I saw a recent letter to the editor in The Australian Financial Review and was compelled to answer. They published it today.
“I refer to the letter “Get positive and dump negative gearing” (AFR, April 3, read full article here). I have a number of issues with the expressed sentiments.
Firstly, the Australian Bureau of Statistics tells us that the average property investor is far from wealthy. Its research shows that they are average income earners, just your everyday mums and dads, trying to build up their assets instead of relying solely on a totally inadequate superannuation scheme.
Negative gearing adds to the economy
Those who simply depend on super will quickly become government-reliant pensioners when their money runs out. Does the economy really need future retirees relying on the public purse? Negative gearing does not take money away from the economy, it adds to it.
The labour costs of producing a new home are taxable, as is the capital gain once a property is sold. Negative gearing does not subsidise investors. It, in fact, subsidises the tenants. If you had a widget that cost you a dollar to produce, why would you sell if for 80 cents?
Negative Gearing helps keep rentals affordable
Residential rentals charged by landlords for tenants, in the most part, do not cover the landlord’s expenses. Tax concessions go some way to covering expenses, effectively subsidising what the true market should charge for rent. Remove this subsidy and they will simply rise to the true cost of providing the services.
When this cost of rentals becomes too burdensome to the 33 percent of Australians who currently rent, do we really want them turning to the government for rental assistance?
Lastly, increasing interest rates to cool the Sydney fever ignores the fact that many of the property markets outside of Sydney are not overheated and are affordable. In addition, rates at their current settings are encouraging building, developing and creating jobs. Does the Reserve Bank really want to knock that on the head?”