Negative gearing switches could hurt SA economy

There's been much talk recently about the Federal Opposition’s proposal to change the tax rules on housing investment if Bill Shorten wins the next election. If they get their way, only new homes purchased after July 2017 can be negatively geared. Existing investors, they say, will not be affected.

But it’s time to shine a light on the great big risk this policy presents to an industry that accounts for almost $11 billion in gross state product (GSP) and 168,000 jobs in SA. Property is one of the few parts of the economy that is actually faring well across the country.

And whenever you make big risky policy changes, you run the risk of causing a downturn, with unintended consequences, and a big impact on the economy.

Take the mooted halving of the capital gains tax (CGT) discount, for example. This will be bad for new housing supply, even with the Opposition’s negative gearing changes.

You’ll be paying stamp duty on the way in, high land tax rates on the way through and more through CGT on the way out if these plans are implemented. The great big risk is that investors will simply walk away from property as an investment choice, thus drying up supply at the time the country needs it most. Not to mention driving up rents.

And when talk turns to “mum and dad’’ investors, here are the facts. Two million Australians own an investment property and of those people, 1.2 million Australians use negative gearing.

Of those 1.2 million people, 840,000 Australians who negatively gear properties earn less than $80,000 per year. Negative gearing is the way that hundreds of thousands of average people secure their financial future.

In the SA context, 130,000 people own an investment property including almost 90,000 who use negative gearing. The top two suburbs where investors who use negative gearing live are Golden Grove and Woodcroft. Mount Gambier comes in at fourth place.

These aren’t property barons or property tycoons – they’re ordinary people using property to secure their financial futures and help strengthen the economy: teachers, retail workers, nurses and midwives, hospitality workers.

That’s why policymakers need to be careful playing games with negative gearing, which means playing games with the economy.

First published in The Advertiser, 23 February 2016.