Abolish Negative Gearing

The time has come to abolish negative gearing on investments both stock and property.

Too much dead money is being gambled by people with no real understanding of markets or gearing, resulting in catastrophic losses during the gfc.

These losses will only be magnified as a new cohort of mugs are enticed by the banks to go long on shares and derivatives in the second leg of this bear market.

Many investors are withholding housing stock from young couples by artificially inflating the price of housing through the use of negative gearing.

There is no way that houses are worth 7 to 9 times times average yearly earnings. The longtime average is closer to 3 or 4 times.

Let us hope that Julia Gillard or Tony Abbott have the balls or ovaries to abolish this festering inequality in our financial system, whichever one of them gets in to government after the election.

gg

Governments state and federal want to keep the property bubble going, not burst it.

Joh will rise from the dead before NG is abolished.

The Hawke gov tried it and it didn't work. Let's look at marginal land and the release of land for building to increase supply.

Property should not be for investing.

I rather like the way Whitaker puts it...


http://www.sunshinecoastdaily.com.au/story/2010/05/04/no-attack-negative-gearing/

No attack on negative gearing

Noel Whittaker | 4th May 2010


THE Henry Review contained 138 recommendations. And, as I predicted, there has been no attack on negative gearing.

THE long awaited Henry Review contained 138 recommendations, most of which have ignored by the Rudd Government. And, as I predicted, there has been no attack on negative gearing.

Cast your mind back to 1985 when Treasurer, Paul Keating, watered down negative gearing by introducing a system that quarantined any net losses from property investment, and required them to be offset only against future profits. It was a disaster - investment in property fell dramatically, rents went sky high,and in October 1987 Keating backed off and reversed his original decision.

Despite the misinformation that is often bandied around, negative gearing doesn’t save much tax. If you bought an investment property for $400,000, and borrowed the entire purchase price, the interest would be about $30,000 and the net rents would be around $16,000. This would give you a cash shortfall of $14,000 which would only save you $5,530 in tax if you earned between $80,000 and $180,000.

Who in their right mind would get themselves into hock for $400,000 just to save $5,530 a year in tax? Sure, I admit that certain properties can give tax breaks due to depreciation allowances but these are often illusory as any tax saved is clawed back when you eventually sell.

The essence of negative gearing is that it speeds up whatever is going to happen – poverty or wealth. Buy a property for $400,000 on $20,000 deposit and you will have doubled your money if the price rises to $440,000, however if it falls in value you could lose your deposit unless you are prepared to wait out the cycle. The problem for property buyers now is not that negative gearing may be abolished, but that they will be lured into buying over priced properties which could devastate their finances if prices fall as interest rates rise


Noel Whittaker is a director of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions.

jbocker said:

Cast your mind back to 1985 when Treasurer, Paul Keating, watered down negative gearing by introducing a system that quarantined any net losses from property investment, and required them to be offset only against future profits. It was a disaster - investment in property fell dramatically, rents went sky high,and in October 1987 Keating backed off and reversed his original decision.

Click to expand...

Paul Keating abolished negative gearing when interest rates were in the mid to high teens.

Had he attempted it in the early/mid 90's when short term interest rates were low but before asset prices boomed, it may have had a better chance of succees.

Like the mid-80's, now is not the time. The deduction against other income could however be capped at a fixed percentage above the investment's income. The time to abolish will be when yield more closely matches loan interest rates.

drsmith said:

Paul Keating abolished negative gearing when interest rates were in the mid to high teens.

Had he attempted it in the early/mid 90's when short term interest rates were low but before asset prices boomed, it may have had a better chance of succees.

Like the mid-80's, now is not the time. The deduction against other income could however be capped at a fixed percentage above the investment's income. The time to abolish will be when yield more closely matches loan interest rates.

Click to expand...

This would be way too complicated and lead to even more manipulation by lawyers, financial planners and accountants.

Housing affordability is one of the major impediments to a young couple having children when they want, having to restrict the size of their family and having to either live tens of kilometres from their workplace or live in debt for the rest of their lives.

Meanwhile every new capitalist public servant in a job for life is screwing a tenant with large rents somewhere, the rents decided on an artificially high valuation on the property, as a result of the cornering of property market by these self same negative gearing faux socialist capitalists.

It is time comrades for this stain on a free economy to be removed. It should be removed overnight, with no compensation or wriggle out clauses, to again make housing a level playing field.

gg

Garpal Gumnut said:

The time has come to abolish negative gearing on investments both stock and property.

