Monday, May 4, 2015

Who doesn't benefit from negative gearing?

The media has been all a-flutter about negative gearing. Following the release of the Australian Government's 're:think' tax discussion paper the controversial tax break has become a popular topic of conversation again. In particular, the Australia Institute has released a report showing that 55% of the benefit of capital gains discounts and negative gearing goes to the top 10% of income earners, while Social Services Minister Scott Morrison claimed it is mostly 'battlers' who access the perk. This has prompted a lot of analytical types to hit the numbers to find out - who really does benefit from negative gearing...?

Six of one...

We can see the appeal of this exercise. Honestly, we can. Of course it's important to know whether our tax system is delivering fair and equitable outcomes to income earners and taxpayers across the thresholds. But, with respect, getting to the bottom of who's getting the best breaks kind of misses the point.

The better question is: who doesn't benefit from negative gearing.

We think the answer is pretty clear. But to make sure our bias isn't clouding our judgement, we took a quick look at the tax stats for the 2012-13 financial year ourselves. They make for interesting reading, especially when compared to the previous year's data.

In 2011-12 there were around 806,000 rental properties in New South Wales, against which landlords lost almost $1500 each on average. This was predominantly on the back of their $7.29billion interest bill. Collectively they declared rental income of almost $11.5billion - or nearly $14,270 per property.

In 2012-13 - the year for which these latest figures apply - the number of properties in New South Wales increased by about 21,000. The average loss per property decreased to about $377 each, on the back of a lower interest bill ($6.63billion), a slightly higher repairs and maintenance bill (up by an average of about $65 per landlord to $700million) and higher rental income ($12.2billion - an average of around $14,750 per property).

Of course, when we talk about tax data we're talking about landlords who lodge tax returns. This doesn't tell us how many properties they each own, or the size or scope of their interests. It also doesn't account for landlords who do not lodge a return for whatever reason. And we're talking in averages - we can't assume that every landlord's portfolio is losing more than it makes for them.

What we can be sure of is that in the 2012-13 financial year investors' appetite for residential property grew in New South Wales. Those who bought in managed to increase the extraction of rent from the occupants of their investment. Regardless, landlords managed to register an overall loss of almost $312million. It is often claimed that negative gearing brings new landlords into the market, putting downward pressure on rents by delivering new supply. On the latest tax data, only one of those claims rings true.

Putting this all into very sharp perspective was last week's release of Anglicare's housing affordability snapshot, which looks at the availability and cost of Australian rental properties over a weekend in April. This annual survey showed that in 2015, as in previous years, the private rental market is simply not catering to low income households...

Who doesn't benefit from negative gearing?



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