ABC Story on Negative Gearing

I can't post in Market Economics yet, so thought I'd post here. Looks like the ABC have really gone to town on NG:

Fact check: Do two-thirds of negative gearers have a taxable income under $80,000?

Actually, I remember the government claiming around a year ago that two-thirds of NG assets are owned by those with income <$80k, and my first reaction was "well, is that before or after their deductions?" I'm surprised anyone took so long to analyse it.

I probably have an oversimplified view, but these are the kinds of stats that might bolster Labour's arguments for reducing NG benefits. After all, it's not only locking out perhaps half of those properties from young first-time buyers, but it's also depriving the state of ~$75k of current FY tax revenue for each of these investors.

I did note @Redom pointing out recently that even Labour would press the 'blow ballast' button if Sydney house prices were 20% off and heading down further, and given his experience and background and very rational arguments, I took that as gospel.

But then it occurred to me - how many western democracies are actually behaving rationally at the moment? Given extreme and nationalist agendas in many countries, how likely is a Labour government to defend negative gearing given a steady trickle of stories like the one above?

I tend to be a bit of a pessimist in these cases when compared to what eventuates, but then I didn't expect Brexit, Trump, or the Lib spill, so I'm wondering if things could go south more than we expect.

 

I particularly like the last sentence.....

"For every taxpayer that negatively gears, nine others do not, and they pay more tax to subsidise the minority of negatively geared investors," she said.

I'm always intrigued why the '9' feel like they are subsidising the '1', as if the '1' is paying no taxes at all?

It's probably the '1' who is providing housing for some of the '9' and in many cases the '1' would be paying more taxes than any of the '9'. Let's also remember the economic benefits to the community of the activities of property investors, including builders, tradies, service providers, bankers...and the list goes on...all of whom will be paying taxes from income earned through the activities of a property investor.

Let's not forget that negative gearing is available to all Australians..... and all investors... not just property investors. Can we just stop this demonizing nonsense and educate the '9' about how the tax system works.

 

Yes everyone take advantage of it but only really high income earner can afford to do so that benefit them the most, most low income earner just have enough to live by

I favor Australia model it is a little more fair and not winner take all approach and where the wealthy use rules skew to their advantage, they still do but a lot less than country like America.

I think it is a fairer model taking away -ve gearing, rich can still invest, poor can still invest if they have spare chance but rich don't get the extra advantage of excessive negative gearing.

Franking credit refund can go too, I am having this advantage with my SMSF but I think it is unfair, I am ok with franking credit offset but not refund.

I am of the view if you have enough you don't need more at expense of others, else you breed a culture of excess greed

 

The ABC is pretty leftie so not surprising .

We need someone (more knowledge than me) to fact check the ABC’s Fact Check .

 

Yeah, but as a higher rate taxpayer, $0 income tax is quite a goal, isn't it?

 

Yeah, fair point! I feel the same, and you can pretty much detect bias one way or the other in most. I saw some chart of the left/right position of every major news publication worldwide, and surprisingly ABC was more balanced than BBC (slightly more left) - but then you wonder what the bias of the report author was .

Even so, mainstream media bias tends to manifest in the stories that they choose, but less the content in those stories. So there's likely a bunch of stories saying "the rich are paying too little tax", and opinion pieces trying to foster negative sentiment and force a correction (which is now in play), but the facts themselves are, well, likely factual.

 

As an investors I don't tend to fight regulations I tend to work with it because fighting regulations and headwind is a losing game.

Rate up, no negative gear, no properties.
unemployment high, rate drop, no one has any money, time to buy as it can only goes up from there

Fed raise rate in America, time to start shorting the Dow
Fed drop rate time to buy the Dow.

The age old saying "Don't fight the Fed" has been proven over hundred of years has got lost in bull market until the October correction and more to come

 

I did this many years ago before I joined Somersoft but I cant be bothered any more. At the time, (possibly eight to ten years ago), the high numbers of tax payers who negative geared were in professions that everyone knows earn less than $80k. People like me, for example, and all those earning around $65k which was the mean income of the day. So the original statement was valid on those grounds. The ABS published data from the ATO that broke negatively geared taxpayers into their professions.

Once the proponents of removing negative gearing lost their argument, at the time, they changed their methodology (the rules) on how they measured the "negative gearing benefits" to make the new outcome meet their agenda.

Note how this new fact check article is incredibly convoluted.

 

Which is why democracies tend to self-stabilise before things get violent.

This all happened in London around 18 months ahead, and prices came off more or less the same (and are still heading down). No negative gearing there, but the government (conservative) saw the bubble growing, and took a couple of measures that took the froth out of the market: they added a premium on stamp duty for IPs, +3% IIRC, and made fewer expenses tax-deductible, including (IIRC) expenses being only deductible at the basic, not higher, rate of tax*.