Click to expand...

This is a great idea, but would need to be associated with means of protecting our assets from foreign investment (as the lower prices which we bid them too, without a taxbreak, would appear more favourable to foreign investors)

Do both, and you get my vote.

jbocker said:

I rather like the way Whitaker puts it...

http://www.sunshinecoastdaily.com.au/story/2010/05/04/no-attack-negative-gearing/

No attack on negative gearing

Noel Whittaker | 4th May 2010

Who in their right mind would get themselves into hock for $400,000 just to save $5,530 a year in tax? Sure, I admit that certain properties can give tax breaks due to depreciation allowances but these are often illusory as any tax saved is clawed back when you eventually sell.

Click to expand...

Well according to the tax office, landlords claim an average of $10,640 each. Negative gearing by landlords totaled $12.75 billion in 2007-2008.

http://www.theage.com.au/national/negative-gearing-top-tax-break-20100326-r377.html

That is more than the total tax paid by Australian mining companies last year! ($11 billion)

drsmith said:

The deduction against other income could however be capped at a fixed percentage above the investment's income

Click to expand...

Now this is what needs to be abolished. Property losses/deductions should only be allowed to be claimed against property profits, just like every other investment stream. The only people who would suffer would be spruikers who over-leveraged.

When keating abolished negative gearing, public housing waiting list blew out by about 5 years. They won't abolish it again.

gav said:

Now this is what needs to be abolished. Property losses/deductions should only be allowed to be claimed against property profits, just like every other investment stream. The only people who would suffer would be spruikers who over-leveraged.

Click to expand...

Several billion dollars can't be pulled suddenly from one part of the economy without unintended consequences. Just ask the big miners or even Paul Keating from his attempt in the mid 80's. The consequences now may be a repeat of Paul Keating's experience or even a bursting of Australia's residential property bubble. No government is going to do that willingly.

You have to start somewhere and a cap is better than no cap as currently exists. If over time, rental yields appreciate relative to interest rates (in essence, real property prices decline), the cap could be progressively reduced and perhaps ultimately eliminated alltogether. This should be a policy objective. This approach is more likely to yield a more gradual decline of real property prices back to more realistic levels.

Fundamentally, I am of the view that there should be no deductions against salary income whatsoever, but the road to that outcome is not a simple and short one.

At some point, Australia's residential property bubble may end up beyond the control of governments and burst anyway. This will impact positively on rental yields. This will be a more favourable environment to abolish negative gearing against salary income.

So while we are at it every new business owner who starts up we will ban them as well.
They are negative geared to the max.

Naivety to the max on this board.

tech/a said:

So while we are at it every new business owner who starts up we will ban them as well.

Click to expand...

No, but capitalist public servants (to which GG refers) geared to the max in residential real estate do exist.

tech/a said:

So while we are at it every new business owner who starts up we will ban them as well.
They are negative geared to the max.

Naivety to the max on this board.

Click to expand...

"Businesses" that are structured with no reasonable chance of a trading profit have their losses disallowed as a deduction against other income. This should also be the same with investments.

Start up businesses that have an objective of profit, yet run at a loss for the first year or two, can hardly be regarded as negatively geared. This is simply a shortfall of anticipated revenue while clients bases are acquired and established.

A rental property has maximum revenue as soon as it is tenanted and are often structured to run at a trading loss for a lengthy and indeterminate time.

It's chalk and cheese, oranges and apples.

Naivety is not an opinion which strikes against your vested interest, such as you assert. The opinions here are not naive, they are ideologically sound. However because of the size of the VI lobby, I agree that the abolishment of NG is unlikely anytime soon.

However I like drsmith's point of a cap and progressive reduction of same, it's an achievable way of doing it without seismic effects. I's support that.

They are negatively geared and their losses will be allowed as a tax deduction---Yeh I know they had every intention of becoming profitable yet a very large majority will fail and be negatively geared for a lot longer than 2 yrs some 5-10 yrs or more.

I bought A few containers of Structural Steel back in Jan I made those purchases when the $ was 92c. I still have it (Well a lot of it) I'm waiting for steel to become much more expensive (I can still buy it reasonably cheap) before releasing it on the market (Its in a warehouse). I'm grossly negative geared on it,I was also at one stage grossly negatively geared on a few properties---waited then too and sold some---no longer negatively geared---far from it.

