Does negative gearing reduce home ownership rates?
Published 27-APR-2016 15:02 P.M.
2 minute read
Hey! Looks like you have stumbled on the section of our website where we have archived articles from our old business model.
In 2019 the original founding team returned to run Next Investors, we changed our business model to only write about stocks we carefully research and are invested in for the long term.
The below articles were written under our previous business model. We have kept these articles online here for your reference.
Our new mission is to build a high performing ASX micro cap investment portfolio and share our research, analysis and investment strategy with our readers.
Click Here to View Latest Articles
There is an ongoing political debate in Australia as to whether to scrap the negative gearing tax break for property investors. The policy allows investors to tax deduct interest on a property investment loan if rental income falls short of interest payable and on the loan writes Sam Green, Advisor at Options Educator, TradersCircle.
The Grattan institute, an independent policy think-tank, jumped into the debate over the weekend, releasing research that showed the current policy heavily favoured the wealthiest Australians; with around half of the tax deductions claimed by the top 10 per cent of Australian income earners.
The report found that negative gearing reduces home ownership rates, as well as encouraging turnover and reducing the security of a renter’s tenure. It called for the scrapping of the negative gearing policy, stating that its removal, as well a suggested change to capital gains tax, could add more than $5bn to the budget bottom line annually. The proposed changes are forecast to reduce house prices by 2 per cent, with minimal impact on rents and new development.
Another report released by The Australia Institute (another independent policy think-tank) this month sought to geographically break down the biggest winners from negative gearing; their report showed that they primarily were wealthy individuals living in Liberal electorates. In fact, the top ten electorates for negative gearing deductions were all Liberal held.
The Australia Institute paper also concludes “that income is still the most important factor in negative gearing. Higher incomes are correlated with higher rates of negative gearing and larger negative gearing deductions.”
For their part, Treasurer Scott Morrison and Prime Minister Malcolm Turnbull have reiterated their defence of the policy, stating that the notion that negative gearing primarily benefits high income earners is a “a complete and utter myth”.
The liberal leaders also state that reducing or removing negative gearing would destroy house prices, by taking up to one third of buyers out of the market. However, this assertion was refuted by the Grattan Institute, which countered that “Every time an investor sells a property to a renter, there is one less rental property, and one less renter. There is no change to the balance between supply and demand”.
The Australian Federal Budget for 2016 will be released next Tuesday, with an analysis by Deloitte Access Economics showing that the deficit is likely to increase due to a drop in taxation revenues. The Deloitte report warns that public debt is in danger of passing a point of no return.
If the budget does show a large increase in the deficit, expect even more public discussion of the tax and spending mix, including more impassioned viewpoints on negative gearing.
General Information Only
S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.
Conflicts of Interest Notice
S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.
Publication Notice and Disclaimer
The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.
Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.
This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.