Recent Labor plans to reduce the effect of negative gearing will have no effect on current property investors, and that’s if the plans are actually implemented. If we’ve learned anything from the past 30 years since Negative Gearings introduction, it is that changes are very unlikely to occur.
First of all let’s be quite clear.
Negative Gearing is not going to be disappearing overnight.
Even in the incredibly unlikely event that the proposed changes to Negative Gearing actually go through, current investors will still get the same benefits that they have now. We are going to get into that a bit later, but for the moment the process is known as a Grandfather Clause. In the meantime let’s discuss just how unlikely the planned changes are at going through.
Humour me for a second and open a new tab on your web browser. Type in Negative Gearing to google and click on the news tab at the top or bottom of your browser (if you are on mobile). What you are now seeing is every news article with the phrase ‘Negative Gearing’. Now go to the 10th page of results, then back another 10, and another, and another, until you have gone back to articles from 2014 and before. Funnily enough they almost all say the same thing.
“Is the end in sight for negative gearing?”
“Is it time to scrap negative gearing?”
“Should we do away with Negative Gearing?”
As Betteridge’s law suggests, ‘Any headline that ends in a question mark can be answered by the word no’. For reference two of those are from 2014, and one is from 2011. Now I don’t like to point fingers and say that something is never going to happen, I’m not a politician, but talk about scrapping Negative Gearing has been about for years and nothing has changed. I could even show you articles from 1985, the year after Negative Gearing was introduced, all saying that Negative Gearing is heading to the chopping block.
Why has nothing changed?
Negative Gearing makes investing in property more affordable, which is great for the government. More affordable property means that more people invest, which also means a massive amount of tax revenue comes in from all of the many property related taxes already in place. Unfortunately this also means that there can be a bit of bullying in the marketplace, as those who already own property can use their significant financial leverage to get the best properties.
So why not just cap Negative Gearing at a certain income level?
A great question! And something the labor government should probably answer at some point. For right now though, the proposed changes to Negative Gearing are not great, but only for future investors.
Why only future investors?
As I said earlier, the Grandfather Clause prevents new changes to apply to those already benefiting from the old rules. If you are saving any amount of money through Negative Gearing, it would be extremely unfair for the government to abruptly cut off a large source of savings. Changes to Negative Gearing (if they happen), could only occur to future investors, as a way to make the marketplace fairer. With 883,325 taxpayers claiming deductions, it would be political suicide to make all of them pay their entire tax amounts.
We’ve already seen in the past 10 years what happens when you introduce an all new tax, so what do you think would happen when removing a method for reducing tax? The future would be bleak for the party that did that.
What are your thoughts on Negative Gearing?
Let us know in the comments section below!