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Should Negative Gearing Stay?

tax concessionsIn an article for the website The Adviser, James Mitchell talks about the bipolar view on negative gearing. There is a school of experts who believe that negative gearing can overheat the market perilously. On the other end of the spectrum, there are others who believe that the pros of negative gearing easily outweigh the cons.

Should negative gearing be abolished?

Saul Eslake, Chief Economist of the Bank of America Merill Lynch, contests that tax concessions enjoyed through negative gearing should be culminated from here on but those who are currently benefiting from it should be allowed to keep enjoying the advantages.

Who should be allowed to enjoy it?

15% of the investor base enjoying negative gearing should not be made to change their position, says Eslake. For others, let gearing become a thing of past.

One reason why negative gearing has stayed, feels Eslake, is that it is difficult to dissuade politicians against it. Even now, the politicians- if they were to think about abolishing negative gearing- would think twice (or more) about the investor backlash.

The bipolar view

There is another school of experts which feels that the investors have now upped their game. Today, they are the cornerstones behind the development of building and construction industry. As the case stands, these same investors might suffer in absence of negative gearing because tax concessions is one solid cushion in the property world where neither a high rental yield nor a smart capital growth is guaranteed.

You can read the original article here.

The wave against negative gearing never gathers enough momentum because those lobbying against it also feel they will remain a minority when the time for the verdict comes. Politicians simply cannot soak in investor pressure and take the ‘abolition’ past the ballot days.

I think negative gearing, for all the arguments given otherwise, cannot overheat the market beyond redemption. On the other hand, its implied tax concessions are surely a cushion for those investors who fumble for tenants or are caught off guard by a capital growth decline.