Powered by MOMENTUM MEDIA
smart property investment logo

Scrapping negative gearing not on the agenda

By Elyse Perrau 18 March 2015 | 1 minute read

Both sides of politics are committed to retaining negative gearing, a senior federal politician has revealed.

Shadow Treasurer Chris Bowen, speaking on ABC television, said the possibility of negative gearing being scrapped was a discussion the nation needed to have.

“There is a real housing affordability problem in Australia and we need to look at all the options on the table,” Mr Bowen said.

“[However], I don’t think either side of politics is going to abolish negative gearing tomorrow.”

Treasurer Joe Hockey said it was a cheap shot to say politicians didn't want to abolish negative gearing because they owned too many investment properties.

Advertisement
Advertisement

“The main issue about negative gearing is this: if you abolish negative gearing on investment properties, there’s a strong argument that rents would increase,” Mr Hockey said on ABC television.

“If you could see some evidence to say that you would not see any increase in rents if you abolish negative gearing there might be a more compelling case, but I don’t see that.”

However, Grattan Institute chief executive John Daley said the evidence shows rents did not rise everywhere when negative gearing was abolished during 1985 – 1987.

“You look beyond Sydney and the answer is rents barely moved in Brisbane, didn’t go up very far in Melbourne, didn’t go up very far in Adelaide,” Mr Daley said.

“They did go up very fast in PerthPerth, TAS Perth, WA, which makes you suspect very strongly that [the] race memory we have of ‘abolish negative gearing and rents will go up’ is a race memory built on Sydney.”

Economic theory suggests the abolition of negative gearing should not lead to higher rents, Mr Daley said.

“What happens at the auction is that the investor doesn’t win the auction, but someone who wants to live in the house does,” he said.

“Net impact: there is one less renter and there is one less rental property. Net impact on the rental market: zero.”

RELATED TERMS

Gearing

Gearing is defined as the relationship between debt and equity of a company that shows how much of its operations are financed by lenders or shareholders.

Negative gearing

Negative gearing occurs when the rental income of a property is not enough to cover the total costs of managing the rental and re-paying the interest portion of the loan.

Negative gearing

Negative gearing occurs when the rental income of a property is not enough to cover the total costs of managing the rental and re-paying the interest portion of the loan.



Scrapping negative gearing not on the agenda
spi logo

Get the latest news & updates

Join a community of over 100,000 property investors.

Check this box to receive podcast updates

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.