In my humble opinion… The federal government has encouraged negative gearing because it’s cheaper to give out the tax breaks than it is to fund public housing projects. That said, there isn’t any doubt amongst economists that the tax breaks are fueling value growth, to the point where property values over recent decades have far outstripped growth in the average wage. If the trend continues over the next few decades, the disparity between housing costs and the average wage will cause a housing crisis. The federal govt cannot continue with the tax breaks, only to face a shortage of funding for govt housing projects in 20 years. It really has to be one or the other.
It’s exceedingly unlikely that negative gearing will exist in anything like it’s current form in 2020.
The ATO isn’t going to make an announcement like “as of 1.7.2011 we’re abolishing negative gearing deductions”. The “backlash” would be inconsequential compared to the crash that would inevitably follow.
That said, the tax office has learned some lessons over the last 20 years and they are not without their wiles. Take for example, their approach in recent years to work related expenses. First they give you an automatic deduction of $1000, then a few years later they bump that up to $1500, and then finally they’ll say “we’re simplifying the tax system by removing WRE’s, and adjusting the income tax rates so everyone get’s the equivalent of a $2000 deduction for WRE’s”. The end result is that WRE’s are abolished, and in return we’ve really been given nothing – the steady reductions in income tax were planned since the introduction of GST.
So I think we’ll see small changes over time. Initially reductions in the effectiveness of negative gearing for taxpayers with high income, or a large portfolio. Followed by more aggressive reductions complimented by more targeted tax breaks (similar to the NRAS). Think of the NRAS as a pilot scheme – tax breaks for investors in affordable property.
It’s easy for a bunch of us investors to stand around saying “oh they can’t possibly abolish negative gearing”. But I think it’s pretty much already happened, it’s just that we haven’t noticed yet. You might even say “it’s all over bar the shouting”.
As I said, just my unqualified, skewed, misinformed opinion.. probably wrong.
Limit how many properties people own?? Good old land tax plays a part in that. (at least on a state by state basis)
I have clients paying close to $30k a year for land tax. Ouch.If some people cannot afford a property, who will own it?? Of course the rich and wealthy.
An interesting take. Thanks for sharing
Welcome,
just good to have a broader view on life I think.
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