According to a recent report in The Australian, Treasurer Scott Morrison is considering whether to include a limit on the amount property investors can claim as a tax deduction through negative gearing each year.
The Treasury department is currently compiling a white paper on taxation reform. The Australian has claimed one option that may be put forward is a combination of income tax cuts, ending tax concessions that come with superannuation concessions and limiting negative gearing.
But Rich Harvey, managing director of buyer’s agency Property Buyer, said changes to negative gearing could have a huge impact on the property investment industry in Australia.
“Negative gearing seems to be the hot potato that always gets kicked around when it comes to talk about taxation changes. It seems to be an easy target for people to criticise or use so it looks like they’re doing something,” Harvey said.
“But people need to remember that negative gearing is one of the best ways to ensure the creation of affordable housing. Real estate in Australia is quite expensive, so there does need to be some sort of way to incentivise people to be involved and ensure there is a supply line of housing,” he said.
Harvey said some “fiddling around the edges” of how depreciation can be claimed via negative gearing may not have too big an impact on investors, but he warned drastic changes to the scheme could leave the government worse off than it is now.
“Whenever I hear people talking about negative gearing and changing it, I think back to what happened in when the Keating government got rid of it.
“The cost of public housing blew out and they ended up bringing it back pretty quick. Making changes to negative gearing often sounds good, but it’s something that’s fraught with danger.”
Rather than tinker with negative gearing, which he says benefits the housing market, Harvey said policy makers should shift their attention to stamp duty.
“Stamp duty is where changes should be made. It’s a regressive, inefficient tax.
“It’s anti-environmental in that is discourages people from moving and living closer to work and people suffer because of bracket creep. It’s the area where changes should be made, but the governments are making too much off it to change it anytime soon.”