BOTH are business decisions and whether I'm a fat cat public servant or a self employed employer I have used negative gearing to my and the general populaces benefit.

How?
I provide 18 families with a better than average income.
I pay way above the average taxes.
I will not be requiring Social Benefits.
I provide 6 families and 2 businesses with premises.

If you don't like naive then I'll use unimaginative.

tech/a said:

I bought A few containers of Structural Steel back in Jan I made those purchases when the $ was 92c. I still have it (Well a lot of it) I'm waiting for steel to become much more expensive (I can still buy it reasonably cheap) before releasing it on the market (Its in a warehouse).

Click to expand...

How does structural steel in a warehouse earn income ?

drsmith said:

How does structural steel in a warehouse earn income ?

Click to expand...

The AUD Falls!

Bought 250 Tonne at $765/T

Current Indent is $950-1050/T
Wholesale is $1250/T
Retail $2000-2300/T

So sitting in the warehouse has gained 30% approx in 6 mths.

I'm looking at Mid Sept- Dec when I know steel will be dearer and I will have it!

250 tonne of structural isnt much steel.
The big guys buy 1000s of Tonne and do the same--just business.
I actually partner indent orders with one of the big guys.
Makes his buy price cheaper again!

tech/a said:

They are negatively geared and their losses will be allowed as a tax deduction---Yeh I know they had every intention of becoming profitable yet a very large majority will fail and be negatively geared for a lot longer than 2 yrs some 5-10 yrs or more.

Click to expand...

...and what happened to the Collins Street farmers who got into ag for the "tax write off"?

Sorry boys, the ATO woke up to that in due course.

tech/a said:

The AUD Falls!

Bought 250 Tonne at $765/T

Current Indent is $950-1050/T
Wholesale is $1250/T
Retail $2000-2300/T

So sitting in the warehouse has gained 30% approx in 6 mths.

I'm looking at Mid Sept- Dec when I know steel will be dearer and I will have it!

250 tonne of structural isnt much steel.
The big guys buy 1000s of Tonne and do the same--just business.
I actually partner indent orders with one of the big guys.
Makes his buy price cheaper again!

Click to expand...

Tech

Now instead of apples to oranges, we are comparing poker chips to drapery. WTF?

Your steel deal is a transaction within a business that is making profit overall, nothing whatsoever to do with negative gearing. Please, let's not run off at totally irrelevant tangents.

Wayne

I treat my Properties as a business and at times they are negatively geared as all businesses are.
Whats the difference?

Its a tool one which is at the disposal of everyone.
Why shouldn't people be able to use it.

Ive attempted to illustrate the good ------proper use of N/G can have---but you wish to narrow the discussion to such a pin point that no other expression of opinion can have the breadth to be presented.

Sure N/G is used with selfish motives and I do---but there is a run off.
Banning all of us will be as prudent as RUDDS Resource tax.

As I said no imagination---and naive---as was RUDD

tech/a said:

Wayne

I treat my Properties as a business and at times they are negatively geared as all businesses are.
Whats the difference?

Its a tool one which is at the disposal of everyone.
Why shouldn't people be able to use it.

Ive attempted to illustrate the good ------proper use of N/G can have---but you wish to narrow the discussion to such a pin point that no other expression of opinion can have the breadth to be presented.

Sure N/G is used with selfish motives and I do---but there is a run off.
Banning all of us will be as prudent as RUDDS Resource tax.

As I said no imagination---and naive---as was RUDD

Click to expand...

If the property portfolio is likely to return a trading profit within a reasonable time frame (say 2 or 3 years), then I agree the losses should be deductible in the current year. If there is no chance within the forseeable future, the deductions should be deferred.

This is as how it applies to normal business.

Pulling in a number of irrelevant examples doesn't actually support your case, it undermines it.

It is not a case of banning anything, rather, it is the normalising the tax treatment of investments as it relates to productive business.

Treat your properties as business? Fantastic! I applaud you. Then you wouldn't be averse to identical tax treatment as business.

You may sooth your lack of relevant debating points by accusations of "unimaginative and naive", but you have yet to illustrate why this is so, therefore prove yourself unimaginative, and incapable of illustrating why your contention is so. I observe this is normal with you, rather than debate intelligently, you simply accuse others of being losers or whatever.

pfffft

I await some intelligent debate from you.