RBA lends support to negative gearing restrictions

Adam Smith 10 May 2016

reserve bank of australia signTaking the axe to negative gearing could help financial stability, according to internal Reserve Bank of Australia (RBA) documents.

The ABC has reported that the RBA has lent support to the idea of restricting negative gearing. An internal memo obtained by the ABC claims moves to curb negative gearing could be positive.

"Any change which discourages negative gearing may be good from a FS [financial stability] perspective,” the note said.

The note also suggested that the combination of negative gearing and the existing 50% capital gains tax (CGT) discount “may encourage the chasing of capital gains … as it can be purchased using higher leverage than shares for example”.

The Federal Labor Party has proposed restricting negative gearing to new properties only, and halving the CGT discount to 25%. In his budget reply speech this week, Opposition Leader Bill Shorten claimed the plan would boost new housing supply and raise additional revenue for the budget.

What the proposed negative gearing changes mean.

The RBA memo said any plan to restrict negative gearing could see a “potential increase in rents”, and predicted that if changes were not grandfathered there could be a wave of sales of negatively geared properties. The Coalition has blasted Labor's plan on similar grounds, claiming rents will rise and housing values will fall under the proposal.

Picture: Shutterstock

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