Negative Gearing – A Political Game.

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Property has always been seen as an easy mark to raise taxes and duties but the price we pay may be higher than what can be forecast during this election campaign.

Negative gearing is going to be an election pressure point. Both sides of the government seem to be aiming for the same dollar here but just under different scenarios. They both see the cash cow and are willing to milk it for all it’s worth; some for political outcomes and some for economic reasons. The Government has already required banks to increase interest rates to the investor market, it didn’t deter the investors.

If we take a look at the UK market it introduced higher requirements for the more properties you own in an attempt to crack down on investors dominating the market, but has it worked? No, because property investors are innovative and will use some interesting, slightly dubious, tactics to avoid these tax requirements. None of which I will name here as a) they sit in the grey area of illegality and b) I don’t want to give anyone any ideas.

Tim Colebatch from Inside Story notes that negative gearing needs to be looked at “because the negative gearing tax break alone is now so widespread that it costs revenue – that is, other taxpayers – between $3bn and $6bn a year, depending on the level of interest rates. In effect, other taxpayers are subsidising the beneficiaries in their aspiration to become landlords.” It’s an interesting point he puts forward.

Mind you it’s been tried before in Australia, an attempt to revolutionize negative gearing. Paul Keating tried to abolish it as part of the Hawke government in 1987. It failed terribly and full negative gearing was reinstated later that year. Many commentators will argue this temporary lift on negative gearing actually increased rental prices and stalled the market but there is no concrete proof of this.

Regardless of who gets in this year the old adage of “an old tax is a good tax means” springs to mind. Regardless of who gets in there will be no going back from either side of government.

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