Wednesday, 31 August 2016

Why we should get rid of negative gearing in Australia.

I am a convert to not allowing negative gearing in Australia.

Firstly and most importantly if a person has a property for example and the interest bill on their loan is greater than the rent they are getting then ip so facto they are NOT investors but SPECULATORS. They are only interested in future direction of their capital price ( which they think can only go up).They are NOT interested on the return on their investment

It follows that such people are never worried about the quality of the property they own since the return they are getting on their money is not the reason they bought the property.

It also means Central Bankers  sweat on property prices not falling because if they do these 'investors' will sell their properties post hast which would exacerbate any business cycle. As we saw in the USA if the housing industry is the culprit for a slowdown even a recession then the recovery will be muted!! ( Lower interest rates cannot stimulate the housing industry is such circumstances.)

Negative gearing is  favoured  by people of high net worth to both reduce their tax bills and increase their property portfolios. Peter Martin has shown that millionaires pay no tax because of this. They are the tax nots???

If negative gearing is such a great policy then why don't companies do it? Well because they invest they do not speculate.

However we should also be aware that negative gearing only become a 'problem from when Howard halved the capital gains tax.

Given all this I would be in favour of abolishing negative gearing. Allowing interest as a tax deduction on positive gearing would still be okay . In this way we can encourage investment and discourage speculation.