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Negative gearing supports rental supply 21/05/2016

Despite no changes being made to negative gearing and Capital Gains Tax (CGT) regimes in the latest Federal Budget, the possibility of change still looms pending the outcome of the election in early July.

Labor is sticking by its policy position, released in February,  that calls for the removal of negative gearing for existing homes. It is also proposing to reduce the CGT discount to 25 per cent for new homes.

I would suggest that rather than getting lost in the rhetoric of this debate, we simply look at the facts and how the current regime assists in ensuring an affordable supply of rental property to the market.

Perth only recently experienced the impact that a housing supply shortage can have on both rental availability and overall housing affordability, which showcases why it is so important to ensure measures are taken to avoid shortages in the future.

UDIA recently partnered with Macroplan to provide solid, researchbased evidence as to why current regimes should remain unchanged.

The Australian housing model relies heavily on privately-owned rental property in order to adequately service demand. There has also been a decline over the past 30 years in social housing funding. This means that incentives, such as negative gearing and the CGT discount, are critical to ensuring continued supply through private investment in housing.

It is also important to note that negative gearing and CGT actually tend to balance each other out in terms of net taxation. This is because negative gearing allows investors to claim losses over the duration of the investment, which are then clawed back by the Commonwealth Government via CGT at the point of sale when any proÿt is realised.

Our research shows that the government raises more in CGT than it provides in negative gearing support over a 10-year period. For example, on an investment property worth $800,000 over a 10-year period, the net tax paid to the Commonwealth Government after negative gearing and CGT is applied is $71,699. If the CGT discount is reduced to 25 per cent then the net tax paid would increase to $150,981.

Removing negative gearing and the CGT discount would only further cement Australian property as the most highly taxed in the world as we also pay significant state and local taxes.

I think it is important to consider the burden that increasing property taxes puts on average income earners – both those investing in property as well as those seeking affordable rental accommodation. 

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