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PM Speaks On Negative Gearing Debate

29.04.16 | Marc Barlow | Blog

The Prime Minister of Australian Mr Malcolm Turnbull has spoken on the government’s position on the politically charged issue of negative gearing after a new report was released adding support to the opposition Labor party’s new held position.

Both the Prime Minister and government Treasurer Scott Morrison have announced that the government will not be implementing any reforms to the current negative gearing policy to coincide with the upcoming budget which is due in May.

The Prime Minister Speaks

Speaking on the Australian Labor Party’s (ALP) proposed changes Mr Turnbull said the initiatives were “reckless” and likened their likely effect to a “sledgehammer” to Australia’s residential property market.

Pointing to the United Kingdom and the U.S.A., where reforms similar to Labor’s proposed changes have been undertaken, Mr Turnbull is of the belief that both of those countries have suffered damage to their rental markets which in turn forced their respective governments to outlay large sums of money in additional subsidies in order to support that sector of the economy.

Mr Turnbull also reiterated the government’s view that any changes to Australia’s current negative gearing laws would significantly reduce investor demand and house values which would lead to a range of undesirable outcomes that would ultimately hurt investors, rental tenants and the national economy.

New Report Sides With Labor

As the political debate continues and in the lead up to the next federal budget (and potentially a national election) a new report released by the Grattan Institute titled Hot property: negative gearing and capital gains tax, appears to of come out in favour of the ALP’s position with a view that changes to negative gearing policy could save the country approximately $5.3 billion a year while also improving housing affordability across the nation.

Authored by Mr John Daley and Ms Danielle Wood, the report proposes that the existing capital gains tax (CGT) discount be reduced from 50% to 25%, and that investors who are currently undertaking negatively gearing should no longer be allowed to deduct losses on investments from their labour income.

The report finds that savings of approximately $3.7 billion a year could be made through reforms and changes to negative gearing could raise $2 billion a year in the short term, which would fall to $1.6 billion a year once investor losses began to be written off against positive investment outcomes.

In addition the authors believe that overall property prices would drop by 2% which in turn would lead to more affordability and flexibility for investors and rental tenants.

The Prime Minister Responds To The New Report

The Prime Minister has responded to the Grattan Institute’s report by saying that although he respects in the Institute’s opinion he believes there are some fundamental errors contained within their published findings.

Pointing to what he believes are factually incorrect statements, claims that are unsupported and a number of direct contradictions, Mr Turnbull is of the belief that the reports economic analysis is incorrect in a number of significant economic areas.

Giving mention to the reforms recommended in the report Mr Turnbull asserts that such changes could see as much as 10% lost in gross rental incomes for the over 1 million Australians who are currently negatively geared property investors.