Scrap Negative Gearing on housing

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Scrap Negative Gearing on housing

Postby Banker » Tue Sep 03, 2013 10:18 am

Which ever party promises to scrap/cap Negative Gearing will get my vote this Saturday.


Why do we allow residential housing to be used as an investment? Who benefits from exponentially increasing house prices?


Buying and selling used houses does nothing for the economy. Imagine if negative gearing was used on something productive?
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Re: Scrap Negative Gearing on housing

Postby dedja » Tue Sep 03, 2013 10:21 am

Won't happen ... certainly not from the conservative side.

In any case, where are the rental properties going to come from if this is scrapped?

I suppose building houses does nothing for the economy either?
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Re: Scrap Negative Gearing on housing

Postby Banker » Tue Sep 03, 2013 10:24 am

90% of investors purchase existing property.

How does every other country manage without negative gearing?
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Re: Scrap Negative Gearing on housing

Postby Psyber » Tue Sep 03, 2013 10:39 am

Banker wrote:Which ever party promises to scrap/cap Negative Gearing will get my vote this Saturday.
Why do we allow residential housing to be used as an investment? Who benefits from exponentially increasing house prices?
Buying and selling used houses does nothing for the economy. Imagine if negative gearing was used on something productive?
Beware of superficial thinking!
There is always a response to any policy decision, and what looks like a good idea superficially can have a down side.

Paul Keating tried to scrap negative gearing on rental properties when he was in power.
Investors then sold the properties to people who bought them to live in and a shortage of rental accommodation developed.
A new form of auction emerged - people began offering agents higher rent than was advertised to try to secure the accommodation.
And, house prices increased anyway, as people became desperate to get accommodation.

PK then restored negative gearing to fix that problem he had created.
Later when prices eased back people who had stretched to the limit to buy a house in the outermost suburbs due to the rental shortage found they owed more on houses than they could get for them.


One of the other side-effects was that the price of second hand luxury cars rose because they then became a better tax deduction than property.
I divested myself of two properties as soon as he made the policy announcement, and before selling prices eased.
Six months later, I was able to sell a Porsche 930 I'd bought second-hand a few years earlier at a 40% profit.

Another example of not thinking things through was his decision to require log books for car deductibility.
I'd been happily accepting the 90% deduction for one car the ATO always granted to doctors in private practice.
The next year, having spent the required time filling in log books and being thorough about it since I'd been forced to do it, I claimed 100% of my car and 30% of my wife's which I borrowed one day a week to establish the claim.
Last edited by Psyber on Tue Sep 03, 2013 10:54 am, edited 2 times in total.
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Re: Scrap Negative Gearing on housing

Postby Jimmy_041 » Tue Sep 03, 2013 10:47 am

Quite happy to scrap it if you scrap tax on the profits and scrap capital gains tax.
If the government want to tax profits, the costs are tax deductible.

I have a better one after reading the paper last Saturday

If religious organisation want to cross the line and comment on political matters, they should be taxed.
There is a separation of church and state, and they should not cross that line for any reason whilst they have tax free status.
They have no right to comment on any political matter
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Re: Scrap Negative Gearing on housing

Postby FlyingHigh » Tue Sep 03, 2013 10:48 am

Claiming against rent legitimately earned on that property is fair enough, but to be able to claim against income derived from other sources is completely wrong (correct me if I have that wrong).
Money I spend on, amongst others, water (showers), running shoes and certain food products (health), bedding (good night's rest), have more legitimacy to claim against my wage than investment-related expenses.

Certainly a full scrapping in one hit wouldn't be preferable, but certainly a phasing out over time.
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Re: Scrap Negative Gearing on housing

Postby FlyingHigh » Tue Sep 03, 2013 10:54 am

Jimmy_041 wrote:Quite happy to scrap it if you scrap tax on the profits and scrap capital gains tax.
If the government want to tax profits, the costs are tax deductible.

I have a better one after reading the paper last Saturday

If religious organisation want to cross the line and comment on political matters, they should be taxed.
There is a separation of church and state, and they should not cross that line for any reason whilst they have tax free status.
They have no right to comment on any political matter


Didn't John Howard significantly slash Capital Gains Tax on housing, helping to, amongst other factors, a boom in investors and prices? Which of course, lead to increases in negative gearing deductions, and then of course CGT payable.
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Re: Scrap Negative Gearing on housing

Postby Banker » Tue Sep 03, 2013 10:55 am

Psyber wrote:Paul Keating tried to scrap negative gearing on rental properties when he was in power.
Investors then sold the properties to people who bought them to live in and a shortage of rental accommodation developed.
PK then restored negative gearing to fix that as rents sky-rocketed.
(A new form of auction had emerged - people began offering agents higher rent than was advertised to try to secure the accommodation.)
.


