Opinion: why negative gearing cuts won’t make much difference

18 Stewart Ave, Curl Curl NSW REAL ESTATE

High property prices mean most investors have to use negative gearing.

TAX deductible expenses — it’s not usually a subject that gets people worked up but that’s what happened last Federal election when the ALP proposed cuts to negative gearing.

There was widespread debate about exactly how the policy would impact the market and we’re already starting to see the same arguments resurface in the lead up to next year’s Federal showdown.

If 2016 discussions are anything to go by, it’s likely we’ll see meaningful debate quickly drowned out by noise.

Special interest groups will weigh in again with wild stories of how catastrophic it would be for the Australian economy (translation: their members’ bottom line). Then there will be the other political parties, which will use the topic as an opportunity to fling more mud at each other.

But here’s something to consider: if negative gearing were scrapped we’d be OK. If we kept it, first home buyers would still be able to get into the market. Developers or the property industry as a whole may be affected, but neither course would make a significant difference to ordinary buyers and sellers.

That’s because negative gearing has already been scrapped in a way. Financial regulators have put so much pressure on banks to cut the supply of credit to investors that it has effectively done the same job that a cut to negative gearing might have, which was to decrease investor activity in the market.

And if you consider that the proposal to cut negative gearing included a grandfathering clause to protect investors who had already bought properties, we’re really in the same boat we would have been in – investors are being discouraged from the market, but those who already own properties can keep deducting their landlord expenses from their tax.

I’d suggest anyone getting worked up about the issue this time around should see it for the poltical distraction that it has become.

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