Negative gearing

 Negative gearing is not a tax concession for the rich. 

The myth of negative gearing is one of property barons growing filthy rich on land speculation while everyday Australians struggle to pay the rent.

The truth, however, is a very different story. 

The majority of Australians who negatively geared their properties in 2012 earned less than $80,000 a year.

The Australian Tax Office shows that, of the 1.26 million Australians who declared net rental losses over the 2011-2012 financial year, 883,000 earned less than $80,000.  As Residential Development Council research shows, these ‘property tycoons’ included 62,000 clerical workers, 54,000 teachers, 47,000 salespeople, 36,000 nurses and tens of thousands hospitality workers.

When considering those that negatively gear, 74 per cent earn under $80,000 per year.

Something of a buzzword in the property game, negative gearing enables investors to deduct costs associated with a rental property against their income, which reduces their tax liability.

Treasury is currently looking at limiting negative gearing to new homes, which some groups say could reduce the number of investors and increase housing supply.

But would it?

Low to average wage earners who are negative gearing depend on the tax concession to make their investment viable; in doing so they provide rental stock for fellow Australians.

At a time when the delivery of new social housing stock has plummeted, negative gearing helps deliver affordable rental accommodation in our major cities and towns. 

These investors are not sitting on a treasure trove of housing stock – 73 per cent of the Australians that own rentals own just one property and a further 18 per cent own two.

Limiting or removing negative gearing concessions would reduce the capacity for low earning landlords to reinvest in their properties.  This has the potential to affect the many tradies reliant on maintenance work, but also the people renting as the condition of their homes deteriorate through lack of ongoing investment.

Negative gearing underpins the financial future of more than one million ‘mum and dad investors’, helping them save for retirement.  As our workforce ages, any policies that promote self-sufficiency in retirement and take the pressure off the public purse should be promoted.

Catherine Carter is ACT Executive Director of the Property Council of Australia