Negative Gearing-Home Ownership
Negative Gearing and Home Ownership
In a recent episode of Q&A on the ABC network a question was put forward by Leanne Murphy about negative gearing and home ownership.
Leanne asked: “I’m a single parent struggling to make ends meet but looking forward to the day that I might be able to once again own my own home. Property prices and rents continue to rise forcing my dream even more out of my grasp. When I think about the tax break negative gearing and am astonished at this subsidisation of investing in property at the expense of low and middle-income families. Do you think negative gearing should be abolished or at the very least quarantined – only available for new dwellings – thus giving low income earners an opportunity to get into the property market?”
Phil: “After thinking through the question I would have to say I agree with what she’s saying, but not sure that she totally understands the entire position. Negative gearing does help investors but the level of returns an investor gets back from the Government would be an average of about $5,000 p.a. This is only if the property is negatively geared and this is normally only the case in the first few years until rents rise and the property is then making money. There are also quite a few benefits for first home owners and those looking to find cheap rentals, that investors can’t get.One of those options is NRAS. A Government incentive to try and provide cheaper rental accommodation for those who are struggling. You could argue that this is just another benefit for the investor as they get an extra $10,000 p.a. in income, however I think we need to look beyond that and have a closer look at what the Government is trying to achieve.Before the time when negative gearing was available the Government provided housing commission for those that needed cheap housing or could not afford a home of their own. This was extremely costly to the Government, which in turn means us, as we the tax payer were paying for these housing benefits. The entire idea behind the concept of negative gearing was to encourage the general public to buy an investment place and make it available to rent and thus reducing the burden on the Government to provide housing. So even though they provide a tax deduction to the investor this is a far cheaper option for Government than using our tax money for building houses. As such I don’t think you’ll see Government scrap the negative gearing benefits of property as this will also go against most of the tax regulations that state, ‘Anything you do or spend money on to create an income or better your position is tax deductible’. Investment property is exactly that.”