Negative Gearing !

The ABC has used " freedom of information " laws to obtain a Treasury report on Labor's plan to drastically alter the " negative gearing " arrangement that allows investors to write off many of the costs of buying homes and putting them on the market as rental properties when these are accepted for tax purposes as a deduction against other income.

This Treasury report delivers a finding that is directly opposite to the claim the government made when Labor put negative gearing reductions as its policy at the 2016 election.  The government claimed that this would put a " sledgehammer " through the housing market and bring the economy to a " shuddering halt ".

The Treasury people concluded that this plan would deliver an increase in taxation on rental property that would have a modest  downturn impact on property prices.  It was noted that the proposal would " grandfather " existing investments and have no impact on owner/occupier housing.  Labor is now claiming that the government lied to the people because it ignored this Treasury report.

Of course this assumes that Treasury reports are always one hundred percent accurate and the people who predict how the public will react have the uncanny power to look into peoples minds.  They are simply statistical researchers.  Perhaps the government was closer to the minds of the very people who use negative gearing to ease their taxation load and at the same time accumulate family wealth as a retirement fund.  This has been accentuated by the world wide bubble in housing prices.

Labor's policy initiative would have ceased negative gearing to all new property transactions and increased the Capital Gains Tax ( CGT ) from twenty-five percent to fifty percent on investment property sales.  That would probably stop the purchase of rental properties dead in its tracks - with a consequent reduction in rental availability in the years ahead.

Buying an investment property is attractive to high income earners at present because interest rates are historically at their lowest point for years, but that will change.  The interest rate cycle seems about to rise and there is uncertainty about where house prices are heading.  We are seeing the first price reductions after decades of constant rises.

A lot depends on what Labor hoped to achieve.  A lot has been said about first home buyers being priced out of the market, but a big drop in house prices would deliver financial annihilation to thousands struggling with big mortgages and that could throw the economy into recession.  It seems to be a case of being very careful about what we wish for.