How funny is this?

The ALP have been telling us all about the negative gearing rort. Well breaking news*:

The Australian Taxation Office statistics, released last week, showed that 62 per cent of people who claim an investment property as a tax break were on taxable incomes of less than $80,000.

Bill Shorten, who is campaigning on Labor’s plan to scrap negative gearing on all but new dwellings, said yesterday the move would boost housing affordability for first-home buyers. Labor says investments made before it is elected would be fully grandfathered.

The Labor leader has rejected claims that lower-income earners would be hit by scrapping negative gearing. But an analysis of the top 20 postcodes ranked by the total number of investors who claim rental losses shows more than half are in Labor seats, with many in lower-income suburbs.

The biggest number is in postcode 3030 — comprising Werri­bee and Point Cook, southwest of Melbourne — where almost 6500 people claimed a total of $56,351,008 in net rental losses in 2014-15. These suburbs are in the safe ALP seat of Lalor.

The “safe ALP seat of Lalor” – previously held by former PM Julia Gillard.

*Okay – not breaking news – you read it here first, two years ago.

This entry was posted in Economics and economy. Bookmark the permalink.

43 Responses to How funny is this?

  1. Egor

    Ya gotta love apparatchik speak.
    Alinsky has to come back to educate the Hero of Beaconsfield in advanced cultural propaganda….otherwise it’s just more cloth capped Welsh miner drivel.

  2. a happy little debunker

    Of course Labor would postulate that those are reporting lower taxable income because that’s the way negative gearing works.

    You discount your taxable income by loss making elsewhere.

  3. manalive

    The Australian Taxation Office statistics, released last week, showed that 62 per cent of people who claim an investment property as a tax break were on taxable incomes of less than $80,000 …

    Kulaks.

  4. Gavin R Putland

    The people of Werribee and Point Cook should not have to complicate their lives by using negative gearing and “capital-gains” discounting to escape the ridiculously high marginal rates of tax on their hard-earned wages and salaries. They should pay less tax on their wages and salaries in the first place. And free-riding on the land-price escalator should be taxed at a rate more appropriate to the nature of the activity.

  5. Baldrick

    But, but, Greg Jericho said, “Rather than constituting damning evidence against the ALP’s policy, the fact that those earning less than $80,000 account for only “almost two-thirds” of negative gearers actually demonstrates that negative gearing is skewed towards higher-income earners.”

    Yeah, yeah, I know.

  6. stackja

    More BS from BS. I am shocked. Of course, MSM aren’t interested.

  7. RobK

    Of course if you earn less than 80k and can negative gear an investment property you are suspect of tax avoidence and minimization. At best a capitalist in the making or entertaining unhealthy thoughts.

  8. Percy Porcelain

    Freaking hilarious.

  9. duncanm

    Greg Jericho said, .. the fact that those earning less than $80,000 account for only “almost two-thirds” of negative gearers actually demonstrates that negative gearing is skewed towards higher-income earners.”

    its amazing he can lie straight in bed.

  10. billie

    and they will vote Labor back in, again

  11. TP

    The people who hold negative geared property in Werribee and Point Cook may not necessarily live in those postcodes,

  12. entropy

    I read that as where they live, TP.

  13. David Brewer

    Sorry, still not buying negative gearing.

    62 per cent of people who claim an investment property as a tax break were on taxable incomes of less than $80,000

    Of course they are. The top marginal tax rate of 47 cents in the dollar starts at $87K. The point of negative gearing is to try to get your TAXABLE income below this level. You don’t have to end up with an actual, cash income under $80K – there are generous deductions for depreciation etc. that do not involve real cash outlay.

    The other point of negative gearing is to make your profits on sale and get taxed on only 50% of the gain. If you play it right you can even minimise this tax further by taking the gain in a year when you have little or no other income, or spinning it into super etc.

    Negative gearing is a great rort, no question about it. I’m only wondering how all the Labor politicians who are doing it are going to weasel out of the consequences if Shorten ever delivers. Shorten himself will be right of course, having married into millions. Maybe that’s why he looks so fake doing his “battler’s friend” act. Why does he bother?

  14. Gavin R Putland

    Jericho’s point, which nobody else here wants to repeat, is that the percentage of negative gearers with taxable incomes under $80k/yr is LESS than the percentage of all taxpayers with taxable incomes under $80k/yr. In other words, the percentage of negative gearers with taxable incomes OVER $80k/yr is HIGHER than the percentage of all taxpayers with taxable incomes over $80k/yr. In other words, negative gearers are RICHER than typical taxpayers. And that’s before you consider that the basis of comparison is not gross income, but taxable income as reduced by negative gearing.

    But if you quote the first-mentioned percentage in isolation, it looks high, simply because the chosen cutoff is above the median. That’s why it’s chosen.

