'We need to talk about negative gearing' says ANZ boss Mike Smith
8 replies, posted
[quote=Sydney Morning Herald]ANZ chief executive Mike Smith says negative gearing should be up for discussion in the Abbott government's tax review, but warns that any changes to the popular tax break should be part of longer-term reform.
Mr Smith on Tuesday said a tax system that gave people an incentive to borrow rather than save was one reason lending to property investors was growing at a pace that has concerned regulators.
Asked if negative gearing rules should therefore be changed, Mr Smith said this was a "political question", then added that it should be discussed in the tax white paper.
"People's behaviour is driven by the environment in which they operate," he said. "If you have a structure which encourages borrowing, and in fact discourages saving, which is what we do have in this country, then it's hard to complain about the behaviour that results.
"I think the issue of negative gearing is something that does need further discussion but I think you can't do it individually, you have to look at it in the context of the overall tax system."
Given 1.26 million people negatively gear – that is, they deduct losses made on property investments from their taxable income – there's bound to be political backlash if the government attempts to make any changes.
[b]Prime Minister Tony Abbott has already ruled out changes to negative gearing in the government's first term[/b]. This is despite the head of the government's financial systems inquiry, former Commonwealth Bank boss David Murray saying the tax break fuels household borrowing and poses a risk to the entire economy.[/quote]
[url]http://www.smh.com.au/business/the-economy/we-need-to-talk-about-negative-gearing-says-anz-boss-mike-smith-20150505-ggulut.html[/url]
Negative gearing occurs when you have an investment which provides lower returns than the cost of financing the investment. For example, an investor taking out a mortgage for an investment property, but the income from renting the property out is lower than the repayments on the mortgage. The theory is that by providing tax relief, this encourages investment for the construction of new properties. The reality? An extremely competitive existing-property market which pushes up property prices and makes it harder for first-time home owners to afford a property.
The kicker? You know how I said that tax relief is provided? The losses resulting from negative gearing don't just work as a deduction against assessable income from rents, but those losses act as a deduction against all income of the tax payer, such as their wages or salary. So a wealthy property investor utilising negative gearing may have a lower effective tax rate than someone who may only earn half as much as they do.
Friendlyjordies did a good video on negative gearing.
[video=youtube;CL7M5RIXjY8]http://www.youtube.com/watch?v=CL7M5RIXjY8[/video]
So when are you guys going to be able to vote that Abbott clown out of office?
[QUOTE=chunkymonkey;47675520]So when are you guys going to be able to vote that Abbott clown out of office?[/QUOTE]
Next year..
Going to take a guess of September 10th.
[QUOTE=chunkymonkey;47675520]So when are you guys going to be able to vote that Abbott clown out of office?[/QUOTE]
Negative gearing has been around longer than Abbott's been in parliament.
[QUOTE=Antdawg;47675605]Negative gearing has been around longer than Abbott's been in parliament.[/QUOTE]
Yeah and it's kind of fucking retarded. Can't wait to see it go. As if the rich need any more tax breaks. First home buyers just aren't going to even be a thing eventually.
[QUOTE=MuTAnT;47675891]Yeah and it's kind of fucking retarded. Can't wait to see it go. As if the rich need any more tax breaks. First home buyers just aren't going to even be a thing eventually.[/QUOTE]
Negative gearing isn't a bad concept, if tax deductions only apply against rental incomes and not all income. That would be fair.
[QUOTE=Antdawg;47675605]Negative gearing has been around longer than Abbott's been in parliament.[/QUOTE]
Unfortunately Labor will probably stick with it. They have even less economic sense than Abbott.
Unless of course the housing bubble explodes like a nuclear bomb and trashes the economy at the end of the mining boom.
[QUOTE=download;47676996]Unfortunately Labor will probably stick with it. They have even less economic sense than Abbott.
Unless of course the housing bubble explodes like a nuclear bomb and trashes the economy at the end of the mining boom.[/QUOTE]
I'd say with the current political & market climate in the country at the moment, it could be a possibility. Both Labor & Liberal have failed to look long term in terms of maintaining median house prices but also ensuring that mortgages are getting paid on time, coupled with the dwindling amount of new jobs being available & a casualisation of the working economy (in that, full-time job placements are far & few between, contractual & seasonal casual work is becoming more of the norm), it's going to be much harder for people to keep up with their payments all the while trying to keep their jobs or find a new job. Labor did kind of start looking towards a STEM (science, technology, engineering & mathematics) -based economy but got booted out at the previous elections in 2013, but also that the Coalition seems to fail in recognising that the world economy is changing at an impeccable rate that within 30 years, I'd guess there will be about 20 - 30% less jobs available, possibly more, let alone that the growing rate of technological development will start making more jobs redundant and being relegated to robots.
In terms of negative gearing, I honestly think that the wealth divide is only going to grow further if said tax deductions are going to be implemented in full, regardless of the investors living costs & their ability to keep financing that investment. It should be only applied to rental housing investors (probably using a means-tested system that determines if the investor has no other alternatives to regaining said profit) & those who are needing to utilise rental housing / temporary accommodation to save up for a mortgage, thus applying the tax deductions to their annual income (as in they pay less in taxes from deductions granted to them, specifically those saving for their first home).
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