,

Is Negative Gearing at Risk of being taken away?

Few people in Australia realize the two massive investment concessions (incentives) we have that are out of step with the rest of the world are negative gearing and dividend imputation.

Removing either will be met with voter resistance (ala Keating when he tried to remove negative gearing), but in reality, excluding the electoral consequences, removal of negative gearing makes more sense.  Negative gearing has little positive economic benefit past the initial stimulation of the acquisition, the few people who maintain the properties, maybe some renovations, and the profits made by banks on the ongoing interest, but it does have a social benefit of providing rental accommodation.

The issue with negative gearing as it applies to property is that, like in business, interest is supposed to be a cost input to generate income.  Now businesses are allowed to lose money from time to time as well so the argument goes that “property” should be allowed to lose money too.  But most people actually don’t invest in property with the sole intent or ability to generate income.  Most people generate losses and even when cash flow grows to a point where there would be profits generally use equity to continue adding to their portfolio so continue to produce losses.

Negative gearing (especially in terms of applying it to property investing) favours the middle class and to a lesser extent the rich (as they have far less, as a percentage, of their assets tied up in investment property).  So it is in fact sound socialist policy to remove it.

Removing dividend imputation would have a negative effect on the economy as encouraging people to invest in companies stimulates growth, job creation, production and exports.  In the current economic environment I believe it would have far greater negative impact then removing negative gearing.

So as an economic rationalist I believe that there is a sound case to retain dividend imputation and remove negative gearing but I also believe it would be a brave government to tackle either in the current electoral climate.

So, on balance it is highly unlikely that negative gearing will be removed.

 

 

——————————————————————————————————————————————————–

Written by Staff Writers – Edited by Peter Spann

Peter Spann is a business coach, writer, presenter and investor.

 

© Copyright: 2014 Peter Spann – All rights reserved

1 reply

Trackbacks & Pingbacks

  1. […] share my opinion in this Will Negative Gearing be Taken Away […]

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *