Negative Gearing charade continues in 2018

You could come up with scenarios for just about any housing policy to show it *could* increase the wealth gap (particularly any which support investors in a way that allows them to outbid home buyers). So it's a loaded question that I won't bother answering.

No one is forcing investors to buy negatively geared property. It's a choice.

 

It's true that no one is forcing investors to buy negatively geared property. But why implement a policy that says to higher income investors: you can still do something that has the same tax outcome as negative gearing and at the same time tell lower income investors: sorry, you can't?

Did you read that Grattan paper that Labor's policy is based on? It makes this quite clear:

One concern with quarantining is that it will favour investors with
more diversified portfolios. This is because investors with other
positive investment income can make use of the loss write offs
immediately, whereas those with only one loss making investment
will have to wait until the income from that investment is positive.
There may arguably be an equity concern if wealthier investors
tend to be the ones with more diversified portfolios.
...
And in any case, even if those on somewhat lower incomes are
disadvantaged slightly more, policy change should still be
pursued. Not every principled policy change will be progressive in
every respect.​

Hot property: negative gearing and capital gains tax | Grattan Institute

So, for wealthier investors with more diversified portfolios it will be business as usual. They will continue generating wealth. At the same time, those on somewhat lower incomes are disadvantaged slightly more, i.e. do not have the same opportunities for generating wealth. It's seems obvious to me what the outcome of this will be.

 

Guest with a nick and avatar like that.. common buddy level with me.. .you gotta be a closet capitalist ...

 

Gotcha .

 

I think you could be correct!!!

 

They can. They could start with a positively geared property. In fact someone on a lower income is more likely to be buying a cheaper property, which is typically one with a higher yield.

They could also buy some dividend paying shares first if they were so desperate to buy a property and lose money on it against other investment income.

 

Why would anyone WANT to lose money?

 

You know... to be honest.. there are a lot of folks who had the foresight and were able to do some good DD and took on some risk to buy all sorts of property which were NG at various amounts. Many of those same properties have now yielded many people collectively many hundreds of millions of dollars... So perhaps labelling people who want to buy NG real-estate as 'desperate' isn't quite fair.

 

I am not worried about the wealth gap at all, I am just pointing out that the policy would appear to increase the gap which is not what I am sure Labor is after.

TBH we are more like couple B so it would have no affect on our situation as we have a couple of income streams but we are getting the NG benefits today. It would of been great if the property we bought was positively geared having a house 1,600m2+ of land 10km from Brisbane and 500m from a train line isn't something that would be CF+ no matter what policy was implemented and we didn't buy it because it was CF- but rather we bought it for the CG and future potential of the property where it gives us plenty of options and I can promise you even if we do nothing to the property one day it will be CF+.

 

You aren't understanding the context of the comment.

They can choose to lose money via negative gearing... if they are desperate to try and offset those losses against other income (if wasn't allowed against PAYG) then they can buy an income producing asset first (e.g. another property or dividend paying shares). My point was that they would have the same opportunity as the rich.

 

I hear ya. But what if they don't want to buy income producing assets or dividend paying shares because they believe that 'loss making' assets have a better chance of achieving growth which meets their needs and risk profile?

I can only speculate that if I had started out that way, I'd probably be a lot worse off today overall.

 

What would be stopping them from just wearing the loss until they can recoup at a later time when the property turned positively geared or was sold?

 

Investors don't buy an asset that looses money just to offset gain.

This is just as stupid as ABC.

Qantas didn't pay tax for x amount of years.


They didn't pay tax because they lost in previous years that was brought forward and next year if they continue making profits will pay tax again.



QANTAS DIDNT LOOSE MONEY SO THEY DONT PAY IT LATER.

Same with property you don't lose money so you can offset it against your income.

You loose money CF- because you are speculating the assets will gain value. This gain will be greater than the losses you carry.

NG may have some benefit to some but this is a minority.

 

Wouldn’t that mean the ALP is “encouraging” people to make investment decisions based on tax reasons.

As we all know that is a recipe for disaster.

 

Its basically all about CF, especially for the entry level investors with more sensitive incomes.

But I think a good trade off would be get rid of NG as well as CGT. Stamp duty would be nice too. I'm all for that.

 

No one is forcing them or even encouraging them, it would just be an option. They can just wear the loss (temporarily) or put up a larger deposit.

 

That is all true but in my experience, lower cost positively geared property has a much lower potential for capital growth than higher priced negatively geared properties. Higher income investors will be able to afford to buy and hold the higher capital growth properties and lower income investors will be stuck with the scraps (lower capital growth properties).

Buying a lower capital growth investment first, while another investor buys a higher capital growth investment is not the same opportunity.

A low income would stop them for just wearing the loss until the can recoup at a later time when the property turned positively geared or was sold.

Back when I was a lower income earner, I went 50/50 with a mate to buy a development site in Melbourne. I could have (just) been able to carry the loss but he wasn't earning enough to cover it. We never did raise the funds to develop the site and sold it 9 years after buying it. Incidentally, rents never substantially rose and the property was negatively geared until sold. The property was sold and the profits splits between me and my mate. We were then each able to roll those funds into other investments.

This policy is saying that lower income investors will no longer be able to do something like that. Only wealthier investors will be able to.

 

I don't agree with your premise that the rules should be based around enabling an investors to hold a property that they can't afford to fund the negative cash flow on.

Sometime people take crazy risks with property, doesn't mean we should create rules that enables this kind of behaviour. If anything the rules should discourage it.

Wealthier investors will always have better opportunities in any asset class, that is just how the world works when you have enough influence or capital to buy better projects. You won't fix this with tax rules around negative gearing.

 

I know that you are right about this. That said, why change the rules to make it worse?

Personally, I see it is fundamentally unfair to change the current rules so that wealthier investors will be able to continue to get the same tax benefit as negative gearing but lower income investors will not.

Labor's policy has been supposedly designed to make the system fairer. The only problem is that I can't figure out who the system will be fairer for?