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Negative Gearing

“Negative gearing is a vital element of the property tax system that helps with the provision of affordable rental accommodation,” says Liberal MP John Alexander.

“As with many policy areas there may be minor policy improvements that can be made to this system, but Labor’s irresponsible proposal to abolish access to negative gearing on existing homes will devastate the housing market.

In his former role as Chair of the House Standing Committee on Economics, John AlexIMG_9309 croppedander commenced a parliamentary inquiry into home ownership in May 2015 which is looking at the proportion of investment housing relative to owner-occupied, the impact of current tax policy and opportunities for reform. With submissions received from a wide range of Australia’s leading economists, policy experts, industry groups and community representative organisations this big body of work is due to be delivered to Parliament in the coming months.

“The inquiry has highlighted the extraordinary amount of wealth held by Australians in property, and therefore the absolute need for any policy reforms to be implemented in a careful, incremental manner to avoid causing any shocks to the market,” John Alexander said.

“Throughout this process I have stated my personal opinion that a new lever to incrementally adjust the rates of tax deductibility for new investors may be worthy of further consideration. Administered by the RBA in direct response to market conditions this lever would maximise our ability to balance optimum owner-occupier access with an affordable rental market. This option has been discussed in many public Committee meetings with the RBA Governor and APRA over the past two years.”

“Negative gearing has given advantages to investors, but in recent months we have seen changes implemented by APRA to slow down investor lending. This has had the desired effect of increasing owner-occupier participation in the market. The positive impacts of these changes must be patiently observed as we receive further market data.”

“Labor’s promise to abolish tax incentives for investments in existing homes after July 1 2017 is reckless policy. Investors currently account for around one third of new lending for houses. Under the basic economic principles of supply and demand Labor’s policy will encourage these investors to withdraw from the existing housing market.

“This will lead to a devastation of existing home prices whilst increasing rental rates – a double whammy against current home owners and renters. The property market requires a stable policy environment in which to operate. Any changes must be finely calibrated and implemented incrementally to avoid destabilising our nation’s biggest asset class,” John Alexander concluded.