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18 Feb 2020 04:13:55 UTC
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Negative Gearing: What Do Voters Think?
According to the Australian ABC’s Vote Compass — a national survey that assesses Australian’s political views — negative gearing is an issue that is dividing Australians. For the uninformed, gearing is simply when you borrow money to invest, and it’s most often talked about with regard to investment properties. A property is negatively geared when the rental return is less than your interest repayments and other expenses. Why is it such a hot political issue? Because Australian law allows investors to deduct any losses they make on an investment property from their taxable income. A lot of investors who buy properties don’t expect to make money on the rent. Instead, they buy properties with the hope that the property will increase in value to a point where they can cash in on its long-term capital growth and make a healthy profit from its sale.

According to data from the Australian treasury, in the 2012-13 financial year, over 1.9 million people earned rental income. 1.3 million of these reported a net rental loss. That means almost 70% of property investors don’t make money from their investment — well at least, not on an ongoing basis. They are speculating that property prices will rise so they can cash in on the capital growth.

But we all know, property prices in Australia don’t always rise. They are currently falling. So is negative gearing tax incentives just encouraging people to make poor investment choices?

From ASIC’s MoneySmart website, it’s almost always better to positively gear a property, that is, you borrow money to buy an investment property and the income from rent is higher than the interest repayments and other expenses. Of course this is the smarter choice.

So why do the government incentivise negative gearing? The official line is that it increases housing supply, but I reckon its main purpose is to keep property investors happy. It allows them to speculate on the value of existing property. If the real reason is truly to increase housing stock, then surely negative gearing tax incentives should only apply to new construction.

Remember, Australian tax payers pay for all this property speculation. The Government currently spends well over $11 billion a year on negative gearing and capital gains tax concessions. What if they used that instead to fund dental care, or better schools? I think we’ve got our priorities a bit messed up in Australia.

The Australian Labor Party plan on doing something about if they are elected in the upcoming election, 18 May 2019. They are proposing to limit negative gearing to new housing from 1 January 2020. They will also halve the capital gains tax discount (from 50% to 25%) for all assets held longer than 12 months purchased after 1 January 2020. All investments made pri
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https://www.youtube.com/watch?v=KnipiQXcIHo
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