'it's time to abolish negative gearing'

SBS news: 'It's time to abolish negative gearing'
1 OCT 2012, 2:00 PM - SOURCE: THE CONVERSATION
By Philip Soos, Deakin University

With a housing and rental affordability crisis placing growing financial stress on many Australians, there's no more room for a 'policy is biased towards the wealthy', Philip Soos from Deakin University argues.

Few Australian housing policies are more contentious than negative gearing.

Despite the publicity it has received and its popularity with government and property investors, little analysis of negative gearing can be found within easy reach, with much of it accessible only in academic journals. Only an occasional fragment is found in the mainstream media.

Australia’s policy on negative gearing is considered a sacred cow by investors and politicians, with Prime Minister Julia Gillard, Treasurer Wayne Swan and Federal Housing and Homelessness Minister Brendan O'Connor ruling out changes to this policy. The reason for this obstinacy is that negative gearing allows a property investor to deduct losses against the investor’s personal tax liability at their marginal tax rate (MTR), a tax-minimisation strategy adopted by 1,110,922 taxpayers who vote. Property is run at a net loss when interest payments and property-related expenses like repairs and maintenance exceed rental income.

The strong Australian economy has not experienced a recession since the early 1990s. This, along with reduced personal tax burdens, real rising incomes, extensive property subsidies and tax breaks, and rapid increases in property values, delivered an economic environment conducive to negative gearing. From 1996 to 2010, housing prices surged by 130%, adjusted for inflation and quality.

The present housing and rental affordability crisis is placing tremendous financial stress on many Australians as housing and rental prices have outpaced wages, and provided the spark for the public to question the validity of subsidising investors, whether they choose to gamble on making a return by selling property at a higher price or eventually becoming cash-flow positive when rents rise to exceed outgoings.

Despite the fact that negative gearing has existed for a long time, much assertion but surprisingly little evidence has been made to justify this policy across all classes of investment, whether it be shares, business, or property investment. The supporters of negative gearing provide negligible evidence to show that is it a sound policy.

continues at
http://www.sbs.com.au/news/article/1697603/Comment-Its-time-to-abolish-negative-gearing