By Leith van Onselen

Late last week, ABC’s 7.30 Report ran an excellent segment investigating negative gearing and its impact on the Australian housing market.

The segment features long-time opponent, Saul Eslake, who calls for negative gearing to be ‘abolished’ (i.e. quarantined so that rental losses cannot be offset against unrelated wage/salary income):

“We’ve reached a point now where investors account for more than half the borrowing that’s undertaken for the purchase of established properties and nearly half of all the borrowing for purchases of properties of any type. In my view, it’s serving to push up the price of the existing dwelling stock to the disadvantage particularly of younger people… Many people of course do continue to argue that it does something to increase the supply of housing, but that, like so many other things that are said by proponents of negative gearing, doesn’t stand a moment’s confrontation with the facts… I guess it’s so difficult for politicians to confront now because something like 1.25 million taxpayers or about 13 per cent of the total now have at least one negatively geared property investment and politicians fear that they can’t afford to alienate such a large section of the electorate.”

Senator Nick Xenophon also calls for negative gearing to be abolished on pre-existing homes and retained on newly constructed dwellings, in order to boost supply:

“If it’s modified to ensure that there is a real driver in new home investments with respect to the rental market, affordable housing, then negative gearing could play a very useful social and economic role.”

Meanwhile, global professional firm, PricewaterhouseCoopers, estimates that ‘abolishing’ negative gearing could save the Budget some $5 billion by 2018-19, with a further $4 billion saving on offer if the capital gains tax discount on investment homes is also abolished, and argues for both measures to be addressed in a broader package of tax reforms.

The lone dissenting voice in the segment is the Housing Industry Association’s Harley Dale, who claims that scrapping negative gearing would not be a “magic bullet” for houisng affordability:

“I don’t subscribe to this view that reducing or abolishing negative gearing is some kind of magic bullet that all of a sudden cures the woes of the Australian housing industry… One of the principle arguments made by opponents of negative gearing is that it would supposedly magically unlock all this housing stock as it’s offloaded and becomes available for first home buyers. I don’t think the world works in that simple, naive manner”.

Of course, the HIA’s self-interested views on negative gearing have been debunked many times before (most recently here), and do not pass scrutiny.

Overall, it’s good to see opposition to negative gearing grow louder, which hopefully will lead to some meaningful reform proposals in the Government’s upcoming White Paper on tax.

[email protected]