Treasurer Joe Hockey has all but ruled out any changes to negative gearing by warning that altering the system could drive up rents and harm investors.
“The belief that negative gearing keeps rents low seems to be a folk memory from when the Hawke government temporarily abolished negative gearing in the 1980s”
Earlier this week shadow treasurer Chris Bowen said Labor was open to tightening negative gearing concessions, which allow landlords to claim tax deductions for net losses on rental properties. Any changes would not affect existing landlords, Mr Bowen said.
“If you change negative gearing, then there are significant flow-on consequences for people that rent homes, and that needs to be properly considered,” Mr Hockey said on Thursday.
“A lot of Australians have invested their hard earned money in real estate, and in doing so, they have offset the losses of that real estate against their primary income, in order to give themselves and their children some financial security.
“At the same time, there is a very strong argument that if you were to abolish negative gearing, you would see a significant increase in rents.
“For a lot of people, a massive increase in rents is so unaffordable.”
It is estimated that negative gearing is used by 1.2 million Australians claiming around $14 billion in concessions a year.
Mr Hockey’s argument that watering down negative gearing would drive up rents has been disputed by some of the nation’s most respected economists, including the Bank of America Merrill Lynch’s Saul Eslake and the Grattan Institute’s John Daley.
Mr Daley disagreed with Mr Hockey when the Treasurer made similar statements about negative gearing on the ABC’s Q&A program last month.
“The belief that negative gearing keeps rents low seems to be a folk memory from when the Hawke government temporarily abolished negative gearing in the 1980s,” Mr Daley has written.
“Rents rose rapidly in Sydney and Perth. But rents were stable in Melbourne and Brisbane and the rate of growth fell in Adelaide. In Sydney and Perth population growth and insufficient new housing, not tax policy, were pushing up rents. Economic theory predicts that abolishing negative gearing shouldn’t change rents. Every time an investor sells a property to a renter, there is one less rental property, and one less renter – in other words, no change to the balance between supply and demand of rental properties.”
Speaking at the National Press Club on Wednesday, Mr Bowen said it would be “irresponsible to rule out going to the next election with changes to, for example, negative gearing”.
“I have said our principle will be 1. Do not disadvantage people who have made investments in good faith under current rules. 2. Do not risk reducing the supply of new housing or, if possible, improve the situation with the supply of new housing’,” he said.
*Article by: Matthew Knott, ‘The Age’ 24th April 2015