Proof? Stats?

http://www.smh.com.au/articles/2003/08/ ... 76588.html
Pollies tell fibs about negative gearing
By Ross Gittins
August 25, 2003

in July 1985 - and as part of a much bigger tax reform package - Treasurer Keating moved to "quarantine" losses from negative gearing by stopping them from being deducted against other income. The US Congress had already done something similar.

But, so we're asked to believe, this caused investment in rental accommodation to dry up. Vacancy rates fell very low and rents shot up. By September 1987 - just over two years later - Mr Keating was forced to admit his error and restore the old rules.

However, Saul Eslake, ANZ's chief economist, has gone back to check this story and can't find it.

His examination of the Real Estate Institute of Australia (REIA) figures for the capital cities shows that rents rose sharply only in Sydney and Perth (and the Bureau of Statistics' figures for dwelling rent don't show a marked increase for any capital).

If the tax change was causing trouble, you'd expect it to be showing up in all cities, not just one or two.

Mr Eslake's conclusion is that rents in Sydney and Perth surged because their rental markets were unusually tight for reasons that had little to do with the tax change.

And this conclusion is supported by an earlier study by Blair Badcock and Marian Browett, geographers at the University of Adelaide.
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Re: Scrap Negative Gearing on housing

Postby wycbloods » Tue Sep 03, 2013 11:00 am

Jimmy_041 wrote:Quite happy to scrap it if you scrap tax on the profits and scrap capital gains tax.
If the government want to tax profits, the costs are tax deductible.

I have a better one after reading the paper last Saturday

If religious organisation want to cross the line and comment on political matters, they should be taxed.
There is a separation of church and state, and they should not cross that line for any reason whilst they have tax free status.
They have no right to comment on any political matter



I can't believe i have found something that i agree with you on.
"Injustice anywhere is a threat to justice everywhere." Dr. Rev. Martin Luther King Jnr.

CoverKing said what?

Agree with AF on this one!
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Re: Scrap Negative Gearing on housing

Postby Hondo » Tue Sep 03, 2013 11:00 am

Jimmy_041 wrote:Quite happy to scrap it if you scrap tax on the profits and scrap capital gains tax.
If the government want to tax profits, the costs are tax deductible.


Exactly right. Investors take a loss at the start to then make profits later on and they should be taxed on those profits surely. If so, let them have their tax deduction.

Do we stop negative gearing on shares too?

Scrapping negative gearing won't stop all investors in the property market anyway. It will remove some but others will still back themselves in to finding good property investments that will deliver returns > than what they lose in tax deductions on the interest paid. You would have to ban property investment altogether and why would be want that anyway? The cost of policing this law would be possibly be greater than the tax revenue saved.

Banker .. are you against negative gearing or property investment in general?
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Re: Scrap Negative Gearing on housing

Postby Psyber » Tue Sep 03, 2013 11:01 am

If all my sources of income are lumped into a total income and be taxed as a single total figure, it is only fair that all my expenses for earning that total income are deductible against that income.
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Re: Scrap Negative Gearing on housing

Postby Psyber » Tue Sep 03, 2013 11:07 am

Banker wrote:
Psyber wrote:Paul Keating tried to scrap negative gearing on rental properties when he was in power.
Investors then sold the properties to people who bought them to live in and a shortage of rental accommodation developed.
PK then restored negative gearing to fix that as rents sky-rocketed.
(A new form of auction had emerged - people began offering agents higher rent than was advertised to try to secure the accommodation.)

Proof? Stats?

As I explained further down in my post, I was alive and involved in investing during this period.
I lived it in Adelaide and my sister was working in Real Estate and married to a senior ANZ executive - I am a witness...

I had friends here who had a rental deal that tied them as tenants to a rise of "10% per annum or CPI whichever is greater..."

I don't know whether it was ever accurately recorded.
(The accuracy of recorded history depends on who does the recording.)
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Re: Scrap Negative Gearing on housing

Postby Banker » Tue Sep 03, 2013 11:34 am

Hondo wrote:
Jimmy_041 wrote:Quite happy to scrap it if you scrap tax on the profits and scrap capital gains tax.
If the government want to tax profits, the costs are tax deductible.


Exactly right. Investors take a loss at the start to then make profits later on and they should be taxed on those profits surely. If so, let them have their tax deduction.

Do we stop negative gearing on shares too?

Scrapping negative gearing won't stop all investors in the property market anyway. It will remove some but others will still back themselves in to finding good property investments that will deliver returns > than what they lose in tax deductions on the interest paid. You would have to ban property investment altogether and why would be want that anyway? The cost of policing this law would be possibly be greater than the tax revenue saved.

Banker .. are you against negative gearing or property investment in general?


