No agreement on negative gearing

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The Housing Industry Association says restrictions on negative gearing will lower Australian living standards and increase the cost of renting a home but a former Treasury official says negative gearing mainly benefits high-income households.

REPORTS in The Australian on Australian Tax Office data show almost two thirds of investors are on an average income of less than $80,000, says Housing Industry Association chief economist Tim Reardon.

Mr Reardon said independent research undertaken for HIA by The CIE concluded that increasing the tax on investing in residential homes would force up rental prices, worsen housing affordability and reduce economic activity.

“This report backs previous research by Independent Economics in 2014 that modelled the impact of the Henry Tax Review Recommendations on negative gearing arrangements,’’ he said.

“Further restrictions on negative gearing will lower Australian living standards and increase the cost of renting a home.

“Changes to negative gearing would adversely impact on the housing market, exacerbating the current under supply of housing and further reduce the efficiency of the housing market.

“This reduction in house supply would also adversely impact on wage growth and GDP.

“Driving investors out of the market will force up the price of renting as nearly 25 per cent of rental stock is provided by private investors.

“Further research in 2017 shows that as the federal government increases capital gains tax, they take two dollars of revenue away from the state governments.

“At least $1 in every $10 of government revenue is raised from a tax on housing.

“The Henry Review recommendations on capital gains tax were clear that changes should not be made until the constraints on housing supply had been addressed.

“We cannot solve the affordability challenge by increasing the tax on housing or by further restricting those that invest in housing.

“The solution to housing affordability lies in less tax and less government involvement in housing than in additional constraints on investors.

But earlier this year, according to The Guardian a former Treasury official said the Turnbull Government and the property industry would say just about anything to ensure the survival of a tax system that privileged investors.

The Guardian said Saul Eslake, who was also a former chief economist of Bank of America Merrill Lynch Australia, said Treasury had advised the government that negative gearing and the capital gains tax benefited disproportionately benefit high-income households.

“Despite this, the government and the property industry continue to assert that the main beneficiaries of negative gearing are ‘teachers, nurses and police officers’, or (alternatively) ‘mums and dads trying to get ahead’,’’ he said.