Libs Rule Out Neg Gearing Changes

i quite enjoy the australianism of "tax the wealthy some more".

if we keep this up, soon everyone will be average and wondering where all the jobs went.

but at least no one is richer than me.

 

Progressive income tax as well as separate taxation regimes for capital and labour are well established (historically and geographically) universal taxation principles. There is nothing uniquely Australian about it.

What is unique to Australia (and New Zealand) is the *******ization of the capital losses against labour income via Negative Gearing which leads to perverse outcome for both the labour (active) and capital(passive) income:

• Capital investment is motivated by tax avoidance and therefore turns speculative. These investments are viable only with :
  • CGT exemption to offset loss making ventures.
  • The prospect of ever rising asset prices.

Some might call it two ponzi schemes in tandem.

• Labour income tax:
  
  • The individual income tax income for the country is rorted by a few (generally wealthy) individuals, who disproportionately transfer their tax liability to remaining society. Other ill effects are well illuminated in the Grattan report.
  • NG goes against the grain of progressive income tax

• It is myth that NG creates jobs and has been deservedly criticized and exposed in all kinds of contemporary economic literature.
  
• There will be a tiny parasitic microcosm that feeds extensively on NG for it's survival that will be effected if these two rorts are taken away.

In spite of the hyperbole, proposed revocation of NG and CGT is merely a grandfathered termination of tax loop holes.

 

https://www.facebook.com/video.php?v=10153581404653441

Waleed Aly from The Project on negative gearing.

 

Nice video... Leigh Sales is brutal

 

Nope.. Soon as they have any sort of gain in popularity, they do something utterly stupid to balance it out, like put the carbon tax back on the table.. The very policy that had put the axe into two of their PM's - unbelievable!

 

Anyone know how much property value is expected to fall if NG is abolished. Last I heard was a figure of around 2%, but I don't know the veracity of that figure. I imagine it will hit appartments harder than houses (more investors buy apartments I presume). Has this been modelled?

 

You must be mind reader...they did something stupid..like a pseudo carbon tax was in the news...as the Coalition ripped into it

 

Will be interesting to see. Higher end will fall.
lower priced propertys will increase as the demand for new dwellings to negative gear by investors will be in competition with new home owners.
Just an opinion. Exciting times ahead.

 

I like Walid Aly but he sometimes takes a stance on an issue and is then quite selective about the data/evidence he uses to build that conviction (actually... he'd make a great politician haha).

I think by only looking at average income to house price ratio is looking at only one part of the affordability story. Cost of living in other aspects of life such as food and transport is comparatively cheaper in this day and age than previoua generations.

Also, the spec and quality of housing that substantial volumes of home-seekers are demanding is much higher these days than the 60's and 80's. Sure, some build costs have decreased (but a lot of crappy quality dwellings have been built.. hmmm..), but the mod-cons now demanded as standard are quite high.

Also, but sorry, the world sadly got a ****-tonne more competitive, dog-eat-dog, overpopulated, and resources-ravaged over the last 20 years and this will only ramp up in our lifetimes.

As automation replaces many human jobs the focus and desire will be on the more 'intelligence based jobs' that still require human thinking sophistication. Guess what; these jobs are (for now) clustered in major large cities around the world. Not in rice paddy fields. Not in remote cowboy ranches. Not in outback regional towns. Ergo, the hunger to live closer to these new kinds of jobs (the cities) will ramp up demand for housing and thus prices.

Not denying that neg gearing has a role to play - it does - but Mr Aly's standard 'one sided soapbox rants' irk me!

 

Good point Barny. Also with fall in investor demand for existing homes, there will be a fall in homes being sold by investors because negative gearing & capital gains tax discount will be grandfathered. The longer existing investors hold the property the more they gain.

Will this create a supply issue?

 

This policy has nothing to do with what the tax does, doesnt, will or wont do.
It is simply a headline grabber (from both sides).
Most likely outcome is that which ever party gets in the policy will be reviewed or reversed not long after it is implimented (ala carbon tax). and we will go round and round in circles for a few more years talking about it.

I have always kept an eye on politics and would have to say the current state of politics is the worst I have ever seen it. Neither party or its leaders have any ideas about long term future, the ability to come up with any possitive change or the balls to make anything happen.

Australia's system is broken. Focusing on negative gearing is a distraction from the much much larger issue - one which is well known and well documented.

Its a sad state of affairs.

Blacky

 

Doesn't the US system have a feature whereas one may defer/avoid paying CGT upon the sale of an IP by investing that capital into another IP?

 

@MTR might know the answer to this question

 

oooh i love being misquoted! it takes the thread and de-rails it!

no problem.

renters can either pay full price for the cost of the property, or buy their own.

i'm sure that's a vote winner right there - like it was in 1984.

 

Someone did mention this but I'm not sure. I was thinking if you can no longer invest in old property without negative gearing, you shut off demand. New home owners can't afford these premuim expensive areas and most investors can't afford them without NG either. Again it's an opinion not facts. Perhaps after the market corrects itself again.

 

Actually with respect to a change in capital gains tax the reverse would happen...the 50% discount would only be available up to a certain date, this is what happened in 2012 for non-resident property investors. So the longer you hold the property after that date, the more the "non-discounted" period eats into the capital gain, so there is an incentive to sell, especially after the large capital gains of recent years.

 

This is what is getting a lot of speculators hot under the collar, hence the innuendo and derision.

It will not be the full price either for the rental or ownership, but subsidized by the beneficiaries of NG and CGT anxious (desperate ?) to obtain any yields or avoid defaults. Not an opinion, historical fact (try TRA 1986 to know what happens to rent and property prices when NG and CGT is removed).

Any developers in Perth reduced prices as yet?

 

Labor's proposal does not state this though.

"Capital gains tax

Labor will halve the capital gains discount for all assets purchased after 1 July 2017. This will reduce the capital gains tax discount for assets that are held longer than 12 months from the current 50 per cent to 25 per cent.

All investments made before this date will not be affected by this change and will be fully grandfathered."

Positive plan to help housing affordability

 

Firstly not a fan of Aly, don't watch the show he is on, To me the idea of buying your kid an investment property is the best thing you can do, I don't have them but in the process of buying my nieces one at the moment, my simple theory is let someone help pay it off for 18 -20 years, no better start to life , in my opinion, the problem in Chairman Mals speech was that he said the one year old has a house, If I was his PR guy, It would of been more they bought the IP to secure their daughters future in 18 years time the house will be significantly paid off.
If they abolished Negative gearing for existing dwellings, it would have zero impact of putting me off buying property, the only thing that it would do would be reduce the frequency in which I buy them. However, if they wanted to reduce housing for use as IP's, leave the taxation side as is and change the banking rules, make it that one can't use equity to finance another property,most if not all use equity of their PPoR to buy IP number 1 ,don't allow stamp duty to be included in initial loan amounts , make stamp duty exempt for first home buyers and charge me the guy with a few of them more ( this won't work though as all it will do is drive the cost of the house up by the stamp duty cost if two first home buyers are bidding ).

Anyway thats my first post on this forum.

 

As someone who saw the impact of the disaster attempt to change negative gearing in the 80s....whatever happens with either party it is not going to be material in 5 years. There seems to be a lack of perspective from people, the fundamentals for Australian property is very sound if a 10 year view is taken however I acknowledge there will be some extreme pain in Sydney and parts of Melbourne in the next 24 months. Any negative gearing changes will panick people in what is going to enevitably going to happen to the property market any way.