There has been a lot of talks recently about how the supposed “housing bubble” is being caused by negative gearing and that to resolve this the government will be removing these benefits.
This is exacerbated by media coverage which suggests that property investors are buying up every available property for sale AND that they are always prepared to pay more than owner-occupiers because of these tax breaks.
In actual fact, the concept of the “housing bubble” they refer to simply doesn’t exist, and furthermore, it’s actually impossible to measure the effect of negative gearing alone.
Below are 5 reasons why I believe the Australian government will not abolish negative gearing:
- Investors only make up approximately 33% of our housing market & they don’t even all have mortgages. The government still gets lots of tax income from positively geared properties. Plus stamp duty is a great source of infrastructure funding for state governments.
- Negative gearing against income also applies to loans for shares (margin lending) & business loans. If it were to be removed, tax breaks to a huge sector of economic investment (other than property) would be adversely affected. It is also deeply rooted in self-managed super funds.
- Australia has an ageing population with a reducing tax base, and the future of the age pension is uncertain. The government will not want to take away the incentives for people to be self-funded in retirement. Plus, the property is still the preferred investment vehicle for many Australians.
- The cost to the government to provide affordable housing would be massive compared to the number of tax breaks given to individual landlords.
- According to ATO figures, there are over 1.2 million landlords claiming negative gearing benefits in Australia. There is unlikely to be any political party that would risk THAT many votes by abolishing it. Many politicians themselves have investment properties and they wouldn’t want to risk their own tax benefits either!
Even if negative gearing were to be abolished, it is likely that existing tax benefits on investments would be exempt and that it would stay in place for investments acquired before the date of abolition. Bearing this in mind, if you are still worried about the possible abolition of negative gearing, then now is the time to purchase that investment property.