The Australian government is reportedly modeling changes to its negative gearing rules, which allow investors to offset housing losses against other income. Critics argue that the policy encourages speculative investment rather than new housing development and costs the country billions annually.
. But reports that Treasury is modelling changes shouldn’t be a surprise, or something the government feels it needs to hide. The government and the bureaucracy should always be looking at economic reform opportunities, including how to improve our tax system.
Just 18 per cent of lending to housing investors was for the construction of dwellings or for newly built dwellings.And the discount on capital gains tax that operates alongside negative gearing is only 25 years old. In fact, the number of Australians with negatively geared residential property investments only took off when the capital gains discount was changed in 1999 from taxing all real gains to taxing half of nominal gains.
Australia’s taxes on capital gains are also more concessional than in many other OECD countries, although we are less of an outlier than in our approach to negative gearing.for the federal government to curb negative gearing and reduce the capital gains tax discount. The government should limit negative gearing by not allowing losses on passive investments to be written off against unrelated labour income .
We estimate that our proposed changes to negative gearing would be worth at least $2 billion a year in revenue, and the reduction in the capital gains tax would be worth about $5 billion a year. Curbing these “leakages” would broaden the income tax base and, over time, reduce our reliance on bracket creep to do the heavy lifting on budget repair.have risen by about 50 per cent over the past five years.
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