No agreement on negative gearing

Adam Smith 26 April 2016

the plan to remove capital gains tax concessionsIndustry commentators are sharply divided on the government's vow to leave negative gearing untouched.

The housing industry has welcomed certainty from the government on its plans for negative gearing, but a private think tank has rubbished its assessment.

Prime Minister Malcolm Turnbull announced over the weekend that there would be no changes to negative gearing in the upcoming Federal budget. Housing Industry Association (HIA) chief executive of industry policy and media Graham Wolfe welcomed the announcement, claiming negative gearing helped ease pressure on social housing.

“With an ageing workforce and mounting pressure on publicly funded services, retaining negative gearing will support the delivery of a larger stock of rental accommodation, increasing access to shelter, while promoting wealth creation and self-sufficiency in retirement for hundreds of thousands of ‘mum and dad’ investors,” Wolfe said.

The HIA said research conducted on its behalf by Independent Economics found restricting access to negative gearing would erode investment and put upward pressure on rents. But research from the Grattan Institute contradicts this claim. The group’s Hot Property report claims negative gearing largely benefits the wealthy, and has called for an abolition to the concession and a reduction to the capital gains tax (CGT) discount from 50% to 25%.

“A smaller discount would save about $3.7 billion a year, while the change to negative gearing would raise $2 billion a year in the short term, falling to $1.6 billion as losses start to be written off against positive investment income,” the Grattan Institute said in a release.

Grattan chief executive John Daley repudiated the idea that a removal of negative gearing would cause rents to rise or house prices to decline significantly.

“Contrary to urban myth, rents won’t change much, nor will housing markets collapse. The effects on property prices would be small compared to factors such as interest rates and the supply of land,” Daley said.

What's the real story on negative gearing?

The HIA claims negative gearing is largely used by "mum and dad" investors, and removing it would push up rents and weaken house prices. The Grattan Institute claims negative gearing disproportionately benefits the wealthy, and that removing it would mean an enormous budget windfall. What's the real story?

Read our analysis here.

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