Industry reacts as Labor drops negative gearing policy

by Mike Wood27 Jul 2021

The property investment sector has reacted to the news that Labor has dropped its plans to end negative gearing.

Labor scrapped the policy in a party meeting, bringing an end to a policy pledge from the last election that had caused consternation in the construction industry.

Negative gearing is when an investor borrows against an asset – typically property – in such a manner that it costs the owner more than it makes.

It is used as a tax saving measure, as the 50% capital gains tax deduction that comes with a negatively-geared asset can make it turn a profit, and as a way of generating investment in housing.

Labor had previously planned to halve the tax deduction in an attempt to raise revenue, saying that it had not had the intended effect on new housing stock and only benefitted rich investors.

Now, they have decided that the public backlash on the negative gearing change is too much compared to the political capital that had to be expended to make it happen.

It’s very pleasing to see that the Labour Party have dropped their push to change negative gearing and capital gains tax,” said Peter Koulizos, CEO of the Property Investment Professionals of Australia (PIPA).

“The headlines have been that it helps millionaires and billionaires, but the vast majority of property investors, close to 90%, only have one or two properties.”

“These people are just trying to better themselves in retirement rather than trying to become very wealthy people that drive around in Porsches and Lamborghinis.”

“The capital gains tax and negative gearing really help the mum and dad investors, in the main.”

“Yes, there are some very wealthy people who also benefit, but that’s what happens when you have any tax cut: generally the people that pay the most tax will also get the most benefit when there are tax cuts.”