Negative gearing sparks war of words
The fight over negative gearing looks unlikely to abate, with a war of words erupting between the government and industry pundits.
The fight over negative gearing looks unlikely to abate, with a war of words erupting between the government and industry pundits.Following a report from the Grattan Institute claiming negative gearing was disproportionately benefiting wealthy property investors, Prime Minister Malcolm Turnbull has defended the government’s pledge to leave the tax concession untouched. Turnbull, appearing on the ABC’s 7:30, said the income of investors benefiting from negative gearing was irrelevant.
"That's beside the point — of course people on the highest incomes will make the highest gains because they tend to have more property," Turnbull told host Leigh Sales.
Turnbull argued it was “common sense” that the removal of negative gearing would cause a downturn in property prices.
"Around a third of the buyers for residential property currently are investors. What Labor is proposing will take all or almost all of them out of the market. If you take a third of the buyers out of the market, prices, values will fall. That's common sense," Turnbull said.
But pushed by Sales to present modelling for the claims, Turnbull appealed to “the laws of supply and demand”.
The Grattan Institute’s John Daley seized on the comments, arguing in an opinion piece for The Australian Financial Review that Turnbull made incorrect assumptions about negative gearing, particularly that removing negative gearing would lead to an increase in rents.
“No study of the real world has ever found tax changes with this impact. Instead, in markets where property development is limited by planning permissions, changes in returns typically reduce property prices. Again, this is an issue that our report works through in detail. Nor is it plausible to claim, as the Prime Minister does, that the removal of negative gearing caused rental crises in the UK and US. Any number of countries that do not allow negative gearing have functional rental markets,” Daley wrote.
ABC finance journalist Michael Janda also fired back at the Treasurer Scott Morrison's claims that negative gearing primarily benefited the middle class. Janda wrote in an opinion piece that Morrison was "clearly guilty of serious spin".
"What Mr Morrison is saying is that it's mainly the middle class who use negative gearing to get ahead," Janda wrote. "His argument runs completely counter to almost all reputable, independent analysis."
