Negative gearing is 'feeding a fire', says new report

by Julia Corderoy17 Apr 2015
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.”


  • by Chris C 17/04/2015 9:11:08 AM

    Its called economic or trade cycles. they actually happen. With other industries and businesses going through hard times, the mining and construction industries drop off, high unemployment - its good to see something is still bubbling along. The negative gearing issue has been on the plate for years - will it be stopped by the people who are most likely the main users of this 'benefit' and would it cripple Aust financial industry overnight. If the RBA and Govt worked better with industries to get businesses back on their feet to get them profitable again, grow their employment base (instead of all the media hype around what will gain votes and keep me in power), the increased revenue and taxes this way, will support in a better economy. If investors who can afford it, could not purchase property and provide for tenants who can't afford it, where would the Govt house them ? The negative gearing is a shared cost with the Govt to supply housing and it is probably cheaper than NRAS & DSH and all the one off schemes they put out that end up costing us a fortune.

  • by Patrick 17/04/2015 9:57:33 AM

    The problem with "mealy mouths" like ACOSS is that they are completely uniformed and apparently uneducated. Capital gains tax was not reduced in 1999, the indexation of the cost base "discount" was replaced with a simple 50% concession for assets held more than 12 months. Prior to 1987 there was no CGT. The gearing and CGT concessions apply equally to shares, managed funds and commercial property. So where is the evidence that these asset markets are boiling over. Without normal deductibility of expenses including interest, rents will rise. ACOSS do you not remember the Keating experiment?

  • by Wozza 17/04/2015 9:59:35 AM

    My experience is that most investment loans are taken out by a couple who have equity in their home, the kids are moving out and this investment is the only one they have. It flies directly in the face of the ACOSS assertions. The last investment loan I wrote was exactly this scenario for a married couple with a small office cleaning business.