Libs Rule Out Neg Gearing Changes

Salient points from Grattan Institute's report http://grattan.edu.au/wp-content/uploads/2016/04/872-Hot-Property.pdf.

Capital Gains Tax

• 2013-14: 74 Billion accrued through CG out of which 45% was from Real estate (RE).
• 2013-14: CGT raised 7.5 billion=3% of total income tax raised
  
• Individuals are more likely (as compared to corporations) to own RE owing to state land taxes.
• Tax advantages of CGT:

• Individuals @ 50% (ownership > 1 year), super @ 10 % and corporation @ 30%. OO no CGT
  
• Deferred tax: Taxed at time of sale not during accrual= Government funded loan with no interest (asymmetric with deductions/NG). Tax benefit increases with higher holding period.
  
• Time of sale can be varied to coincide with reduced income.

​

• Arguments for higher exemptions for CGT: Please refer to the link above
• Arguments for lower exemptions for CGT:

• Balancing the costs of other taxes i.e savings vs consumption and workforce participation.
• Reducing distortions between investment choices i.e. CGT vs other passive incomes (rents, bonds, term deposits, shares) wrt periodicity of tax, inflation compensation and riskier investments based on debt rather than equity.
  
• Maintaining the integrity of Income tax collections i.e. conversion of labour income to CG with the help of NG.
• Maintaining the progressivity of Income tax collection. Current CGT exemption leads to continuous inegalitarian spiral, with CGs accruing disproportionately to the well off.

​

 

Salient points from Grattan Institute's report http://grattan.edu.au/wp-content/uploads/2016/04/872-Hot-Property.pdf.

Negative Gearing

• Shelter from tax hence more prevalent (70%) amongst investors less than 60 years old as compared to above 60 (35%)
• Concentrated in RE: Individual borrowings in 2015 (Shares: RE= 19: 548 billion)
  
• Deductions against unrelated income streams. E.g. When compared with say FTB or CCB investment deductions are not permitted, hence the policy favors the well off.
• Bias towards higher leverage i.e higher gearing = Greater deductions
• Bias towards CG rather than yields.
• Changed investment behavior:
  • Half of RE investors would not have invested if NG was not available.
  • Over last 15 years:
    • Number of NG investors and average loss has almost doubled.
    • No change in the number of positively geared investors.
    • All additional investors were negatively geared.
  • Interest deductions as a % of rental income rose to 86% from 40% in 10 years to 2007-08. With lower interest rates ratio fell to 55% in 2014-15
  • 2013-14: 1.1 million RE investors reported a collective loss of 11 billion.
  • Since the introduction of CGT exemption net rents are consistently negative.
• Property churn: Property retention after 5 years amongst NG investors is half as compared to all RE investors
• Social Consequences:
  • Reduced home ownership.
  • Reduced Long term rentals
  • Increased volatility of housing markets.
  • Increased risk to Australian financial system
• Regressive tax benefit available to those on higher incomes.

 

'They have it wrong': Turnbull fires up his blog to fight back against negative gearing criticism

PMs cherry picking and John Daley's response.

 

35,000+ respondents now with another 19hrs to go.

The monthly ABS labour force survey samples approx 56,000.

 

Of course the majority of people want it gone, particularly non-IP owners and first home buyers who are continually outbid by speculators in the areas they want to live.

Its a hot topic now and supporting negative gearing is no longer a vote winner ... its a vote loser. When the pollies cotton onto that fact change will eventually happen. Votes are what really matter to most of them, not whats best for the country.

 

Tax government got from property in 2014/15 - 45.2B (up 4.3B compared to 13/14)

So they give 5.3B and receive 45.2B back.... Yes I am aware this includes normal PPOR taxes...

Source;
5506.0 - Taxation Revenue, Australia, 2014-15

 

Woo hoo...bring it on I say....they have no idea what will happen.

Rents are going to head up in the short term as the masses panic and stop buying. This will reduce supply significantly...as I have said most people do not have the sophistication to understand and analyze what will happen over the longer term.

