A submission by the RBA to a federal inquiry has fuelled the debate surrounding negative gearing, with the central bank advising ‘there is a case for reviewing’ the tax mechanism used by thousands of Australian investors.
The Reserve Bank of Australia has weighed in to the debate on negative gearing with its submission to the House of Representatives Standing Committee on Economics’ Inquiry into Home Ownership.
In the 28-page submission, dated June 2015, the bank acknowledges that negative gearing, combined with other tax concessions, may have the effect of encouraging investors to incur debt on property that they might otherwise avoid.
“The interaction of negative gearing with other parts of the taxation system may have the effect of encouraging leveraged investment in property,” the submission stated.
With this in mind, the RBA states that any review of negative gearing should also encompass related aspects of the tax system, such as tax rates on capital gains and the ability of superannuation funds to add geared properties to their portfolio.
“The Bank believes that there is a case for reviewing negative gearing, but not in isolation. Its interaction with other aspects of the tax system should be taken into account,” the submission read.
The RBA acknowledged that negative gearing, in principle, may have the effect of assisting rental affordability, and that “the ability to deduct legitimate expenses incurred in the course of earning income is an important principle in Australia’s taxation system, and interest payments are no exception to this”.
The submission has surfaced at a time where housing affordability, and the impact of negative gearing, are hot topics.
Increasing house prices in capital cities such as Sydney and Melbourne, driven in part by a flurry of market activity, have put pressure on politicians to address the unaffordability issues faced by first-time home buyers.
Several measures aimed at curbing foreign ownership and investor lending have been introduced since last year.
Federal Treasurer Joe Hockey has repeatedly ruled out reviewing negative gearing, with several media outlets reporting him as having done so again as recently as Wednesday.
The ALP has indicated it is reviewing its stance on the policy.