Negative gearing not the enemy
Do we have a housing affordability challenge in our capital cities? You bet. Is negative gearing to blame? No. Yet critics of negative gearing have positioned it as the straw man in the debate about our housing woes.
Here are some facts instead.
Over the past two decades, state and local governments have chronically under supplied housing markets. Take Sydney, where forecast show a looming supply shortfall of 190,000 by 2024 unless consent authorities lift their game.
A hopelessly inefficient planning system, coupled with high property taxes like stamp duty - which has risen 750 percent over the past 20 years - add to the problem.
That's why you can't blame negative gearing for last week's auction results. It's been in the tax system for 100 years and is built around a basic concept – you can deduct your expenses or losses from your income.
What's the reality then, and why would governments want to take a risky intervention in housing markets by playing with negative gearing?
One: 53,000 nurses, 52,000 retail workers, 36000 nurses and midwives and 22000 hospitality workers are among the average Australians who take a small stake in property to help build prosperity and their retirement savings.
Two: in NSW, it's used by 375,000 people, with the top 10 suburbs where people live who use it including Wyong, Campbelltown, North Gosford, Tamworth and Orange – hardly havens of the rich and wealthy.
And three: those earning a taxable income of less than $80,000 a year comprise two third of property investors who benefit from negative gearing, and claim 58 percent of the total value.
As for proposals to gut negative gearing, they are driven by a simply motivation - revenue for a strained commonwealth budget.
But the real reason the budget is under pressure is Australia is in a low-growth cycle, and solving that is the dilemma tax reform originally set out to resolve.
That's why effectively adding taxes to property when it is one of the few parts of the economy working makes no sense.
Property contributes over 11 percent of our national income and generates jobs and salaries for more than one million Australians.
Our political leaders need to think carefully about playing with negative gearing when it puts at risk the ability of people to save for their future and hits a part of the economy that adds to growth.
First published in the Daily Telegraph, 26 February 2016.