Negative gearing is proving to be one of those political hot topics. Recently, the Labor Party announced plans to scrap negative gearing yet again. It’s time to reflect on why it isn’t such a bad thing.
If you listen to Labor, it’s those with millions who are somehow screwing the taxation system (and the taxpayers) by providing rental properties for people who can’t afford to buy their own houses. I recall being one of those people and buying my first house when interest rates were 0.19 per cent. Almost 30 years later, my wife and I were in a position to build our wealth by negatively gearing an investment property.
The amount of taxation reduced from our respective tax payments wasn’t hugely significant, but it did help us at the time because even with an investment property, we still weren’t wealthy. Most people who have investment properties aren’t wealthy. They are people trying to consolidate their futures.
Our investment property kept someone housed — our clients. It also meant we had to pay for body corporate, a property manager, gardeners, tradespeople when repairs were needed, insurance policies, rates and water taxes, mortgage, advertising and more. That one property helped keep a number of people in jobs and the economy going. Yes, I know, if we had lived in it, we would have had to pay most of the above too, but we paid them elsewhere.
Along the way, we managed to pay out the property mortgage (from superannuation) and finish work. We are now retired and still own and rent out the property, which provides us with some of our income in retirement. The upside for taxpayers is that my wife and I have been retired for six years and have never had an income via pension from the public purse.
If you calculate (on today’s terms) what six years of a couples’ pension is worth, it comes out at about $190,000. That’s much, much more than we saved in taxes through negative gearing. We also still provide accommodation for a lovely couple who rent our investment property.
Remember what happened when Bob Hawke’s Labor government scrapped negative gearing? There became a severe shortage of rental properties as people began to offload their investment properties. While it sounds like good government policy to attack the high-income earners of Australia, there are often unforeseen consequences and usually some that should have been foreseen but weren’t.
I believe there is a reasonable argument to limit the number of negatively geared dwellings a person can have, but to eliminate negative gearing completely will have an adverse effect on our economy and the lives of many Australians.