    But, be that as it may, why should Morrison’s mums and dads and teachers and nurses and firefighters have to become property investors in order to get tolerable tax treatment? Why can’t they get tolerable tax treatment simply by being mums and dads and teachers and nurses and firefighters? Don’t bother telling me that it’s to encourage supply of housing, because you don’t have to add to the supply in order to qualify for negative gearing, and the suggestion that you should have to add to the supply is not accepted around here.

  15. David Brewer

    Negative gearing is a great rort, no question about it. I’m only wondering how all the Labor politicians who are doing it are going to weasel out of the consequences if Shorten ever delivers.

    Silly me, the answer was in the article all along:

    Labor says investments made before it is elected would be fully grandfathered.

  16. RobK

    Gavin,
    Obviously the more wealthy are in a better position to avail themselves of NG. Any changes to NG will drive investors to other work-arounds which are available but will suit the wealthier investors even more (e.g. trusts or companies). So making investment more complex. Complexity will handicap the smaller investor more. Its not very liberating for the battler.

  17. Hmmm…what would business guru Bull Shitten suggest instead of negative gearing?

    Perhaps the over-insuring of your humble little nest-egg with, say, F.A.I. Insurance Pty Ltd, followed by a spot of after-dark creative pyrotechnics with a jerry-can of petrol and a box of matches?

    I hear that such an initiative was once very lucrative for some lucky cloth-cap “wukkas” representatives.

    Whatever It Takes!

  18. RobK

    Sorry Gavin I missed your earlier comment. I agree with your view.

  19. Luke

    So tax incentives that skew any other market are bad but negative gearing is good?

    NG is messing with market efficiency by encouraging investment in an area that would not – without the incentive – be as attractive and would more likely be put to better use in another area.
    Australia needs to be getting as much spending away from housing costs as possible.

  20. Neil

    I think low interest rates are encouraging more people than normal in housing as an investment. If interest rates go back to more normal levels a lot of investors will just keep their money in the bank

  21. The BigBlueCat

    To all the NG nay-sayers out there, just remember that Hawke and Keating did away with NG and was forced to re-introduce it. It’s not a rort- it’s a legal way of increasing wealth by taking on market (and other) risk. As for special depreciation, it’s added back when the property is sold. As for the 50% capital gain discount, it only applies for property held for more than 12 months, and applies to other asset classes as well (eg. Shares). The discount replaced the unwieldy indexation system that recognises movement in acquisition cost in current value terms.

    Disclosure: I have an investment property in post code 3030 (where I also live). Said property is positively geared (but was NG once upon a time). If as a taxpayer you have not considered an NG property as an investment strategy, then more fool you. My taxable income is well under $80k pa …

  22. The BigBlueCat

    Further … I wonder how many CFMEU big-wigs have NG investments ….

  23. The BigBlueCat

    Gavin R Putland
    #2704178, posted on May 6, 2018 at 6:20 pm
    The people of Werribee and Point Cook should not have to complicate their lives by using negative gearing and “capital-gains” discounting to escape the ridiculously high marginal rates of tax on their hard-earned wages and salaries. They should pay less tax on their wages and salaries in the first place. And free-riding on the land-price escalator should be taxed at a rate more appropriate to the nature of the activity.

    Why should anyone take tax or investment advice from you, Gavin? People should be free to decide their own investment fate. High housing cost is more a factor of poor availability driven by slow developers and urban planners … the cost is in the land, not the house on top of it!

  24. Fred

    I hope no one takes tax advice from a one David Brewer.

    The top tax rate starts at $180k not $80k.

    And you can’t spin a capital gain on an investment property into super.

    If you wan’t to look at tax rorts, take a look at the small business CGT concessions. I’ve seen people make capital gains of tens of millions and pay zero tax.

    While PAYG income tax payers are paying 34.5-49% on their salaries. Salaried work is a mugs game.

  25. Egor

    Shorten is happy to allow Westfarmers to deduct interest on its investment borrowings from other income outside the activity of the borrowing, but not for me.
    Doesn’t want the plebs gaining wealth beyond their station I guess.

  26. Titch

    I would be launching an audit of the claimed incomes of those people living in Werribee and Point Cook, frankly. They might be labor voting areas, but the most telling statistic would be the ethnic breakdown of the population these days. Used to be semi-rural, now not somewhere you would want to go.

  27. Gavin R Putland

    The BigBlueCat @ #2704572:

    I would have thought it obvious that I am pontificating about public policy, not offering “tax or investment advice”.

    People should be free to decide their own investment fate.

    And in exercising that freedom, they take account of the incentives in the tax system. And it’s funny how the advocates of alternative incentives are accused of wanting to control people’s lives, while the defenders of the existing incentives are not. Defenders of the status quo pretend to be opposing the nanny state when they are merely defending their own preferred nanny state.

