Negative gearing: Labor treasury spokesman Chris Bowen says any changes to be taken to election

PHOTO: Economist Saul Eslake says first home buyers are missing out in favour of negatively geared investors.(Ian Cutmore)

Shadow treasurer Chris Bowen has left open the idea of Labor going to an election with a policy of winding back negative gearing.

It might not be popular; almost 2 million Australians invest in property, with the majority of them making net rental losses that they use to reduce their income tax bill, costing the federal budget up to $5 billion a year in revenue.

But Labor might be prepared to wind back negative gearing for future investors in property.

Mr Bowen was pressed about it last night by Leigh Sales on 7.30.

“Negative gearing is on the table as something you’re having a look at?” she asked.

“What I said last time was that any changes we took to negative gearing would be taken to the next election,” Mr Bowen responded.

“Our principle would be that people who’ve invested in good faith with existing rules shouldn’t be disadvantaged and anything we do should not take away from new housing stock, which is very important for housing affordability.

 “And I also I think said to you that I didn’t envisage either side of politics abolishing negative gearing in its entirety.

“But of course when everything is being examined in a tough fiscal situation, any responsible opposition would be considering a range of measures. But we’ll be upfront about anything we do before the next election.”

Government rules out negative gearing changes

Prime Minister Tony Abbott ruled out changes to negative gearing last week, and was backed last night by Social Services Minister Scott Morrison.

Mr Morrison was speaking to former Labor minister, now Sky TV presenter, Graham Richardson, who argued negative gearing was a tax break for the wealthy.

This is not a rich person’s toy, this is not for the rich and famous.

Ken Morrison, Property Council of Australia

“That is actually not true,” responded Mr Morrison.

“Mate, a battler out there in the suburbs on $70 grand with the three kids, how many extra houses do you reckon he owns?” questioned Mr Richardson.

“You’d be surprised how many people … particularly in small business, who don’t earn a lot of money, have invested through negative gearing into properties to provide for their own retirement,” Mr Morrison replied.

“That is a fairly common practice. I know plenty of people … on meagre incomes. No, not even in a super scheme. They’ve just done it for their kids, they’ve done it for themselves, and they’ve made big sacrifices to do it.”

Ken Morrison from the Property Council of Australia is another who argues that property investors are everyday Australians, and that they help by providing rental accommodation.

“Eighty per cent of people who own investment properties that negative gear them [are] actually on salaries of $80,000 or less,” he said.

“So this is actually something that middle Australia uses to help build their household wealth, build for their future, provide security for their families.

“This is not a rich person’s toy, this is not for the rich and famous. This is for middle Australia saving to get ahead.”

Not so, responded Saul Eslake, chief economist with Bank of America Merrill Lynch Australia.

He replied that the $80,000 a year that Ken Morrison referred to was their income after they had minimised their tax.

The most recent Tax Office statistics put the number earning $80,000 or less at 72 per cent, and an ABC analysis last year showed how those figures massively underestimate the income of real estate investors. Should we really believe the ABC has all the data? and the ATO just base their analysis on opinion.

Instead, Mr Eslake pointed to figures used by the Reserve Bank that show 60 per cent of the money borrowed for property investment is borrowed by those on the top 20 per cent of incomes.

“I can’t think of anything that would provide more assistance to the increasing proportion of Australian young people and even middle-aged adults who would like to be homeowners than getting rid of negative gearing,” concluded Mr Eslake.

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Why use a mortgage broker in Australia?

Why use a mortgage broker video

Video about why you should use a mortgage broker instead of going directly to the bank or lender in Australia.

Using a mortgage broker really makes sense as you are getting the same products as if you went direct but have more choices, able to compare options easier and you have a professional on your side when dealing with the banks and lenders.

Why use a mortgage broker 

Bubble talk about the Australian housing market.

March 24, 2015 

More bubble talk about the Australian housing market, can it be true this time?

Whenever house prices rise in Australia someone is out there calling it a property bubble. Claiming that the Australian property market is a bubble that is about to burst is a full time job for some. I guess if you say that prices will fall often enough you will get it right part of the time. If you look at the historic housing price trends over time you will notice that the market, or should I say markets (as Australia has many different markets the major ones are the capital cities of the States and Territories which generally operate independently based on local conditions), goes in cycles with price rises and falls. If you are observant (and even if you are not so observant) you will see that prices though rising and falling tend to rise more than they fall over time. This rising more than falling and particularly after a rise leads the “bubble will burst” crowd to claim that there is a bubble that we should all be scared of because if we own real estate it will become worthless. I guess that when you don’t own property you have two choices:

1. buy property; or

2. hope that there is a bubble that will bust so that you can buy property at dirt cheap prices.

Option 2 sounds appealing but in the mean time property prices in those “bubble markets” just keep on rising.

So is Australia going to have a housing market crisis like the USA did that caused the Global Financial Crisis (GFC)?

That may be what some people are thinking, “if it happened in the USA, it could happen in Australia”. However, in the USA the situation leading up to the GFC were very different than in today’s Australian property market. In the USA mortgage brokers were selling mortgages with very low introductory interest rates (that only lasted for the first few years) to people with no job or income and no way that they could make the repayments. The theory, if there even was a theory, was that the house prices would rise and cover the costs before the borrower defaulted on their loan. Or maybe it was just unregulated mortgage brokers with an incentive to write the loan and no disincentive if they were unable to repay it.

Fortunately in Australian mortgage brokers are highly regulated (as with the banks and lenders) and loans must be shown to be affordable for the borrower or the lenders risk a court waiving the loan if they fail to repay it. There are therefore strict lending “tests” to ensure that the borrower is able to service the loan. The Australian banking industry is also regulated in other ways to keep the system stable and the strength of the Australian banking system through the GFC continuing until today is testament to that. This is not to say that over regulation is a good thing either, regulation should serve a purpose, and be targeted in an problem it is solving or risk that it is managing.

Well I think that I will leave it there. More on the Australian housing market later.

Ed.