Why are we calling negative gearing a "benefit"?

Not quite, as grandfathering NG does not avoid a probable capital loss when the property is sold to a new owner who will not be able to take advantage of the "benefit" of negative gearing, given the return is less than it would have been.

And I didn't want to introduce the extra variable of capital gain into the mix, but further, this capital loss is then exacerbated by the proposed reduction of the Capital Gains Tax discount, so the amount of coin heading towards your pocket is less than it would be to both measures not occurring.

And, if the markets start/continue to fall, as some commentators speculate (eg. https://www.smh.com.au/business/the...recasts-for-house-prices-20190409-p51cav.html ), then all bets are off, and it will be every accountant for themselves....

 

Ah, then since the superannuation tax concessions are a discount on the tax we pay then that must be a benefit too.

It's curious then that no one refers to superannuation tax concessions as a benefit. I wonder why that is?

 

and why Labor's proposal to HALVE the tax on institutions and offshore capital building large blocks of "build to rent" units isn't called a benefit but merely a change to a tax rate?
Investors embrace Labor's build-to-rent changes

 

It's more of a tax benefit rather than a real economic benefit. In fact it's a net financial loss.

Unfortunately some (uneducated) investors think they don't lose from it because think they can "claim it against tax" i.e. they think they will recover it so as to reduce the tax payable by the amount of the loss, rather than as a tax deduction that reduces taxable income. An exception might be a non-cash loss such as depreciation (although a high amount of depreciation may be a result of overspending in the first place).

 

The whole is it a benefit/non benefit etc is a red herring anyway and confuses the concept of "benefiting from" vs "is a benefit".

I personally benefit from the tax free threshold but the tax free threshold is not "a benefit".

A Government benefit is a defined and generally understood term to refer to a Government payment such as the Aged Pension, Newstart or the Family Tax Benefit or Child Care Benefits.

Tax concessions include a discounted tax rate for contributions to superannuation, a 100% capital gains tax discount for selling the family home, a 50% discount on capital gains tax when selling an investment property etc.

People benefit from tax concessions but they are not categorised as "government benefits" because none of them are payments, they are tax discounts.

Negative gearing is clearly a tax concession and not a government benefit. Asking people to simply admit that negative gearing is "a benefit", because they benefit from negative gearing, is simply wrong and does not advance the argument.

Negative gearing and the other tax concessions are not payments by the government to tax payers (i.e. they are not a benefit), they are classified as revenue foregone.

"It is important to note, and Anglicare acknowledges, that Treasury says revenue forgone does not equal revenue that would be gained if these tax concessions were closed off.

That is because those affected by any tax changes are likely to find other deductions or concessions to minimise their taxable income.

For example, if you close off negative gearing then high-income people are probably less likely to buy investment property, maybe setting up a family trust instead or putting more money into superannuation."

Tax concessions to wealthy cost six times the dole: Anglicare

In conclusion, negative gearing is not a government benefit, it is a tax concession that represents potential revenue foregone. However, abolishing negative gearing will not necessarily realise that potential revenue due to measures both built into the policy and actions that investors can take to legally minimise their tax.

Even the Grattan Report into housing affordability, which recommends that negative gearing be abolished, does not refer to negative gearing as a benefit. This is what the Grattan Report says:

"Measuring the value of tax concessions
Policies such as the capital gains tax exemption and negative gearing impose costs on government. These are often determined by calculating the ‘tax expenditure’ – the cost of exempting particular types of taxpayers or activities from the normal tax rules. Tax expenditures (or ‘concessions’) are like a subsidy provided via the tax system."

https://grattan.edu.au/wp-content/uploads/2014/03/800_Renovating_Housing.pdf

Why won't investors just admit that negative gearing is a 'benefit'? Because negative gearing is not a 'benefit'. Negative gearing is a tax concession.

I trust that clarifies.

 

^^ @Perthguy ^^ Drops the microphone.

 

Incorrect - this figure initially was quoted by Chris Bowen as 96% of IP’s are existing stock. He then admitted that was wrong after being challenged and has since amended this figure to 22%.
Based on research by Ben Kingsley and the property couch team (yes they have a bias that they acknowledge) through various sources, (mortgage aggregators, quantity surveyors etc) it has been estimated the real figure is approx 40 to 50%. Eg Lots of OTP apartments in towers etc are sold to investors.
The error was due to ABS aggregating all OTP properties and new H&L as ‘existing’ stock and not new. Only construction loans are being classified as ‘new’ supply in ABS stats.
See multiple articles last week in the AFR regarding this topic and the large hole this causes in costing of the oppositions election promises in that they assumed 4% investment in new would increase new to 22% new under their NG proposals.

 

So Chris blames ABS, ABS denies even supplying the data. I know who I believe. I know one of the directors he just would not play those games.
NoCookies | The Australian

 

# @Perthguy4PM.

 

Qué?

 

And such a modest PM too!

 

lol. I thought something was going to happen at 4 pm.

 

I am not an economist but I dont think only negative gearing keeps rents down but I am confident that it has some effect

Negatvie gearing makes running losses a tax deductiion which makes it more attractive to buy , which means more people owning and less people renting.
So one would assume from this aspect rent would be lower due to less demand for rentals and less tenants

I'm sure there are a multitude of other factors that contribute

 

You bring up an excellent point Simon. It doesn’t affect those of us like myself who live in the country - but removal of NG will effectively lock high end areas like Artarmon into being an ‘owner occupier only’ proposition.

And considering universities are often in inner areas with high property prices - and uni students are often young with not much money - how will someone from the outer burbs/country/interstate afford the costs of living regarding going to uni?

 

Happy Hour

Seriously, my stance on this was documented some 9 years ago and along the lines of @Sackie saying there will be more renters, here's a thread from the past.

There will be more renters

I happened to go away for a few days at the time and thread derailed a bit.

 

1 more year to LSL from the forum

 

You're kidding aren't you? You don't need to live in the suburb the uni is in...public transport, ride your bicycle, online learning.

 

Providing the 'nerd out' answer to why negative gearing is accounted for the way it is, Treasury does modelling on 'tax expenditures' yearly. The latest one I can find is here.

This document provides a line by line account for policy items that includes revenue foregone, decisions, etc.

So things like:
- Concessional treatment of super contributions are viewed as a tax expenditure. Technically its a 'tax' itself, but this document accounts for it as an 'expenditure' because its concessional vs standard income tax.
- One of the biggest ones is the CGT exemption for the main home.
- Negative gearing falls into this tax expenditure statement.

While it may seem unusual to account for something that doesn't exist, the document provides an 'account' of where money leaves the federal purses from the 'revenue' side of the ledger (rather than actual direct government spending).

Governments (Treasury) usually use this document as a starting point to provide options to government for revenue saving measures.

I assume Labor's policy decisions begun somewhere here as it's a useful guide to where money can be saved on the revenue side (a lot of their big calls are in this space).

When Lib's first entered parliament in 2014, they also begun here as well as a commission of audit on the spending side to try and get the 'budget under control' back then. From memory, one example of a change from the Lib's in 2014 was a reintroduction of indexing to the 'fuel excise' duty. There was a 'stop' in indexing this back in the Howard years (plush with money), fast forward a decade with no indexing a relatively large duty (tax) and you have quite a large tax expenditure.