Why all the negatives about “gearing!”


All the chatter about negative gearing continues to surprise, so why all the negatives about gearing?

How politicians and other “experts” can hone in on one part of the tax system beggars believe.

I was particularly perplexed by Greens deputy leader Scott Ludlam who told Fairfax Media, “It’s now out in the open that negative gearing needs to be dealt with, what we’re going after is the fundamental unfairness of a concession like this. It’s low-income taxpayers subsidising property investors.”

How ill-conceived and ill-informed can you get.

At Onyx we assist hundreds of property investors with finance strategies and don’t believe any of them would consider themselves “wealthy”

However the one thing they have in common is the desire to get off their collective butts and have a crack and to improve their lives and that of their loved ones.

To suggest that these motivated individuals are somehow bludging off lower income taxpayers is an insult.

In fact without goal-orientated property investors some lower income tax-payers may not have shelter.

And what is low income anyway. We have clients earning less than $50,000 per annum who have one or more investment properties and have made huge sacrifices to achieve their goals.

Some still live at home while they get started.

Calls erupt for negative gearing to be scrapped every time property prices are on the rise however there are only two markets in Australia where they are.

Shane Oliver head of investment strategy and chief economist has this to say and we concur:

“Such calls are getting added currency now as some see it as a way to help close the budget deficit with a greater proportion of the dollar impact falling on higher income earners,” he told the Money website.

He said any such move was of dubious merit.

Firstly, he says negative gearing is not the reason housing affordability is so poor in Australia.

“It has been in place for a long time and Australia is not alone in providing some form of “tax assistance” to home owners, as most comparable countries do,” adding Americans can even deduct interest on the family home from their taxable income.

“And yet our house-price-to-income ratios are much higher.”

Second, removing or restricting the deductibility of interest expenses incurred in property investment will cause a distortion in the tax system because negative gearing would still be available on other investments (so unfairly biasing investors in favour of, say, shares over property).

“Allowing deductions for expenses incurred in producing income is a standard and common-sense feature of our tax system,” he says.

Thirdly calls to curtail negative gearing or other tax concessions need to be assessed in the context of the whole tax system.

“Australia already has a relatively high reliance on income tax and the top marginal rate at 49% is at the high end of comparable countries.

“Curtailing access to negative gearing will only add to the burden on this relatively small group and act as a disincentive for work effort at a time when we should be doing the opposite.”

The other big news in the last few weeks is the bank approach to reducing their exposure to investment property lending.

Their first move was to lower Loan to Value which now are generally 90%. Some banks have an even lower LVR for Sydney investment properties.

Owner-occupiers can still enjoy LVR’s of up to 97% if required.

In the last week ANZ have moved to increase interest rates for investment lending by 27 points (0.27%) and at the same time lowering some Fixed Rates to owner-occupiers.

CBA quickly followed suit with surprise, surprise exactly the same increase (no price signalling required!)

At the time of writing we await the response from the other big two banks.

Non-bank lenders continue provide viable alternatives

Bottom line is we are working in a very dynamic environment with changes announced almost daily so please call me if you would like an instant update on the latest developments.

Contact me on 0409 02 99 22 to find out more information.


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