Bandt accused of lacking proper understanding of housing market
Negative gearing returned to the political discourse this week when Greens leader Adam Bandt stuck his head above the parapet and called for major reforms.
Negative gearing refers to a tax strategy where net losses on an investment property (i.e. interest and maintenance cost exceed rental income) can be deducted from an investor’s other income sources.
Bandt has proposed to end negative gearing while also scrapping capital gains discounts on investment properties in a bid to tackle Australia’s housing crisis.
Speaking at the National Press Club of Australia, Bandt said he “put on the table something that we think that could be implemented by the end of the year”.
While it is unclear specifically what reforms Bandt intends to pressure the ruling party on, he appeared willing to compromise. People with just one existing property should not be impacted by any reforms, said Bandt, which should shelter two-thirds of people who use negative gearing.
“We know that even the Labor party was considering changes to negative gearing under pressure from us during the course of the last year, during the housing debate. Even the Labor party was looking at some of this,” he said.
Prime Minister Anthony Albanese, who has ruled out striking a deal with the Greens if Labor fails to win a majority in the upcoming election, dismissed Bandt’s comments on negative gearing.
Bandt is “trying to make himself relevant”, said Albanese at a press conference at Paddy’s market in Sydney. “I don’t blame him for that. That’s up to him. All the minor parties will try to do that.
“There’s nothing new about the Greens talking themselves up because sometimes the media follow that up for whatever reason. It makes things a bit more interesting.”
Missing the point
Mortgage aggregator SFG’s general manager Blake Buchanan (pictured, left) ridiculed Bandt’s proposal to scrap negative gearing.
“I think it shows a lack of understanding of how properties, values, ownerships and the economic contributions of the current system work,” said Buchanan. “I was taught when I was younger not to go to a fish shop to buy chicken, and in this case, the Greens should stick to their knitting.”
While agreeing that the current structure could do with some improvements, “I also think that if politicians are using this as election fodder, then they are playing the wrong game”, said Buchanan. “Lets fix housing supply, building red tape and over taxing on properties first and then look at any appropriate changes to negative gearing.”
Critics argue that negative gearing unfairly advantage property investors while locking owner-occupiers and first-home buyers out of the market.
Yet “investors are a crucial participant in the property market and they house Australians of all walks and are necessary,” said Buchanan. “It is entirely appropriate that investors offset their costs of investments as businesses offset their costs.”
Reasonable criticisms
Mario Reyad (pictured, right), lending specialist at Expert Mortgages, said there are valid criticisms to be made of negative gearing.
“I think that the current negative gearing structure is probably not ideal for the current socioeconomic situations,” he said. “However, they were implemented at a time when the government had a much better fiscal outlook.
“Even though they may not be as appropriate now, the ramifications of removing them would cause too much disruption and distrust in government.”
Reyad highlighted that people have relied on these rules to make financial decisions “well into their future, such as family wealth planning and retirement planning, so it would not be fair to change the goalposts for those who have followed the rules correctly”.
Not all property investors are from the ultra-wealth class, Reyad added. “We need to remember that a large chunk of these people are working-class individuals… who have made sound financial decisions and leveraged their homes to purchase an investment property. These are the kind of people we would be hurting.”
Brokers have previously told MPA that abolishing negative gearing would make it financially unviable for mum-and-dad investors to hold on to their properties
One option is to adjust negative gearing to new builds only, therefore encouraging supply and reducing unsustainable property price growth. “I believe this would be a more effective strategy to tackle the real issue than what the Greens are advocating for.”
