Mortgage Choice slams proposed changes to negative gearing

February 15, 2016

Mortgage Choice chief executive officer John Flavell has labelled the proposed changes to negative gearing by both the Government and the Labour party as ‘fundamentally flawed'.

Earlier this week, the Turnbull Government announced it would make some significant changes to the current negative gearing policy and either cap the number of properties that can be geared, or limit the annual tax deductions that can be claimed.

At the same time, the labour party announced its plans to restrict negative gearing to just new properties.

“In 2015, all of the commentary from both sides of politics was in relation to housing affordability and what could be done to deliver greater access to affordable accommodation for all Australian renters and would-be owners,” Mr Flavell said.

“This seems to have been nothing more than rhetoric. In the absence of either the Government or the opposition being politically bold enough to contemplate actually reducing government spending or addressing the issue of the shrinking tax base through an increase in the GST, both sides have immediately jumped to changes to tax concessions for property investment in order to plug the gaps.

“There seems to have been little or no regard as to the implications this would have on housing affordability.

“A lot has been said about negative gearing in recent months. Most people are wrongly under the assumption that negative gearing serves one purpose – to help the high-end, wealthy investors become even wealthier. This is simply not the case.

“Given that the Government has not been prepared (in the past) to commit more of the community purse to the provision of public housing, negative gearing was introduced to increase the number of investors, and therefore rental properties, in the market. In part this has worked, providing investors with additional incentive to meet the needs of the rental market. That said, housing undersupply remains a critical issue.

“According to data from the Australian Bureau of Statistics, Australia's population grew by more than 317,000 in the 12 months to June 2015 and these people need somewhere to live.

“It is estimated that Australia needs to build at least 170,000 homes in order to keep pace with demand. And while data from the Australian Bureau of Statistics shows 189,000 residential dwellings were completed in 2015, this was the first time in a very long time that supply has actually come close to meeting demand.

“With the Australian property market in short supply, it would be seemingly remiss of the Government to change its current stance on negative gearing and further constrict supply. At the end of the day, both investors and renters are set to suffer if changes of the nature proposed should come to be.

“Recent amendments to tax treatment in the ‘Buy to Let' market in England are already creating negative downstream impacts for the housing sector, with access and affordability pressures building. As opposed to creating additional pressure in the housing market here, perhaps both sides of politics might give some concerted effort to reducing spending and acknowledge that, with the proportion of income-earning and tax-paying people set to dwindle in the coming decades, the only solution for the future is increased consumption tax, however politically unpalatable that might be.”