The Abbott government has changed tack in the debate around negative gearing, arguing the tax concession has given mums and dads on modest incomes an incentive to invest in residential property.
A day after Treasurer Joe Hockey again claimed there would be significant flow-on consequences for renters if concessions were tightened, his cabinet colleague Scott Morrison was debunking the “urban myth” that negative gearing was the province of the rich.
He was backed up by an industry sector analysis of Australian Taxation Office statistics.
But Mr Morrison was on less certain ground arguing investors were providing a much-needed capital injection for new stock into the housing market with new figures showing most investment is going into established homes.
The government is under pressure to tighten negative gearing rules as a way of helping it balance the federal budget with estimates that quarantining investment losses could save $4 billion a year.
As well, Labor has flagged its intention to take line-in-the-sand changes to the next election. Mr Morrison, who is keen to introduce measures that reduce the Commonwealth’s burgeoning welfare bill, says Australians trying to build wealth for their retirement should be applauded.
“There is an urban myth running around that negative gearing is the province of the rich and should be for the high jump,” he said.
Mr Morrison used a Property Council analysis of Australian Taxation Office statistics to back his argument.
It showed those claiming negative gearing concessions included 83,000 clerical workers, 62,000 teachers and child carers and 12,300 emergency service workers.
All of them earned under $80,000 per annum.
The data clearly showed that negative gearing was something middle Australia used to help build their household wealth, council chief executive Ken Morrison said.
“These people aren’t the rich and famous, nor are they property barons, but they do deserve a fair go.” Economist Leith van Onselen disputed both Mr Hockey’s claim about rents and Mr Morrison’s argument that negative gearing helped build housing supply.
Renters would be turned into owner-occupiers, thereby reducing demand for rental properties and leaving the rental supply-demand balance and rents unchanged.
“This is exactly what happened between 1985 and 1987 when negative gearing was temporarily restricted by the Hawke government,” Mr van Onselen wrote on the Macro Business website.
Using housing finance data from the Australian Bureau of Statistics, the former Treasury officer argued negative gearing did little to boost housing supply with investors piling into established homes rather than new construction.
“Blind Freddy can see that negative gearing does nothing to improve rental affordability or availability, precisely because it does nothing to boost housing supply.”
HOW NEGATIVE GEARING WORKS:
* You borrow money to purchase a residential property or other income-producing asset.
* You make a loss after offsetting any income against interest on the loan and other outgoings.
* You claim that loss as an offset against other income, such as your salary, resulting in a refund from the tax office.
* You purchase a property for $750,000, taking out a $650,000 loan at an interest rate of 5 per cent.
* You rent the property at $600 a week for an annual income of $31,200.
* The annual interest payment of $32,500 creates a shortfall of $1300 even before you add in other tax-deductible outgoings.
* Say the total shortfall adds up to $4000. That amount can be offset against other taxable personal income, such as your salary.
KEY PROFESSIONS EARNING UNDER $80,000 CLAIMING NEGATIVE GEARING TAX BENEFIT:
* Clerical staff: 83,280
* Teachers and child carers: 61,500
* Sales assistants: 46,450
* Nurses, midwives and aged-care workers: 41,980
* Tradies: 34,395 * Hospitality trades: 21,555
* Transport workers: 15,525
* Emergency service workers: 12,315
* Cleaners and housekeepers: 6940
* Hairdressers: 1645
(Source: Selected key professions from ATO Taxation Statistics 2011-12)