LABOR’S NEGATIVE GEARING POLICY RISKS RECESSION
The Australian Labor party is going to the federal election with a risky housing tax policy that will exacerbate already falling house prices, force up rents and threaten the broader economy.
Labor’s strategy to halve the capital gains tax discount and restrict negative gearing to new properties ignores current economic reality and is misleading Australians about who would really benefit.
Under Labor’s plan, property investors wishing to buy older style properties will be prevented from claiming interest payments against their incomes, and the capital gains tax break they currently receive would be halved.
A Property Council of Australia survey[1] has shown that nine per cent fewer investors will be prepared to buy new properties, if Labor’s proposed crackdown on negative gearing is implemented.
If Labor wants to treat property investing differently from all other forms of investment, it’s ordinary Australians that will pay the price.
Who will be affected under the new changes?
- Property investors who want to buy an existing investment property to supplement their retirement savings will no longer be able to claim a modest taxation deduction, which cause to fewer rental properties will be bought, rents will go up, house prices will fall.
- Renters who will see their rents rise just as they did under the Hawke/ Keating experiment in the 1980’s. Contrast this to the current situation where we have the lowest annual increase in rents for two decades.
- Builders and their ‘tradies’ who will build less houses as shown by independent research undertaken for the Master Builders Association and the Property Council of Australia.
- State governments and their constituents who will receive less stamp duty to spend on much needed infrastructure.
When Paul Keating experimented with negative gearing in the mid 1980s, rents increased and the changed policy was ultimately dropped. And for anyone thinking things are different now, The Centre for International Economics[2] recently confirmed that its modelling shows rents will rise, and that will of course be a direct hit on young Australians saving to buy their first home.
All the analysis has shown, time and time again, that scrapping negative gearing will have negative impacts. Two thirds of Australians with incomes under $80,000 use negative gearing to save for their futures, not the top end of town as voters are being led to believe.
SQM Research director Louis Christopher also predicts undesirable potential outcomes, suggesting that Labor’s housing tax policy could trip our economy into recession, with the policy exacerbating already falling house prices and causing them to fall further – a capital city weighted average of between 5% and 12%.
[1] The Property Council of Australia poll of more than 1,000 people was conducted by Newgate
[2] Centre for International Economics report commissioned by HIA (December 2017)