Negative gearing fail

It was unedifying spectacle all round. Yesterday, after Shadow Treasurer Joe Hockey indicated to media that a Coalition government would conduct a review of tax policy, including the tax treatment of negative gearing, Treasurer Wayne Swan hurried to assure the negative gearers that a Labor government would not touch it:

'We ruled out any change to the existing arrangements in our response to the Henry (tax) report.'

Whereupon the Shadow Treasurer hurried to get the initial media reports retracted and assured the negative gearers that nothing would be changed, at least not in a Coalition government's first term.

While the Treasurer and Shadow Treasurer hasten to do nothing about negative gearing, the public discussion about this wretched bit of policy will proceed. And it has proceeded. Almost three years since we found we had to tell tenants and policy makers that negative gearing was not their friend, we find that more and more people we speak with harbour no illusions about it: it does no good, only bad, to our housing system, to our government finances, and to the fairness of our society.

On the bad it does to our housing system: it distorts the rental sector to the disadvantage of low-income renters in particular, by facilitating speculative purchases of higher value/higher rent properties, shuffling the relatively affordable stock out of rental, and doing next to nothing for new supply. 

On the bad it does to government finances: in 2010-11 (the most recent year for which figures are available), Australia's negatively-geared landlords posted a net loss of $12 billion on their rental properties, which they deducted from their non-rental incomes at tax time. As result, about $4 billion that would otherwise have been collected in tax wasn't.

And so to just one example – in the media today – of the bad that negative gearing policy does to fairness. While it forgoes the billions that it might otherwise have collected in tax from negatively geared landlords, the Federal Government goes about looking for 'savings' in its expenditures – such as on social security payments to people doing it really tough. Earlier this year, the Government withdrew from some 84 000 single parents their entitlement to Parenting Payment, and put them on the significantly lower Newstart allowance instead. The Salvation Army has noticed many of them have had to turn to it for help. The Salvos quote one of them:

'Since I have been put on Newstart, I am unable to afford the rent I signed a contract on, and have had to break my lease and move into a caravan, making my life very hard. I am forced to live substandard.'

This person has been let down not just by an increasingly mean social security system, but by an unaffordable, distorted rental market too.