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If Labor is elected and does away with negative gearing, it will exacerbate the already suffering Australian real estate market, and affect values more severely than is already the case, the EAC has said.
EAC chair Greg Toner said that the Australian economy is driven to a large extent by the real estate market and its associated employment.
“Labor’s policy may well drive the economy closer to recession and affect people’s borrowing power and spending habits,” he said.
“APRA has already put pressure on banks’ lending policies and the royal commission into banking has forced banks to look more seriously at their lending policies overall. The addition to this scenario of a reduction in negative gearing and capital gains tax entitlements will only add to the problem.”
Mr Toner said that almost 1.3 million people negatively gear residential properties. He said that this amounts to about $11 billion in tax deductions, and that more than half the people who negatively gear earn less than $80,000 per year prior to negative gearing reductions.
“So, negative gearing is not just for wealthy people.
“Negative gearing assists young property buyers to get into property and reduce the already high tax rate. Without negative gearing, the attraction for property lessens greatly and investment suffers; hence, the availability of rental accommodation decreases and, as a result, rents rise.”
He said that Labor has been down this route before.
“Negative gearing has been widely used by investors since the 1980s and the last time it was messed with was in 1985 by Labor and, after a short period, the benefits were reinstated after the rental market faltered and rents increased.
“In simple terms, Labor reneged on the changes to negative gearing after public pressure was exerted.”
Instead, Mr Toner said that negative gearing is “clearly” an incentive for investment.
“It feeds rental stock into the market to put less stress on rental levels,” he explained.
“The end result of negative gearing is not just the tax advantages. It enables people to pay off investment property to add to their wealth in later life which adds to their superannuation wealth and, in turn, creates more spending to add to the general economy and takes pressure off future government welfare payments.”
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