economically distortionary, fiscally damaging, and thoroughly regressive tax break.
    - adzzz on 17/02/2016 - 18:51
      
      +3
      
      JohnHowardsEyebrows, you are smacking your head against a brick wall here. I created a forum post here on this website a few months ago (https://www.ozbargain.com.au/node/207783) highlighting this exact issue and why I thought Negative Gearing in property was unfairly benefiting the older generations and royally screwing the younger ones. The responses I mostly got were:
      
      They deserve more (Older Generations on the Gravy Train for longer)
      
      You need to work harder!
      
      Tax is already too high, why take this away? So we can pay more tax?
      
      Stop whinging and spending your money on things you don't need.
      
      Overall, the attitude is so apathetic towards younger generations and those without much skin in the game that we will never see any kind of serious reform whilst those who have everything to lose are in power.
    - ninetyNineCents on 17/02/2016 - 23:48
      
      @adzzz:
      
      How is whinging that you are losing a tax benefit not bullshit ? If you want to invest do it on your own money stop asking for handouts.
    - adzzz on 18/02/2016 - 15:34
      
      @ninetyNineCents:
      Read my whole post then comment ninteyNineCents please.
  - ninetyNineCents on 17/02/2016 - 23:47
    
    you forgot to mention that negative gearing only helps a small minority get ahead… they only do it to make money at the expense of other tax payers subsizing their lack of tax payments.
    
    Everybody today and in the future gets screwed because those people have had tax payers pay for their investments. WHen anyone gets tax benefits on anything,e verybody else who pays tax cops the cost.
    - edgar28 on 18/02/2016 - 14:29
      
      yeah most aim for positive gearing than negative gearing.
      
      I'm reffering more on disadvantage of younger generation of the capital gain discount.
      The negative gearing is "good" (as backup)for the most invester when interest shoot up to 18%
      
      Many countries does not provide capital gain discount because their tax rate is low. The discount and negative gearing are there for a reason because of high tax, and investor subsidized government to provide more rental properties (as stated earlier by others)
      
      Other contries with low tax, government have to provide low cost apartments for rental purpose (square box like prison design) So the Australia Gov try to provide equality to low income earners by letting them stay in normal suburb than low cost area.
      
      2nd - Australia is a good country (every one agress here), hence abolishing both negative gearing and capital gain discount and waiting for the market to regulate itself for lower house price is a big risk (what if population increase fast - house price still need to go up) and what if it does regulate itself and house price including sharemarket become stagnant - newer generations still loose out on actual capital gain.
      
      Balancing act required - like other post stated, lower tax like Singapore will make it viable without the concession.
Stphen on 17/02/2016 - 20:59

+1

Three of the myths of negative gearing explained:

Myth 1: Changes will hurt mum and dad property barons
When we adjust to look at people’s incomes before rental losses are taken out we see that the vast bulk of the tax concession goes to those at the top. The top 10% of income earners receive almost 50% of the tax benefit from negative gearing.

the average tax breaks received by those in the high income professions are also much larger, with the average anaesthetist reducing their tax bill by ten times more than the average teacher.

Myth 2: Negative gearing promotes new housing supply
The property industry argues that tax incentives for investment housing encourage more homes to be built. If so, it is a very inefficient way to do it. More than 93% of property lending is for existing housing.

Myth 3: Negative gearing keeps rent prices lower
Some investors may sell their properties if tax concessions are less generous. This might reduce house prices, but it will not increase rents. Every time an investor sells a property, a current renter buys it, so there is one less rental property and one less renter, and no change to the balance between supply and demand of rental properties. Indeed, one of the benefits of changes to negative gearing is that it makes housing more accessible for first home buyers.

https://theconversation.com/three-myths-on-negative-gearing-…
beyondtool on 18/02/2016 - 14:19

I am one of the luckiest people in Australia. I live 30mins from work, our family's combined income is $160k and we have a healthy savings in the bank. I'm middle aged and worked my guts out to get this far. If I'm lucky I could afford to get a loan to buy a unit which goes for around $550k in my area and still have enough money for the kids and modest lifestyle. I'd retire with nothing but a house though in my 80s.

The reason I haven't is because the housing market in Australia is unsustainable… The overwhelming majority of Australians are never going to afford to pay the overinflated prices in today's housing market.

Rent is governed by home much renters are able to afford. House prices are governed by how much people can borrow and what kickbacks the government offers to do so. That's why renting is a smarter option these days.
- Powershopz on 18/02/2016 - 15:40
  
  Yeah, my wife and I are trying to toss up whether to buy a place to live in, or rent and invest the sizable deposit we've been saving(in housing or other areas). Lately renting seems like a much smarter option.
  - AMLagonda on 18/02/2016 - 18:45
    
    I would call it an option not a "smarter" option, always depends on the way the individual/couple lives/budgets and their lifestyle.
    
    For me being rent free at my age is a very nice option, but Id thought I will go with an investment (second house) for my future and It will make a great superannuation when the time comes, it may be call negative gearing for the time being and so be it :)
[Deactivated] on 19/02/2016 - 12:59

Either have the policy affect everyone or no one.

It's absolute bollocks that they're not making it retro-active. So those who have already rode that train to riches can continue to stay on for more riches?

Either all or nothing.
shaybisc on 19/02/2016 - 20:10

+1

It's a rort. You've got tens of thousands of little aussie battlers who own multiple houses but have no taxable income It doesn't add to the housing stock, it doesn't add to employment in construction and it pits cashed up investors against people trying to buy their first home.

I am talking about the present system.
Rangerdave12 on 26/02/2016 - 22:24

+1

They should scrap it completely . Baby boomers put us in this mess , I wont shed a tear if they are the majority who get shafted
davlap on 06/03/2016 - 08:11

+2

Reactivating this thread because of some more comments about the crock of s**t coming from people who have more to lose if this is taken away.

They say the economy will suffer !

So, a developer / investor buys a house, fills it with cheap crap appliances and paints it once every five or ten years.

However a home owner (generally) wants to make it a home. Buys appliances, furniture, decorates properly every few years, paints the outside, gets the roof fixed and not just a patch with a bucket underneath (yes seen this, the bucket filled up and leaked through the light fittings), gets the garden nice, lays a bit of decking etc

The investor just wants the capital gain. The rent is a means to get the tax break, so who cares if its not maximized. Why spend money when you don't have to - god forbid you show a profit and lose that tax break.

Huge amounts of money are tied up in property which generates very little for the economy. Problem is the banks will lose out as the defaulters declare bankruptcy because they don't actually have any money to pay off the debt when the negative equity kicks in if prices fall.

Negative gearing decision 'hard but fair'

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