 

What they get back will be eroded by inflation as rental inflation jumps...stupid...stupid policy.

Instead of addressing the real issue which is to develop infrastructure and policies to encourage employment outside of the capital cities they attach Neg gearing!

What a bunch of muppets!

 

I have been watching this as well... I believe this poll could be quite significant especially if the SMH use it further for an editorial or whatever...

Could Turnbull change the goal posts again and introduce some of the recommendations put forward???

Surely Turnbull can't ignore these numbers. Everytime he comes out and talks about it he gets hammered... 1 year old owns house etc. I thought Turnbull wold get in just on the fact that we possibly couldn't have another change of Prime Minister. These numbers make me think it is anybody's to win....

Or will the masses get scared at the last minute of what such a change could bring and just vote Liberal?

Interesting times. Well played Labour on the tactical front.

 

Yep....which also unfortunately show how stupid our voting base is and that they will believe anything pollies tell them.

I agree with you...this could be a game changer...and for the first time in many months...I now think labor may win!

 

Still don't understand why rents would rise. Despite there being no change in current NG arrangements. Despite there being plans to directly stimulate increased supply. Despite there being reduced competition for first-home buyers.

All of it sounds like a toddler throwing a tantrum.

Anywho, whether we are for or against NG is really irrelevant as I don't think it is enough of a policy to win an election.

Best to wait until May 3 and see what the LNP have in mind.

 

Why would it reduce supply ? The houses still exist. someone lives there.
You could say renters bought them, so less renters, less demand... and rents drop ! But I have just ignored part of the equation like you did. In reality rents would hardly be affected, either another investor bought it or a renter did or a previous homeowner did (so their previous place becomes available). Supply demand remains roughly the same. The exception is new builds (less than 7% of IPs), for which Labor proposes retaining NG.

Pollies making sense:
Positive plan to help housing affordability

Pollies making lies:
Clearing up some misconceptions about Negative Gearing | Malcolm Turnbull MP

 

Agree but you are looking at it rationally.

Most people will panick if Neg Gearing is reduced and head for the door. It will also curtail supply as people will not invest in new houses either because if the change and the what ifs occuring in their brain.

 

I doubt whether supply would be materially affected since Labor's grandfathering provisions would mean that if you currently hold a NG property you'll be far less willing to sell it than now. According to the Age "About 80 per cent of all properties bought by negatively geared investors are sold within five years".

 

Wasn't 93% of investor loans buying existing property?

And if Labor gets in, new builds will attract NG - surely there will be a rise from 7% of investor money flowing in.

Or am I missing something?

 

Yes Emza...but do you think people will think rationally through this?

i could be wrong..but this has been done before...I think the short term rents will head up. That will cause other issues...last time the govt (labor) again did it...they repealed the law change within a year a believe...

 

Who uses negative gearing in Australia? Search the full list by occupation

You can sort or search the table to see which occupations are using negative gearing the most.

 

I guess some people might run for the door for fear more changes will come in the future - like four years down the line when a staged NG withdrawal is proposed (dropping 20% per year or something).

 

I think people will panick a lot earlier!

 

CEO - Median Income 178k
Chief Executive Officer (CEO) Salary (Australia)

Retail Manager (RM) - Median Income 48.7k
Retail Manager Salary (Australia)

Using simple tax calculator on the ATO website -

CEO - 178k you would pay 53.8k income tax even if you reduced it by the NG claim it would be 39.8k tax paid or 22.35% tax.

RM - 48.7k you would pay 7.4k income tax and using the NG claim it would be about $500 or 1% tax.

So one person earns 3.65x more than the other person yet they pay 79.6x more tax.

This makes the CEO look like a gimp as they should really try to get 52k in NG benefits to be on par with the RM.

Another way to look at it is the CEO 7.86% of total income is offset by NG compared to 14.28% for the RM (roughly double).

Yes the CEO is getting the largest portion of the benefit but they are also providing the largest amount of tax even before/after NG.