Why I Won’t Attack Negative Gearing

Central bankers seem to hate this.

Politicians don’t like it.

Social welfare do-gooders despise it.

A weird combo of mainstream and contrarian commentators train against it too.

And provided your editor’s stance on the Aussie property market, you may think all of us hate negative gearing too.

But we don’t. We’re not saying we love unfavorable gearing. Just that there’s no benefit to abolishing this…

Those who argue against negative gearing tend to do so for two reasons.

First, they say it’s causing a house price bubble.

Second, they say it isn’t right that one group of people is deserving of an ‘unfair’ tax break. They are saying that it means others are ‘paying’ for the negative gearing tax break.

Most think that both arguments are true. But they’re not.

Banning negative gearing will just be the start

As far because we’re aware, there is no proof that negative gearing pushes up house prices.

In fact, it is crazy to suggest it does. Investors only own one-third of Foreign housing. And not all of those qualities have mortgages.

Plus, to suggest which negative gearing pushes up house prices, suggests that investors have been in the game to buy every house in Australia.

That’s not true. Sure, there may be times where someone is actually bidding against an investor, but that doesn’t mean the investor has more money to spend than the owner-occupier.

Not that, but to be consistent, quarrelling against negative gearing for investment properties also means that folks ought to argue against tax breaks for borrowing against all investing and business purposes.

Want to get a loan to buy shares as well as offset the interest costs against your income? If they abolish unfavorable gearing, they’ll need to abolish margin lending for shares.

Want to gain access to money to buy some new equipment that will help grow your business? If they abolish negative gearing, they’ll need to abolish tax breaks on loans too.

The case against negative gearing is really an argument for taxes increases. And as we’ll clarify, anyone who thinks negative gearing is actually costing them money is a fool.

Negative gearing is simply a scapegoat

Folks say that it’s not fair they are funding the tax breaks associated with property investors.

They say the same thing about franking credits on shares.

These views must be music to the government’s ears. The social well being do-gooders spouted off the same case against super earlier this year.

It’s the idea that rich people are rorting the system and priced at everyone else more in income taxes.

The reality is that it’s not priced at others more in taxes at all. They assume that if the government abolished negative gearing, the government would get more in income taxes from property investors, and then might cut taxes elsewhere.

In fact, it’s more likely that the government would just keep any rise in tax revenues and improve spending. History tells us they would increase spending even more than they increased their tax consider. That would send the federal spending budget further into the red.

But whether or not the government did abolish unfavorable gearing, what would it mean with regard to government revenue?

Take this in the Sydney Morning Herald:

‘Australians would no longer be able to claim losses on their expense properties against their income, saving over $1 billion within federal revenue a year, within plan put to the federal government by the Australian Council of Sociable Service.‘

Wow! A one billion dollar saving each year. It sounds a lot, correct? However, we’ll just remind you that, as of final Friday, the federal debt was at $375.5 billion.

One million dollars would just about cover one month of the federal curiosity bill on its debt.

So, folks may not like unfavorable gearing, but you won’t hear your own editor railing against this. We’re all for it. We’re towards any method any buyer can use to reduce their tax bill.

And apart from, if you want to blame anyone for high house prices, blame the actual central banks. Low interest rates, money printing, and easy credit would be the real cause. Those in power are just using negative gearing as a scapegoat.

As all of us always say, your money is definitely better off in your hands than it is in the government’s hands.

Cheers,

Kris

PS: Whenever you see the government or social welfare groups arguing about a tax break, don’t take it at face value. More often than not, the real problem isn’t individuals allegedly ‘rorting’ the system. It’s usually the government and the central bank creating disturbances in the economy. Of course, this isn’t just happening in Australia. It’s occurring on a global scale. Visit here for details.