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Category: Housing Industry / Government and Politics

RBA memo suggests curbing negative gearing 'may be good'

Monday, 9 May 2016 21:34:34 | Francis Keany

The Federal Government has dismissed the negative gearing claim as "unremarkable". (ABC News: Kathleen Dyett)

The Reserve Bank of Australia has given some support to curbing negative hearing, saying it could be a good thing for financial stability.

Key points:

  • Negative gearing allows property investors to reduce tax liabilities
  • Labor has proposed restricting the tax reduction
  • RBA memo flags potential increase in rents if negative gearing made less attractive
  • Government dismisses memo as "old"

An RBA internal briefing note, obtained by the ABC under freedom of information laws, said: "Any change which discourages negative gearing may be good from a FS [financial stability] perspective."

Negative gearing allows property investors who make a loss to reduce their tax liabilities on other income.

Federal Labor has proposed restricting the tax deduction to new investment properties from July 2017.

It has also promised to halve the capital gains tax (CGT) discount, saying the two policies would boost the budget by $32.1 billion over a decade.

Who uses negative gearing?


Search our database to see which occupations are claiming the most negative gearing tax deductions.

The memo said the interaction of negative gearing with the CGT discount "may encourage chasing of capital gains … as it can be purchased using higher leverage than shares for example".

It also said there was a "potential increase in rents" from making negative gearing less attractive.

The document hypothesised there could be a large-scale sale of negatively geared properties, if changes were not grandfathered.

Labor's plan would protect existing investors.

The document was produced sometime between March 2014 and April this year.

Documents provided by the RBA do not say whether it was written before or after Labor's policies were released in mid-February this year.

The capital gains tax discount gives tax-free status to half the profit made from selling an investment property.

Government dismisses memo as 'unremarkable'

The Federal Government dismissed the internal memo from the RBA, with Finance Minister Mathias Cormann describing it as an "entirely unremarkable document".

He said the memo was not representative of official RBA policy.

"This is an old document, it is an internal document, it is a document that outlines historical perspectives," he said.

"It is not an official position of the RBA and it shouldn't be misrepresented that way."

Labor's Shadow Assistant Treasurer Andrew Leigh said the documents showed the changes were necessary.

"The Reserve Bank's come out and said it will help add to financial stability," he said.

"Malcolm Turnbull of old in 2005 said that negative gearing was skewed to the very top. But now he seems to be defending it."

AustraliaPlus


 

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