The provisions in Labor’s policy to “grandfather” negative gearing on current investments will do little to help existing investors, and nothing to protect them from the likely negative repercussions of the policy.
Owing to the fact that negative gearing would be available only for investment in newly-built residential stock under this policy, existing investors will find it more difficult to sell their properties as there will be no incentive for other investors to purchase them.
This lack of incentive means that property values are likely to fall, for fewer investors means reduced capital growth, and this means that investments are less attractive.
One effect of the policy is to largely remove the capacity of the investor to buy strategically, identifying opportunities for good returns through buying properties in prime locations, as negative gearing would be restricted to new builds only – and this means even more reductions in scope for capital growth.
And all of these disincentives are compounded by the fact anyone investing in existing property will no longer be able to write rental losses and other expenses off against tax.
But more broadly, superannuation funds with exposure to residential property will be affected, for lower resale values and lower returns will translate into lower superannuation payouts.
Those with self-managed superannuation funds who buy property will be hit even harder.
Australian Tax Office figures show the average deduction claimed by property investors is $10,000 per annum; in the overwhelming majority of cases, this means no more than one or two properties each.
In fact, roughly 90% of people with negatively geared investments own just one or two properties; about three-quarters of these people earn less than $100,000 per annum.
If the Labor policy is aimed at ending a “rort” for “the rich,” this means hundreds of thousands of mum-and-dad investors trying to get ahead and set their futures up will be hit hard just to get at the 10% of investors with more than two negatively geared properties. That’s a steep (and unacceptable) price to pay just
For more information go to the Negative Gearing Affects Everyone website.