NEGATIVE GEARING HAS AGAIN LEAPT INTO THE PUBLIC DEBATE AND ECHOES MUCH OF THE DISCUSSION IN THE MID-1980S WHEN THE ABOLITION OF THE TAX DEDUCTION WAS CONSIDERED BY THE HAWKE GOVERNMENT, ONLY MONTHS AFTER IT WAS INTRODUCED.
The Income Tax Assessment Act 1936 was varied in 1985 to quarantine all property losses from deduction against income from other sources such as wages.
It allowed for losses to be claimed against the income from the property and, if greater than the income, they could be held over and offset against future rental profits and reduce taxable gains made from other rental properties.
Current negative gearing arrangements allow for the deduction to be made in the year of the loss against all income received in that year, including wages.
As is the case today, the financial situation was tight in the 1980s with Moody’s downgrading the Commonwealth Government’s credit rating in September 1986.
The dollar had been floated in 1983 and imports became expensive and taxation was starting to strangle business so the government turned to growing revenue.
It was a difficult time with interest rates soaring and the government looked at options.
For roughly two years negative gearing was not available for people buying an investment property and it is this period that had been examined and re-examined to determine if the removal of negative gearing had a significant impact on the market.
The reality is the change in the 1980s only applied to property bought after the implementation date so the impact was muted by the proportion of the market involved.
There were also other factors such as the tight rental vacancy rates in Sydney and Perth, where rents soared.
The argument whether to abolish negative gearing depends on how you measure it. Like anything, if you try hard enough, statistics can be manipulated to support a particular idea. Personally I think there were too many factors to use that period as the benchmark.
When listening to the debate remember that “losses” have always been able to be claimed, it is just a matter of when and against what.
UDIA supports negative gearing as a way of capturing private investment into housing because, fundamentally, the greater the supply the better the affordability of any product. This is a complex issue that is influenced by interest rates, land supply policies, government’s capacity to deliver social housing and community expectations.