All of this basically killed the FOMO of all the middle-class mid-earners thinking they could get rich quick. Yields for recent entrants or highly-leveraged investors became wafer-thin or negative, and the market switched direction, just like that.

We were selling our PPOR there at the time, and ended up accepting around 15% below the original listing. We thought the measures above wouldn't affect us because our property was well outside the typical London two-bed flat IP. However, there was a domino effect - the 8-month pregnant buyer of our house couldn't complete, because she couldn't sell her flat - because that market was saturated with discounted IPs. The fact she was 8mo pregnant at least meant that she was keen to complete.

Anyway... facts or no facts, if there's a popular sentiment that housing is unreasonably unaffordable and the other party can change that, then that's worth some votes. Stories like this will only increase that sentiment.

* Actually, setting a progressive cap on negative gearing at mid-tier rates seems a probable approach to the way Labour might approach it.

 

Nice link @samosan - thanks for sharing.

My comment was in the context of how a government will likely react if house prices are falling faster than they would like.

If tax policy adjustments cause larger price falls during a period where prices are already falling fast, and that leads to figures upwards of 20% price falls, then I believe there'll be government reaction to stem the tide of price falls.

The current story is:
- Prices correcting and falling 5-10%, no worries, no big deal.

If this story changes to:
- Prices crashing to 20-30% following negative gearing changes, this is a problem both for the economy and the government.

This problem will lead to serious changes. Also, IMO no Aussie government can cause a trn+ wealth wipeout and stay in power. Politics today is more about the short run than I’ve ever seen it (although I’m young and can only comment on a short time period). They certainly wouldn't want to be 'blamed' for it, and having significant tax changes is a reason to blame them. Its way to difficult to unwind by % what causes price movements exactly, so the general headline will be 'Labor causes a TRN dollar wealth wipeout', 'Labor destroys house prices', etc.

That is political suicide. Politicians have one currency: votes. Voters on mass won’t accept it and will blame government.

Add to that all the monetary stimulus, lending adjustments, etc that will also come into play to prop up demand too.

Again this is a bit of a la la response. I don’t think negative gearing changes will cause this & I personally believe the market will stabilise & begin a recovery at around the 10-15% fall mark sometime towards the end of next year. In fact it’s quite possible it will put a temporary demand boost during its implementation window as rich investors bring forward demand and lock in tax benefits permanently. Particularly in Sydney/Melb. I can imagine a wealthy Sydneysiders responding by bringing forward demand in 2019/2020.

 

Totally agree.

As I have posted many times before:

Learn the rules, play the game.
If they change the rules, change your game.
​

That is one reason why Government changes never deliver the total benefit they were hoping for.

 

Thanks @Redom. Your points make perfect sense.

Also, the opposition in Australia is currently more centrist than many other countries, and unlikely to make more extreme policy decisions. Actually, looking at their policy on this on the ALP website, it is limited in its scope.

 

I say "Adapt and thrive".

12 months ago, all my loans were P&I and now they are all IO. This is a huge change but it works for me, so why not? It won't work for everyone but the key to adapting is to find what works for you.

 

Based on recent posts from you, I think you meant to say this the other way around ie. 'were IO and are now P&I'. Still a valid point

 

Haha, yes. The perils of posting pre-coffee

I ran an IO only portfolio for more than 10 years then switched to P&I in under 12 months.

 

Labor's policy only stops negatively gearing (new investment in established property) against salary / wages, but will allow it against other investment income which will turn it into a tax perk for the wealthy.

 

These articles suggest that tax benefits are the ONLY reason for negative gearing, supported by industry advertisements for glossy new properties with substantial depreciation benefits.

Tax benefits should only ever be the icing on the cake. Losing money is NOT a sound financial decision.

A sound, 80% financed, well managed negative income investment will not take long to turn neutral, then positive (ignoring non-cost deductions such as depreciation etc).
Marg

 

I think someone needs to measure the number of those earning above/below $80K (or whatever) to see who benefits from the availability of rental housing? And treat the 'tax benefit' as a government subsidy aiding rental housing supply, benefiting those on (presumably) lower incomes.

 

Why NG?

What about all those dole bludging bogans from Mt Druitt who are costing the country billions in welfare?

And not only that, they destroy the area's reputation, resulting in lower house prices and force people like me to invest there. Not on.

Gotta go, there's an open house in Bidwill and I'm gonna low-ball the owner like there's no tomorrow lol.

 

Bidwill had to Google it

"The western Sydney suburb of Bidwill has gone from a community where most residents worked, to one where more than 90 per cent are living on Centrelink payments."

Ready for Gentrification