A leading economist has called on the federal government to end negative gearing to limit the potential damage of a dangerously overheated investor market.
The Bank of America Merrill Lynch’s chief economist, Saul Eslake, said the controversial property tax should be “grandfathered” – continued for those who currently use it and banned hereon in for everybody else.
Neither was Mr Eslake a fan of the RBA’s mooted changes to lending laws – where investor borrowing limits would be curbed – saying they wouldn’t work or, worse, would hurt those who are not the source of the problem.
He said ending tax concessions through negative gearing going forward was the “simple answer” without impacting those who already use it.
“If you grandfather it so that you’re not taking it away from the 15 per cent of the electorate who has it, then my view is: what’s the problem?” he said.
Mr Eslake agreed that the biggest hurdle to eliminating negative gearing was convincing politicians they wouldn’t be walloped at the ballot box by furious investors.
“If the government or the opposition were to present it properly, nor should there be a political backlash because they are not taking a privilege away from anyone who is currently enjoying it,” he said.
However, senior economist at the Domain Group, Dr Andrew Wilson, believes negative gearing is so entrenched, that the pros far outweigh the cons, and thus it’s here to stay.
Dr Wilson believes investors build the dwellings governments used to and “as investors, there are no guarantees that you’ll get your tenant, you’ll get your yield, you’ll get your cash flow, or your capital growth” and they should be duly compensated for that with tax concessions.
“If there’s no incentive the property market would be dead,” Dr Wilson told The Adviser. “Investors would take their money to equity markets or gold or stamp collecting.
“The argument against negative gearing is a nonsense; sure they might tinker with (the laws) at the edges, but it’s here to say,” he said.
Dr Wilson's comments echo those of Century 21 Australasia's owner and managing director Charles Tarbey, who at a media briefing on Monday morning, said the housing market's current issues relate back to supply, not investor spending or overactivity.