Who really uses negative gearing?
Negative gearing is one of the most hotly debated topics in the national tax reform debate.
In a new report from Deloitte Access Economics, Mythbusting tax reform, Partner Chris Richardson says negative gearing wears the “blackest hat”, but that it’s an ill-deserved reputation.
Deloitte’s report finds negative gearing is neither “evil”, “a loophole in the tax system” nor the “key culprit” impacting on house prices.
“It simply allows taxpayers to claim a cost of earning their income. That’s a feature of most tax systems around the world, and a longstanding element of ours too,” Richardson says.
Deloitte’s report adds to an expanding base of evidence debunking the myths around negative gearing, including research commissioned jointly by the Property Council of Australia and the Real Estate Institute of Australia (REIA).
Property Council Chief Executive Ken Morrison says pointing to negative gearing as the primary driver for higher house prices is wrong.
“Negative gearing has been in place for 100 years and can’t be blamed for last week’s auction results,” Morrison says.
“We have seen a distinct shift in the hot property markets of Melbourne and Sydney. This wasn’t due to any changes in tax policy, it is a result of new housing supply coming onto the market and finally taking the pressure off prices.
“And that’s why it’s so important to sustain a strong level of new housing construction if we are to tackle housing affordability long-term.”
Mr Morrison also points to ATO data showing that negative gearing is predominantly used by everyday Australians.
“Analysis of the latest ATO data shows those who use negative gearing most earn around or under $80,000 a year,” Morrison explains.
“In fact 840,000 of these people, comprising clerical staff, teachers, tradies, nurses, cleaners and emergency services personnel, declared a net rental loss in 2012-13.
“These are the ones who must remain front and centre in any debate around negative gearing.”
While confirming the Turnbull Government has put everything, including negative gearing, back on the table in the national tax debate, Assistant Treasurer Kelly O’Dwyer also recently challenged the assertion that “only wealthy Australians take advantage of negative gearing”.
“When you look at the facts, that is not the case. Average income earners largely are the people who do get to take advantage of negative gearing – nurses, policemen and women on an average wage, investing, for instance, in a property. Most of them hold only one property, which adds to the housing stock that’s available for people as well.”
The REIA/Property Council commissioned report Australian housing investment: analysis of negative gearing and CGT discount for residential property by ACIL Allen Consulting found that around a third of all new dwelling construction is financed by investors every year, debunking the myth that negative gearing does nothing to support housing supply.
A strong supply of new housing creates jobs and keeps the pressure of house prices. That’s why the Property Council is calling on policymakers to Let property grow the economy. Find out more here.