ALP Position on Negative Gearing

Hi there,

The webpage: Positive plan to help housing affordability

Makes mention that:

"Labor will limit negative gearing to new housing from 1 July 2017. All investments made before this date will not be affected by this change and will be fully grandfathered."

Prior to that it also states:

"While making change to the tax system to improve fairness is a policy objective of Labor, it must be done without negative retrospective impacts on existing investments."

I assume the info from that page was posted prior to last years Federal Election and the dates are now not relevant. The ALP may do well to update the info though as it may spook potential voters who are reliant on negative gearing.

Who knows when the next Federal Election will be but no doubt negative gearing and CGT will again be hot topics of debate and discussion.

 

Good thing no one sensible votes for them

 

Labor does at times appear to be still making up their minds on the intended restriction of negative gearing for residential housing:

only new residential housing, (and)
only to income earned from investments. Salaries earned as individuals to be quarantined from negative gearing.

What about superannuation annuity or pension?

If this policy is fully implemented, IMO it would greatly reduce new investment in residential housing and impact on self sufficiency. Why would any salaried worker subsidise housing for renters in the early years of investments on housing on behalf of the government? Where is the incentive to be self sufficient in retirement to offset the delayed gratification of present needs? The rich will of course be diverted to other options of investments not available to the masses. Middle class will be squeezed. Those renting will be squeezed. The rich will of course be richer. Implication on the Age Pension will probably be blown upwards. Quite smart...?!

 

Not enough sensible voters around though.

 

Alp voters ?

 

It's far from unusual for serious businesses to lose money at the start, but they do it because they're looking to the long term. My humble one-man software business has racked up [single digit admittedly] millions of dollars in sales but in the early few years friends repeatedly urged me to recognise reality and get a 'real job'. And because I traded as a company I just accumulated losses but these then meant that when the business became profitable I paid no tax for several years. Same was true in the UK on property income, whether you were a company or not - profit and loss from this source was ringfenced. If I was running the show (I'm a dual citizen so can't ), it would be the same here.

 

If you can no longer offset your tax with deductible debt that could make the paradigm of paying off your own PPOR pointless. May as well just use any surplus funds to invest more to generate more income rather than pay down non deductible debt.

 

Interesting dynamics in hypotheticals:

if company accumulates negative gearing losses, losses are retained in company. Losses still have value and 'transferable' to another owner. Individual may have suffered a set back, but limited depending on choice of risk exposure.

if negative gearing losses are quarantined to the individual - they are not 'transferable' and become less usable and valueless much faster in time. Plus, individual loses gratification, not recoverable, in the attempt at achieving self sufficiency in later life. The chance of dependence on state welfare is always there for those marginal 'mum' and 'dad' investors in the rental market. Incentives and lack thereof will impact this group. My guess is that more 'mum' and 'dad' investors will forsake this route of attempting self sufficiency in their old age. Of course, the declining numbers of investors have been factored in developing the policy to lessen competition with aspirational FHBs. Consequently, IMO the trajectory of future demand on Aged Pension must increase.