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The government appears to not want to touch negative gearing. While reducing or abolishing negative gearing would reduce the availability of rentals, it would also open up more opportunities for prospective buyers.
Just yesterday (9 April), Prime Minister Anthony Albanese dismissed any changes to policy.
Labor's Minister for Industry and Science, Ed Husic, was also asked if his party would implement negative gearing changes.
His reply: "We aren’t doing it. So from our point of view, that’s the end of the story."
Clearly a divisive topic, could the reason behind inaction be biased? Headlines have pointed out the investment history of Australia’s leaders.
Albanese recently rented out a $4.3 million property, generating lucrative rental income.
Opposition Leader Peter Dutton’s history with property investment has also come under the microscope, with reports of the Coalition leader owning 26 properties in 35 years.
Flooding social media are calls for the scrapping of negative gearing. With so many politicians invested in the property market, the inaction is loud.
Would abolishing negative gearing benefit the property market?
The answer to the big question is less black and white. Dr Diaswati Mardiasmo, chief economist at PRD Real Estate, said that negative gearing has become “ingrained” in the way Australians build wealth.
Any changes would “require a mindset change,” she said, and any plans to abolish it would generate passionate pushback from the public.
If implemented, the rental market would see a shift. Investors have become disillusioned due to added scrutiny. Mardiasmo said the prolonged cash rate hikes further pushed them out.
Negative gearing “was the last gatekeeper in keeping investors,” she said. Without which would eliminate rental properties.
“Some argue that it will create more opportunities for first home buyers to enter the market/make renters become buyers. However, the reality is that since COVID-19, house/unit prices have increased significantly and stock is still low, that even if some investors exit the market, it does not guarantee renters turning into homebuyers immediately or within the short term,” said Mardiasmo.
“We also have a rise in people doing SMSF, so a change in negative gearing will impact this ability as well. There is a whole industry that relies in negative gearing (SMSF, wealth management companies, property investment companies, etc), so negative gearing doesn’t just impact the property market, it has a direct and multiplier effect on people working in the industry; and from this a multiplier effect on the economy and spending/GDP in general.”
Striking a balance is key when analysing these types of policies. Mardiasmo said that restriction, rather than abolishment, would see less pushback.
Director of FirstPoint Mortgage Brokers, Troy Phillips, said that the rental market would suffer as a result of government action.
This was witnessed in 1985, when the Hawke government abolished negative gearing. It was reinstated in 1987 after rents were pushed up due to investors leaving the market.
Phillips said: “Housing affordability is a complex issue, and it needs our best and brightest focused on structural solutions, like supply, planning reform, infrastructure and taxation that encourages the right kind of investment. Negative gearing is just one lever in a very tangled machine.”
Why does the government refuse to address it?
Keeping rents down is a major reason. According to Mardiasmo, we’ve only just seen a return of investors, with investment commitment increasing 22.2 per cent in the past 12 months to December quarter 2024.
“The Federal Government in their pre-election for federal budget 2025 hasn’t really addressed renters or provided more support, so my feeling is that they would like to keep investors to ensure that rental prices doesn’t skyrocket even further,” she said.
“Not addressing negative gearing is their way of ‘supporting’ renters – in a backhanded implicit way.”
Housing is taking centre stage this election cycle but so are taxes. While abolishing negative gearing could help get more first home buyers into homes, it would also disadvantage the other cohort who are tied up in investment.
It’s a tricky balance to manage.
Phillips described negative gearing as a “political poison chalice.” With the Greens being the only party that has committed to reforms.
Yesterday, the Greens announced negative gearing policy. This includes:
- Grandfather negative gearing and the 50 per cent CGT discount to one investment property, protecting ‘mum and dad’ investors. People will be able to keep existing negative gearing and CGT discount benefits for one investment property they already own (purchased before the policy commences).
- Scrap the 50 per cent capital gains tax discount for all other assets. The asset base for non-housing assets would be indexed by inflation.
- Any properties purchased after the policy commences, or the second and subsequent investment properties already owned, would not be eligible for these concessions.
With this in mind, will the other parties restrict or abolish negative gearing? Mardiasmo believes that in the short term, she doesn’t see things changing.
“The reason for this is that the focus on housing affordability has been focused more so on creating more stock to be able to satisfy demand, as opposed to changing negative gearing,” she said.
“Consumers of new products include investors, and if negative gearing is changed or abolished, current projects may lose consumers. This has a multiplier impact on multiple fronts: everyone involved in the project and their livelihood, GDP output, viability of projects, rental market, first home buyers who are looking to buy into new projects.”
Similarly, Phillips said Aussies aren’t ready for this type of bold tax reform. However, he does believe that in the future, governments will be forced to consider change once “the fiscal realities start to bite.”
Phillips believes that Australia’s economy and property market may be too far gone to address negative gearing.
“Negative gearing was introduced to encourage investment and support wealth creation, tapping into that entrepreneurial streak we’re known for. But it was never meant to enable people to negatively gear 20 average properties and use the tax system like a game of Monopoly. It might be time to look at a cap, if it doesn’t work for all Australians, then it doesn’t really work,” Phillips said.
“Politicians talking about negative gearing? That’s like the Qantas Chairman’s Lounge membership – ‘nothing to see here, move along.’”
[Related: How would abolishing negative gearing impact the property market?]
