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Daley hits back at PM criticisms over negative gearing

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Australian Broker | 28 Apr 2016, 09:00 AM Agree 0
Grattan Institute CEO John Daley has refuted Malcolm Turnbull's criticism of the think tank's recent report regarding changes to negative gearing.
  • SA Broker | 28 Apr 2016, 10:04 AM Agree 0
    Well done PM!
  • Tom | 28 Apr 2016, 10:38 AM Agree 0
    It's always good to engage in debate about policy options, but I do wonder why our economists fail to see the benefits on Negative Gearing when the are forever highlighting what they perceive to be the inefficiencies of it.

    It makes me question if they actually understand what it is and why it is so important to the Nation.

    For example, an Investor purchases a property. They pay Stamp Duty locally, so a funding boost for the local State Government, no exceptions if or but's - they pay Full Rate Stamp Duty. (A First Home buyer may be eligible for an exemption, and therefore no State income derived from the transaction.)

    The investor (generally for a recent purchase) has to subsidise the mortgage payment from his/her/their personal income. The rental income is normally insufficient to cover the loan repayment, and that effectively equates to a RENTAL SUBSIDY - the Investor subsidises the cost of the providing accommodation to the tenant. Then the Investor pays for all the maintenance costs related to the property, and they pay Rates AND Land Tax to the State Government. Strangely enough, these taxes paid locally never seem to enter into the equation when the cost of Negative Gearing is mentioned.

    In this case, the Tax Contribution from the Investor is paid at a State level, and not Federal, thereby reducing the Federal funding requested by the State. As such, the Investor is not dodging tax, but actually paying his/her/their fair share - it's just split between the Federal & State Governments.

    The other big comment our leading economists like to confer in this debate is that if an Investor sells, then an Owner Occupier will purchase. Which in some cases is true. But like all economic models, they are fundamentally flawed because they do not consider external influences that have a significant impact on the purchasing proposition.

    The problem with any property purchase is the cost, very few people can afford to pay cash for a home, therefore in order to purchase, a prospective buyer must obtain finance to fund the purchase. And of course this comes from the banks, and in Australia - unlike the US pre-GFC - our banks do not operate as a benevolent society and just give money to anyone, a prospective purchaser needs to satisfy bank policy to be eligible.

    And that's where the economic flaw comes in. Not everyone that is currently renting is going to be in a position to purchase, therefore rental accommodation will always be required. Now if property is deemed inefficient as an asset class by investors, and assuming they sell up (let's assume prices don't collapse because they won't sell up en-masse). Again, let's assume that over a 5 year period, all investors have sold off their properties and invested their funds elsewhere.


    Oh, yes, that would now be the responsibility of the Government, either Federal or State. Can you imagine the fighting between the levels of Government that would ensue? Our State Governments can't afford to provide Public Housing now, how would they cover they demand once private investors exited the property market?

    So who would be the biggest losers from a change in Negative Gearing Policy? Yep, that's right, THE POOR !! This change in policy will hit the ones that can least afford it the hardest - so what I don't understand is why are they leftist leaning economists pushing so hard for its removal?

    But hey, what would I know, I'm not an economic genius, but I do know that there is more to the Negative Gearing debate than just numbers. I just wish our economists and our finance editors in the media could see that!

    Let's have an open honest debate that includes all the facts, not just an argument that engages in class warfare!
  • Pro pack | 29 Apr 2016, 11:02 AM Agree 0
    I'll back the economists over interested parties for unbiased analysis.

    Their job is to put reseach and facts over private nest feathering.

    (and remember economists are in the class that would benefit from neg gearing).
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