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Category: Government and Politics / Housing / Housing Industry / Business, Economics and Finance

Abolishing negative gearing 'would boost Commonwealth revenue by $1.6b annually'

Monday, 25 Apr 2016 19:00:00 | Stephanie Anderson And Dan Conifer

Current negative gearing arrangements push up house prices, research says. (ABC News: Nic MacBean)

Labor's plan to reign in negative gearing does not go far enough and the tax deduction should be significantly curbed, a Grattan Institute report has found.

Key points:

  • Current negative gearing arrangements push up house prices, Grattan Institute says
  • Says new housing investment losses should not be deducted from wage income
  • Says restricting negative gearing to new properties "makes it harder for young investors"

The independent think tank's Hot Property report, issued on Monday evening, argued that losses from new housing investments should only be deducted from other investments instead of wage income.

Researchers John Daley and Danielle Wood also called for the income tax deduction to be abolished completely after a phase-out period of 10 years, stating that the policy would boost Commonwealth revenue by $1.6 billion annually.

Professor Daley, chief executive at the Grattan Institute, told the ABC the current negative gearing arrangements distorted investment decisions and pushed up house prices.

"It costs the Commonwealth a lot of money," he said.

"Four little changes would increase the amount of tax each year — collected by the Commonwealth — by about $5 billion."

The figure, quoted by Professor Daley, also accounted for a halving of the 50 per cent capital gains tax discount over 10 years, which alone would raise an estimated $3.7 billion a year.

He said the combined impact of the changes would reduce house prices by 2 per cent, saying the impact on rents and new development would be minimal.

"It would mean that house prices would be a little lower than otherwise, we estimate about 2 per cent lower than otherwise," he said.

"And the other winners would be the nine in 10 taxpayers who do not negatively gear property."

Opposition Leader Bill Shorten has pledged changes to the negative gearing arrangements and capital gains tax arrangements as part of Labor's election policies, saying negative gearing would only be available on newly-constructed homes from July 2017 if Labor won.

Under costings released from the Parliamentary Budget Office, the measures could save the budget $32.1 billion over 10 years once they come into force, but they have been criticised by the Grattan Institute as not going far enough.

Professor Daley argued that restricting negative gearing to new properties or limiting the dollar value of deductions left too many problems in place and introduced additional distortions.

He also criticised Labor's proposal to grandfather existing investments.

"Grandfathering is great for grandfathers, but it's very unfair to grandchildren," he said.

"Essentially you create another free kick for older investors and you make it harder again for younger investors."

Prime Minister Malcolm Turnbull has ruled out changes to negative gearing in next week's budget, making the announcement alongside Treasurer Scott Morrison over the weekend.

Mr Turnbull said that changes, such as those proposed by Labor, would discourage "mum and dad investors".

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