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The Myth Surrounding Negative Gearing

negative gearingKate Cull writes an interesting piece for the website Property Update wherein she writes that declaring negative gearing as the “tax rort” of the rich may be not be doing justice to it. Cull says that a higher percentage of train and tram drivers use gearing compared to solicitors and real estate agents.

The rich use it less than average earners

The police use it more than the management consultants and paramedics and ambulance staffs use it in greater numbers compared to financial advisers. In the wake of all these assertions, where does the question of negative gearing’s inclination towards the rich apply?

Nice way for the not-so-rich to enter the property market

Our treasurer, Mr. Joe Hockey, feels that many hard-labouring Australians who earn average income can use negative gearing to enter the property market. It is a part of the Australian taxation system which aims at offering the impetus to the not-so-rich to compete with the rich and yet, ironically, it is blamed for helping the cause of the rich population.

Those earning in deficit of $80,000 helped a great deal

Those earning in deficit of $80,000 per year find negative gearing to be a great incentive to hit the property market. If it is abolished, among many other things, the aspirations of the Australian middle class will be hard hit, says Cull.

You can read the original article here.

Two things immediately come to mind about negative gearing. One reform that gearing awaits is that the losses that can be claimed as tax deductible (repair and expenses) should be capped (and indexed, if need be).

Second, change must also be made to the structure of capital gains tax discount. It is not negative gearing that differentiates between the rich and the not-so-rich, it is the CGT rebate which turns things in favour of the rich. Noise should be made about its restructuring, above all else.