Removing negative gearing is good for financial stability: RBA

by Julia Corderoy10 May 2016
The Reserve Bank of Australia (RBA) has lend some support to arguments for abolishing negative gearing, saying it could be a good thing for financial stability.

In an RBA internal briefing note obtained by the ABC under freedom of information laws, the central bank noted: “Any change which discourages negative gearing may be good from a FS [financial stability] perspective.”

The memo blamed negative gearing for speculative investment, saying the interaction of negative gearing with the capital gains tax (CGT) discount “may encourage chasing of capital gains”. 

However, the Federal Government has dismissed the internal memo from the RBA, with Finance Minister Mathias Cormann telling the ABC it is an “entirely unremarkable document” and does not represent the official position of the RBA.

“This is an old document, it is an internal document, it is a document that outlines historical perspectives,” he told the ABC.

“It is not an official position of the RBA and it shouldn't be misrepresented that way.”

According to the public broadcaster, the document was produced sometime between March 2014 and April this year. It is unclear whether it was written before or after Labor announced its proposal to limited negative to new housing in February this year. 

While the RBA memo has lend support to arguments for curbing negative gearing, it also said there would be a “potential increase in rents” from making the practice less attractive.

In the Government’s Federal Budget announcement last week, Treasurer Scott Morrison vowed not to touch negative gearing, saying its removal would “increase the tax burden on Australians just trying to invest and provide a future for their families”.