Another Negative Gearing article to dissect

This one arrived in my inbox this morning from the Urban Developer:

Economic modelling undertaken by University of Melbourne economists, and presented to the Reserve Bank last month, shows that three-quarters of Australian Households would be better off if negative gearing is abolished.

The study was posted on the Reserve Bank website for public release on Friday.

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So many media talks about removing NG. Is it a political game again or there is a firm agenda here?

 

I thought politics is all a game.

 

Interesting.

First comment I would question:

"The study estimated that thirteen per cent of the population would be directly influenced by the removal of negative gearing, and likely to quit their holdings."​

I wonder where they pulled 13% from and whether it has any basis in reality?

The other point to note is the link to the study which says:

"Preliminary and incomplete. Please do not cite."

Obviously the blogger citing the study is not great at following directions.

 

I think that the parliamentarians who remove it will be in the one quarter of households worse off. They will lose their jobs.

Any removal is likely to be similar to the labour strategy - prospective only.

However all of this stuff is a guess.

 

IF it's a good thing smart politicians would cut it one branch at a time. It's already started with limiting depreciation.

Oh wait, there's no smart politicians around ATM.

 

This government has reformed negative gearing by limiting depreciation and cutting back on bogus "travel" claims.

I note the usual vocal agitators are not celebrating these reforms, which says to me they are nothing more than agenda driven ideologues who don't really care about making the system fairer.

 

That would be because these agitators dont understand depreciation.

 

My understanding is that they are not property investors and know little about it. But they like to talk a big game about a utopian society where everything is fair. One claimed that property investors overseas don't get tax breaks. Complete nonsense of course.

 

Greg Jericho, who writes for The Guardian, has a bit more analysis of the paper. It's not for an investor audience (sorry), but it's worth a read.

When it comes to negative gearing, this government prefers fiction to fact | Greg Jericho

He makes two points:

• Negative gearing benefits overwhelmingly go to the top 20% of income earners.
• Repealing it would mean that income tax could be reduced for non-investors, and this could offset any rent rises that might occur.

 

Income tax could be reduced for non-investors but would it be? Highly unlikely IMO

 

The latest tax data proves it: negative gearing benefits the rich | Greg Jericho

I was just reading this article, also by Greg Jericho, linked from the one Graeme posted above. It overwhelmingly shows that in the 2014-15 year, ATO records prove (another link within the article) that the net income loss claimed by tax payers was $3.6b. When will someone point out to journalists and politicians that this $3.6b is the amount of net loss to individuals, not the amount of tax revenue lost to the Australian people due to negative gearing that is regularly brandished around.

 

Isn't quarantining it to asset class a zero sum game though? No one buys an IP to lose money, those with high NG must surely have purchased in the belief that at some point it will turn CF+, by which time they can then claim back the previous years of losses against the CF+ income that's then generating? (For buy and holders).

By quarantining it against property all that is really happening is the "tax break" is being deferred to later down the line. The net result to the government coffers would be the same eventually?

Aside from the those that sell up or default etc before their property becomes CF+ but as a percentage of investors, how many would that be?

 

It would be interesting to see how the funds returned to property investors through negative gearing are used. That would give an indication of the social impact of negative gearing policies.

Perhaps digital currency with meta-data (blockchain?) Could be used to get an approximation of what investors are doing with that $3.6b, and then the impact on the economy monitored. Getting a bit 1984 now though...

[I'm aware that any analysis on this wouldn't be statistically valid - but it may provide an insight.]

 

I have finally found the hole in all their arguments. I was unable to link from here to the ATO data myself but it can be accessed via the newspaper article. Investors are currently giving $3.6b, and more, to their banks as interest on their loans. It is not lost tax revenue that investors dont pay. The money has always been spent by investors or landlords and always will be.

When we do our tax returns, the accountant inputs all the data about income and expenditure for each property that we rent out. At the end of the day, if there is a net loss on these properties, we dont pay any tax to the govt on the rent received. Should they abolish negative gearing, the only thing that will change on our tax returns is that those who NG will pay the regular amount of tax on their salaries rather than a lower amount as we currently do. That difference is not $3.6b. I cant imagine how tanyone can guess what htat figure would be, given that everyone's legitimate deductions are not the same as anyone else's.

 

I think the writer was implying that implementing a policy of abolishing negative gearing would lead to increased tax on landlord investors. With the 'savings' arising from the investors, the federal government would then be able to fund expenditure on other policies, such as reducing income tax on non-investors or expand on welfare options, eg. Rental Assistance.

 

Here we go.

 

I agree with you that that negative gearing is fair based on traditional application of accounting and tax principles. Unfortunately, when a writer is a proponent for abolition of negative gearing such as Greg Jericho is, fair depiction of negative gearing suffers. The other furphy often made by these writers is that negative gearing is a 'subsidy'. These lies are useful to garner support from the uninformed masses.

There is no mention of cost-benefit analysis of the $3.5b in tax deductions due to negative gearing in either papers of the Treasury and that presented in a RB seminar. For example ongoing beneficial impact on renters, government housing and future lower reliance on Aged Pension.

The other furphy is that negative gearing benefits the top 20% income level of population is a useful statistic in the debate. When is it the case that people in low income segments of society able to take large shares in big investments such as buying a house? Frivolously, I can easily propose a policy that will be detrimental to the top 1% income group while benefiting 99%. The comparison that the 'losers' will be limited to the top 20% income group is meaningful on political acceptability, ie more people will favour abolition of NG than the retention of it.

 

Exactly, @Francesco

Added is the losers arent't just the top 20% of income earners. They leave out that when "the value of housing in Australia falls by 2%", then EVERYBODY's house reduces in value. This is what Turnbull pointed out to votors before the last election.

 

If only the ATO had told us the maximum number of properties held by an individual and an entity! *sigh*