No no, I understand the need for negative gearing & property investing. I'm no communist.

http://www.theage.com.au/business/time- ... 1dsu6.html

The Howard government's 1999 decision to tax capital gains at half the rate applicable to wage and salary income, converted negative gearing from a vehicle allowing taxpayers to defer tax on their wage and salary income (until they sold the property or shares that they had purchased with borrowed money), into one allowing taxpayers to reduce their taxation obligations (by, in effect, converting wage and salary income into capital gains taxed at half the normal rate) as well as deferring them.

As a result, negative gearing has become much more widespread over the past decade, and much more costly in terms of forgone revenue.


Image

According to the tax office, Australia had 1,811,174 property investors in 2010-11. Of those, 1,213,597 made losses totalling $13.285 billion.


But 1.8 million are using this loophole. The rest of us pay for it with a huge tax bill and artificially high house prices.
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Re: Scrap Negative Gearing on housing

Postby dedja » Tue Sep 03, 2013 12:05 pm

How is it a loophole? ... If using your numbers. 1.8M are abiding by the law and obtaining deductions that they are legally entitled to.

Also it might be worth mentioning Australia has a relatively high personal tax rate and in the United States, mortgages on the primary place of residence can be Federal Tax deductible, something we cannot do here.
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Re: Scrap Negative Gearing on housing

Postby mick » Tue Sep 03, 2013 12:23 pm

dedja wrote:How is it a loophole? ... If using your numbers. 1.8M are abiding by the law and obtaining deductions that they are legally entitled to.

Also it might be worth mentioning Australia has a relatively high personal tax rate and in the United States, mortgages on the primary place of residence can be Federal Tax deductible, something we cannot do here.


=D>
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Re: Scrap Negative Gearing on housing

Postby Banker » Tue Sep 03, 2013 12:24 pm

dedja wrote:How is it a loophole? ... If using your numbers. 1.8M are abiding by the law and obtaining deductions that they are legally entitled to.


'Rort' is probably a more appropriate term.
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Re: Scrap Negative Gearing on housing

Postby Jimmy_041 » Tue Sep 03, 2013 12:52 pm

Banker wrote:
Psyber wrote:Paul Keating tried to scrap negative gearing on rental properties when he was in power.
Investors then sold the properties to people who bought them to live in and a shortage of rental accommodation developed.
PK then restored negative gearing to fix that as rents sky-rocketed.
(A new form of auction had emerged - people began offering agents higher rent than was advertised to try to secure the accommodation.)
.


Proof? Stats?

http://www.smh.com.au/articles/2003/08/ ... 76588.html
Pollies tell fibs about negative gearing
By Ross Gittins
August 25, 2003

in July 1985 - and as part of a much bigger tax reform package - Treasurer Keating moved to "quarantine" losses from negative gearing by stopping them from being deducted against other income. The US Congress had already done something similar.

But, so we're asked to believe, this caused investment in rental accommodation to dry up. Vacancy rates fell very low and rents shot up. By September 1987 - just over two years later - Mr Keating was forced to admit his error and restore the old rules.

However, Saul Eslake, ANZ's chief economist, has gone back to check this story and can't find it.

His examination of the Real Estate Institute of Australia (REIA) figures for the capital cities shows that rents rose sharply only in Sydney and Perth (and the Bureau of Statistics' figures for dwelling rent don't show a marked increase for any capital).

If the tax change was causing trouble, you'd expect it to be showing up in all cities, not just one or two.

Mr Eslake's conclusion is that rents in Sydney and Perth surged because their rental markets were unusually tight for reasons that had little to do with the tax change.

And this conclusion is supported by an earlier study by Blair Badcock and Marian Browett, geographers at the University of Adelaide.


I'm just gobsmacked that Keating admitted he was wrong about something :shock:
Probably journalistic licence - I dont believe it
I still laugh that he called the Australian public ignorant for sacking him
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Re: Scrap Negative Gearing on housing

Postby dedja » Tue Sep 03, 2013 1:53 pm

SET <let's digress> = ON

Who's the lower life form ... the Poodle or the Placido Domingo of Australian Politics?

SET <let's digress> = OFF
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Re: Scrap Negative Gearing on housing

Postby Hondo » Tue Sep 03, 2013 1:59 pm

If individuals can build personal wealth through property investment aided by negative gearing for their retirement then that's less the Government has to pay in pensions.

That's just one piece of a very complex puzzle of whether you can call negative gearing a "rort"

Removing negative gearing would impact many things. It's too simplistic IMO to say the only impact is an extra tax burden on those who don't do it.
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Re: Scrap Negative Gearing on housing

Postby Banker » Tue Sep 03, 2013 2:26 pm

Hondo wrote:If individuals can build personal wealth through property investment aided by negative gearing for their retirement then that's less the Government has to pay in pensions


Fantastic.

Except residential property should not be used to speculate. Buying and selling second hand houses between ourselves does not promote any sort of economic benefit.

It fact it hinders it.

Increasing private debt is choking our economy and will take decades to pay off.
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