NEGATIVE GEARING TAX

Senior economists have suggested the Federal Government should scrap negative gearing, a move that accounting firm Price Waterhouse Coopers suggests would save $5 billion in the first year. Bank of America Merrill Lynch chief economist, Saul Eslake, said the original idea behind the tax break has not worked. “In my view it’s serving to push up the price of the existing dwelling stock to the disadvantage particularly of younger people, who would like to become home owners, and previous generations who would have been home owners by now already” Mr Eslake said. He said the original idea of negative gearing on residential property was to promote the construction of new houses and increase the stock of rental properties, but that has not worked. “We’ve reached a point now where investors account for more than half the borrowing that’s undertaken for the purchase of established properties, and nearly half of all the borrowing for purchases of properties of any type” he said. He said using negative gearing was hurting the long-term supply of housing. “Many people, of course, do continue to argue that it does something to increase the supply of housing” Mr Eslake said. “But that – like so many other things said by proponents of negative gearing – doesn’t stand a moment’s confrontation with the facts”. One politician arguing for change is Independent Senator Nick Xenephon. “Negative gearing in its current form is untenable” he said. “We need to have a mature, considered debate in this country about modifying it, over a number of years, but we need to begin now. “That has been a sacred cow that really needs to be challenged sooner rather than later.”

The issue of negative gearing has always been a target of governments, but it becomes a bigger issue when they are scrounging for revenue. This Government has made some tough and unpopular calls and no-one should rule out negative gearing becoming the next target.