Election Issue: Negative Gearing

Why should we care about negative gearing? 

Because gearing underpins more than just investment properties, it’s a strategy used and supported by our financial system to help Australian’s build and protect their personal wealth to gain #financialfreedom.

Personal wealth is shaped in many ways.  Gearing helps kick start personal wealth by setting up a small business, an investment in cash and shares, home ownership, purchasing assets for a superannuation fund, or buying, building or renovating Australia’s property market.  These strategies are ways to build personal wealth, and like any gearing are sometimes negative in their formative years.

When politicians tinker with personal wealth strategies, trust is lost and the results can be devastating.

So why target negative gearing on property assets and not any other asset?

A report by the ABC claims negative gearing tax benefits go to the top 20% of incomes in Australia, and that 1.25 million Australians are claiming tax losses on investment properties.

Based on the latest available Government statistics, a taxpayer only needs to be earning $78,000 or more to be included in the top 20%.  So why should this group of taxpayers be targeted to stop gearing and investing in property, or running a business investing in property for that matter?

Clearly property investment with negative gearing is an investment people in average occupations can understand. More sophisticated investors tend to invest via shares and managed funds which will achieve better returns in the long term, are more liquid, but are considered more risky because the values can fluctuate dramatically over the short term.

If negative gearing is disallowed, it won’t only affect those who are seeking a tax deduction, property values could fall and family homes sold where the mortgage exceeds the property value, regardless of whether or not mortgage payments are up to date.  It happened in the late 1980s when property values declined.

Like the changes proposed to limit investment in Superannuation, tinkering with a fragile property market could end in tears for  lots of Australian voters.   Who will be there to pick up the pieces?

Julie Matheson

e: jcmatheson@bigpond.com | www.juliematheson.com.au | m: 0409 294 495

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