The Australian Council of Social Service (ACOSS) is urging the government to restrict tax deductions for negatively geared property investments, saying these tax breaks are “feeding a fire which the Reserve Bank and APRA are trying to put out”.
The ACOSS report, Fuel on the fire: Negative gearing, Capital Gains Tax and housing affordability
, dispels the myths that negative gearing makes rental housing more affordable and that the benefits mainly go to ‘mum and dad' investors on middle incomes.
“Negative gearing and the tax break for capital gains don't improve housing affordability; they make it worse by fuelling home price booms like the one in Sydney right now. Less than one tenth of negatively geared housing investments are for new properties, the other nine tenths bid up the price of existing housing,” ACOSS CEO Dr Cassandra Goldie said.
“These tax breaks also make it more difficult for the Reserve Bank to manage the economy. Over-heating in housing markets is making it harder for the Reserve Bank to cut interest rates when this is needed. The tax breaks are feeding a fire which the Reserve Bank and APRA are trying to put out.”
According to the report, tax breaks such as negative gearing and the capital gains tax discount have inflated housing costs in every housing boom since the 1980s. Since the cut to capital gains tax in 1999, lending for investment housing has risen by 230% compared with 165% for owner occupied housing.
Goldie says it isn’t the average ‘mum and dad’ investors who are benefitting from the tax breaks anyway.
“It's not your average mum and dad investors on middle incomes who are benefitting from the generous tax concessions that have allowed two thirds of individual rental property investors, or 1.2 million people, to report tax-deductable ‘losses' of $14 billion in 2011,” she said.
“The reality is that over half of geared housing investors are in the top 10% of personal taxpayers and 30% earn more than $500,000.”