A long line of treasurers and prime ministers have flirted with negative gearing and capital gains tax reform.
In the United States, political leaders describe any move to change social security as the “third rail” – touch the subway line carrying electricity to passing trains and, electorally, you’re fried.
Losses, under a feature introduced by the Lyons government in 1936 to boost the nation’s housing supply, were able to be claimed against a landlord’s income from any source. Those people who happened to lose money were negatively geared.It had no immediate impact, but after World War II the country went on a home-building binge – although much of that was due to government housing construction rather than private sector rentals.
The proposal was to halve capital gains tax on all investments – such as shares – if owned for at least 12 months. Neither the inquiry nor the Ralph report worried that the new concession would suck cash into the property market. But that is exactly what happened. The intersection of negative gearing with the capital gains tax concession, while not the driving force of the 30-year surge in property prices, certainly failed to bring it to heel.
The policy mix “could encourage leveraged and speculative investment in housing” and lead to investors “bidding up housing prices”.The Reserve Bank canvassed capping the interest that could be claimed as a tax deduction under negative gearing and reducing the capital gains tax concession., former treasurer Hockey backed negative gearing reform as part of a broader overhaul of the tax system to enable a cut in the top personal marginal rate to 40 per cent.
Apart from the tax benefit, negatively geared investors hope their concessionally taxed capital gain will more than offset accumulated losses. Another issue is that Australia has too many individual landlords and few for-profit or non-profits that own and manage properties.
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