  28. Rae

    Jericho’s point, which nobody else here wants to repeat, is that the percentage of negative gearers with taxable incomes under $80k/yr is LESS than the percentage of all taxpayers with taxable incomes under $80k/yr. In other words, the percentage of negative gearers with taxable incomes OVER $80k/yr is HIGHER than the percentage of all taxpayers with taxable incomes over $80k/yr. In other words, negative gearers are RICHER than typical taxpayers. And that’s before you consider that the basis of comparison is not gross income, but taxable income as reduced by negative gearing.

    And what is also not pointed out is that the $80,000 “low income” investor people are primarily the second income earner in a higher income family.

  29. H B Bear

    Here’s the thing, if you are a high income earner you aren’t living in Point Cook. You aren’t even driving through it. Only an idiot like Greg Jericho would think that.

  30. Tucked away at the bottom of the Oz piece:

    The highest number of heavily geared taxpayers in Coalition seats are in postcodes that fall in the Nationals seats of Capricornia and Dawson in Queensland, and the Liberal electorates of Groom (Qld), Mitchell (NSW) and Tangney (WA). Although these areas have the biggest number of individual investors using negative gearing, they do not rank as highly when measured by average net rental losses claimed.

    The leaders on this measure are the wealthiest Liberal electorates, including Malcolm Turnbull’s seat of Wentworth (NSW).

    Indeed.

  31. H B Bear

    Average net losses claimed are higher in high income areas. Well duh.

    Keep working on the economics mUnty. You’re doing great.

  32. John Bayley

    If you wan’t to look at tax rorts, take a look at the small business CGT concessions.

    Considering that the relevant word here is ‘small’ business – i.e. there is a limit to the owner’s combined business interest size and/or income before these concessions are denied – and in light of the fact that for many, if not most, small businesses the eventual sale of that business is their ‘superannuation’, I would really like to hear your explanation as to why it’s a ‘rort’.
    Especially when one of the major concessions, the CGT-exempt component, which only applies to realised capital gains from the sale of an active business asset, has not been adjusted for inflation since its introduction some 18 years ago, and is still set at $500K lifetime limit.

    I’ve seen people make capital gains of tens of millions and pay zero tax.

    Please give an example.
    The most generous retirement concession is the 15-year one, and that is currently a little over $1.4 million. So even where there are two eligible owners (i.e. mum & dad, mostly), I call bullsh*t on your ‘tens of millions’.

    If you want to have a go at ‘rorts’, please leave small business people alone and instead focus your attention on the public sector and their, thankfully now largely closed to new members, unfunded defined benefit super schemes.

  33. Fred

    Please give an example.

    Here’s one I was working on recently. A doctor had a surgery that was an old house that he bought for about $250,000. This house was in an area that became a state government suburban ‘activity zone’, and someone wanted to buy it to build a 10 story apartment tower.

    As this active asset had been used in his business for over 15-years and the taxpayer was over 55 the entire capital gain was disregarded.

    And what did he sell it for? A cool $8 million, entirely tax free. While us mugs are paying 39-49% of our incomes in tax.

  34. John Bayley

    And what did he sell it for? A cool $8 million, entirely tax free. While us mugs are paying 39-49% of our incomes in tax.

    That could only be the case if the house had been bought pre-CGT (1985).

    Otherwise there is a ‘hard’ limit, currently of $6 million that one can have in total assets. Once either of those is exceeded, the small business concessions are denied.

    So rest assured this case had nothing to do with ‘small business’ concessions, nor was it a ‘rort

  35. John Bayley

    Sorry, I meant to add that apart from the total asset value of $6 million, there is also an aggregated turnover test of $2.5 million.
    Either of those easily disqualifies from any ‘multi-million dollar’ untaxed gains.

  36. Fred

    The small business tests are ‘or’ not ‘and’ tests.

    As his turnover was under $2 million, he qualified as a small business. Regardless of what his net assets are.

    This is what smart small business people do. Reduce the turnover of the business in the last couple of years to under $2 million, then sell the asset and its entirely tax free.

    As I said, its a rort.

  37. Fred

    You’re a real bush accountant John.

  38. John Bayley

    So you think that because this one doctor managed to use the rules to his advantage, it’s a ‘rort’?
    Having known numerous medical doctors over the years, I would suspect that the taxes they paid throughout their working lives far exceed those of the average ‘mugs’, as you put it.
    Especially so as they are subject to special rules regarding the ability to split income with spouses etc via trusts.
    The point remains though that providing retirement tax relief for small businesses is hardly a rort, your doctor notwithstanding.
    Furthermore, countries like NZ don’t have a CGT at all and somehow they’ve managed to get by.

