Why Australia’s argument over negative gearing isn’t over

Angus Kidman 13 July 2016

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Despite the election outcomes, property investment is going to remain a political battleground.

One of the key policy differences between the two major parties at this year's Federal election was over negative gearing, the ability to claim substantial deductions for investment properties to help reduce your personal tax bill. Labor proposed changes that would see negative gearing only apply to newly-built homes; despite some initial speculation that it might also tinker with the rules, the Coalition ultimately decided no changes were needed and campaigned on that basis.

With the Coalition having scraped a narrow majority victory, does that mean we've heard the end of the arguing over negative gearing? Not by a long shot. Here's why.

Firstly, while the Coalition has a workable majority in the House of Representatives, it almost certainly won't have one in the Senate. In order for legislation to pass, the Coalition will have to negotiate, and one potential negotiating strategy would be to agree to at least some tweaks to negative gearing in return for Labor's support on other issues. I wouldn't want to suggest this is massively likely, but given the difficulty in negotiating with the other power blocs in the Senate, it's not entirely unthinkable.

It's also far from clear that we'll actually get through a full term of this Parliament. If it's too hard for legislation to pass, another early election could be called. And if that happens, Labor is likely to continue pursuing the theme of changes to negative gearing.

Simply put, just because the election is over doesn't mean the arguments over negative gearing have gone away. If you're a first home buyer, questions of affordability loom large. It can seem almost impossible to get your first property when you're competing with cashed-up investors. Conversely, if you're benefitting from negative gearing, you'll be keen to see the current approach maintained.

Property is a favoured investment strategy for Australians, but it isn't a guaranteed path to riches. If changes to Australia's credit rating and external shocks such as Brexit, led to a sudden downturn, our fondness for negative gearing might change. But one thing is clear: the debate is going to continue.

Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears Monday through Friday on finder.com.au.

Picture: Shutterstock

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