Negative gearing: politics of envy or of pain?

By Lucy Dean

May 01 2018
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Less than 3 per cent of properties are suitable and affordable for single minimum-wage workers, but cutting negative gearing won’t address this challenge, a housing group has said.

Negative gearing: politics of envy or of pain?

Anglicare’s latest Rental Affordability Snapshot has found that for single Australian workers on the minimum wage, just 2.90 per cent of the property market is affordable and appropriate.

A childless couple on the age pension will find 4.43 per cent of listings are affordable and appropriate, but a single person on the age pension can realistically access only 1.24 per cent.

For a single Australian who is older than 18 and on the Newstart Allowance the picture gets worse. Less than 0.01 per cent of properties are affordable and appropriate, down from 0.04 per cent the year before.

Overall, 6 per cent of unique properties were considered affordable and appropriate for households receiving government income support payments.

The report arrives at the same time as the 2015-16 taxation statistics which reveal that the number of Australian property investors increased by 45,867 from 2014-15.

However, going back to the 2012-13 statistics reveals that the number of property investors with five or more properties has grown by 13 per cent, more than triple the rate of growth in investors with just one investment property.

Pointing these numbers out, shadow treasurer Chris Bowen said: “Australia’s extremely generous property tax concession regime sees over 38,000 investors who own at least five properties (over 200,000 properties).

“The new data from the Tax Office again draws out the problems with the current tax concessions on housing – an investor buying their 5th, 6th or 7th property gets more assistance than a first home buyer trying to get into the market.”

He said levelling out the playing field for first home buyers and investors would help address housing affordability.

However, the Housing Industry Association (HIA) has a different view.

Responding to the Tax Statistics, and reports that nearly two-thirds of property investors have an average income of less than $80,000, principal economist at HIA Tim Reardon said: “Further restrictions on negative gearing will lower Australian living standards and increase the cost of renting a home.

“Changes to negative gearing would adversely impact on the housing market, exacerbating the current undersupply of housing and further reduce the efficiency of the housing market.”

He continued, arguing that pushing investors out of the housing market could force the price of renting up, as nearly 25 per cent of rental stock is provided by private investors.

The HIA numbers are based on research conducted for the HIA by The Centre for International Economics (CIE).

“We cannot solve the affordability challenge by increasing the tax on housing or by further restricting those that invest in housing,” Mr Reardon added.

“The solution to housing affordability lies in less tax and less government involvement in housing than in additional constraints on investors.”

His sentiments aligned with those of Treasurer Scott Morrison who argued last week that reforms to negative gearing would prove damaging to the economy.

“You go and put major tax system shocks into the housing market, for parts of our tax system for the housing market that have been around for a century, if you think that… this will have no real impact on the housing markets in Australia, then they [Labor] are more stupid than I thought,” he said.

“This is dangerous policy and it is driven by envy, it is not driven by economics.

Nevertheless, the Anglicare report called for the government to wind back negative gearing and redirect the funds saved into public and community housing.

“Australia’s current housing tax concessions – negative gearing and capital gains tax exemption – favour the wealthiest and encourage property investors, at the expense of people trying to buy or rent a home.

“Anglicare Australia’s recent report, The Cost of Privilege, showed that negative gearing and capital gains tax concessions cost the federal budget a staggering $14.85 billion per year, and overwhelmingly favour the richest.”

While the HIA responded to the fact that nearly two-thirds of property investors were on taxable incomes of less than $80,000, it should be noted that 79 per cent of all Australians are on incomes of less than $80,000.

The argument that negative gearing is used by middle-Australia is a favourite of Mr Morrison, who noted in 2016 that two thirds of negative gearers were on taxable incomes of less than $80,000. In the same comment, he said he always understood the “vast majority of Australians who use negative gearing — they are modest income earning Australians, nurses, teachers, police”.

According to a fact-check performed by the Australian Broadcasting Corporation at the time, this is a “selective” claim given that, at that time, the vast majority (82 per cent) of taxpayers themselves fall into that bracket.

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