  39. John Bayley

    And no, I’m not an accountant, but I don’t like it much when people carry on about ‘rorts’ if someone managed to escape handing over half of what they’ve earned to the government.
    And the rules on small business concessions are at the ATO web site, so easy to find.

  40. John Bayley

    Are you an accountant, Fred?
    If so, your clients must be really impressed when you tell them they ‘rort’ the system by trying to reduce tax within the allowable legal parameters.

  41. cohenite

    What Kerry Packer said.

  42. The BigBlueCat

    Let’s put some perspective on the ATO’s own numbers shall we. The average net rental loss is $8669.39 Within the tax bracket that spans the $80k-$90K taxable income range, that’s a tax benefit of 37c in the $ at the high end, and 32.5c in the $ at the low end. So the actual tax benefit ranges from $2818 to $3208.

    No-one is getting rich from the annual tax benefit on negative gearing. The gains being made are on the capital side when the property is sold. But those gains are taxed, albeit with a discount of 50% if the property has been held for more than a year (more likely several years). I note that gains on primary residences when sold aren’t taxed.

    Property investors carry many risks – being the landlord, they can end up with bad tenants that can destroy the place – meaning more loss due to refurbishment and maintenance. Tenants can sometimes not pay their rent (more loss). Banks can raise their interest rates on borrowings (more loss). And certainly they are putting interest-only loans out of reach of investors now, meaning the investor has a larger cash-outflow commitment.

    The original intent of negative gearing was to encourage investors to put more housing stock into the rental market, since the governments of the day were becoming less interested in public housing infrastructure. On that basis, I have no issue if NG was restricted to new properties only.

    My biggest argument against the NG nay-sayers is that they seem to lack the courage to consider a negatively-geared property as part of their own wealth-management strategy on ideological grounds. In a free market, where the public policy allows (promotes?) wealth creation and encourages it by allowing deductions for interest on borrowings (ie. as any company can), we should be allowing investors to put themselves in a position whereby they are not reliant on the pension in their retirement. But there are some who want to keep the middle-income investor at bay – restrict their gains by denying a valid deduction against their income, and tax them to the hilt when they make a capital gain.

    I fully understand the issues of housing affordability – I have family who have had a very hard time getting their first home (despite the Vic government eliminating stamp duty for FHB’s – that only meant the FHB’s had more money to spend). But as I have said in another post, the main reason for high property costs is more about land availability than it is about investors – the slow urban planning cycle coupled with developers who want to drip-feed land (or have to drip-feed land due to the time it takes to develop with restricted resources) in order to keep prices high. $350k for a 450m2 block in post code 3030 is outrageous!

    But getting back to the matter raised by Sparticus – at 62%, it certainly is the low- and middle-income investors who will feel the brunt of the ALP policy. I suspect their main aim is to see those people invest in industry super funds rather than their own wealth-creation strategies. Giving union-run funds more of our money doesn’t seem to be a good idea to me.

  43. David Brewer

    @Fred,

    You are right and I am wrong about the top tax rate. It’s the second top tax rate of 37 cents in the dollar that cuts in at $87K. I did know that, but just wasn’t thinking, thanks.

    However, that second-top rate, with the Medicare levy making it 39 cents in the dollar, is still punitive enough to provide a strong incentive to get your TAXABLE income below $87K.

    Re “spinning the gain into super”, what I mean is this: https://www.superguide.com.au/boost-your-superannuation/managing-cgt-with-super-contributions-2 Are such rorts no longer available?

    In any case I think the basic line of argument in Sinc’s quote is beside the point. It’s not the average TAXABLE income of people using negative gearing that we should be looking at. Some of those people, especially at the bottom end, are only reporting a trivial loss and therefore only saving a trivial amount of tax.

    For a start one should only be considering the income of people BEFORE they apply their negative gearing losses.

    And it would be better to weight that income by the amount saved through negative gearing. Someone reducing taxable income by $200K through negative gearing would then have their pre-negative-gearing income weighted 10 times as much as someone saving $20K. That gives you the pre-negative-gearing income of the person deducting the average negative gearing dollar. I wouldn’t mind betting that figure is closer to $200K than to $80K.

    Another interesting figure would be the overall saving on tax once you balance the 37/39 or 45/47/49 cents in the dollar saved while renting out the property against the much lower amount paid on the eventual capital gain. The latter can never exceed 24 cents, since only 50% of the gain is taxed.

    BTW your example of the small business owner collecting $8 million without tax on his premises is a good one. If there is going to be a CGT at all, it should apply on all assets. Exempting some houses and not others is bound to be distortionary. The “active asset” held for 15 years by someone over 55 is a classic. Part of the reason for such contrived exemptions is that CGT now pays no attention to inflation. The orginal scheme of 25% tax on the after-inflation gain was much better. Ignoring inflation is what leads to pressure for exemptions on properties held for a long period.

Comments are closed.