Costello backs negative gearing: ‘It’s not a concession’
Any moves to wind back negative gearing in real estate investment would undermine the long-held taxation principles allowing expenses to be written off against income, Opposition Leader Peter Dutton and former federal treasurer Peter Costello has warned an industry event in Queensland.
Investment in residential property should not be treated differently to investment in commercial property or in the sharemarket, Mr Dutton told the Property Council of Australia’s annual congress, held in Townsville.
“If we take away negative gearing, or we tax property beyond recognition, we end up with a situation that we’re seeing in Victoria at the moment, where they have run out of taxing points,” Mr Dutton said.
“Will a general principle that has applied for a very long period of time – of deductibility against income, deductibility of costs against income incurred – will that then spread to a cap on other asset classes?
“Is it bad for an individual to be able to claim a deduction for an investment that they have in a commercial property? Or indeed, if they have a margin loan to purchase blue-chip stocks?”
’Interest on borrowings has always been tax-deductible’
Negative gearing allows an investor to deduct rental losses off their taxable income, while the capital gains tax discount on property sales is set at 50 per cent.
Prime Minister Anthony Albanese confirmed last month that Treasury is modelling options to curb the use of those concessions, amid a national housing crisis that has put home ownership beyond reach of many and saddled tenants with crippling rents.
While Treasurer Jim Chalmers has played down the likelihood of reform to the current concessions, news of the Treasury review has nonetheless sparked intense debate among economists, property market pundits and the general public on the merits of any change.
Most experts agree removing or winding back the concessions could drive investors from the market in the short term. That could lead to price falls, although any benefit to first home buyers is likely to be modest, potentially short-term and effectively traded off against a consequent squeeze in the supply of new homes. Rents could rise as a result, analysts say.
But economists say there may be a stronger case to be made for scaling back the 50 per cent capital gains tax discount.
Mr Costello, the longest-serving treasurer in Australia’s history, introduced the 50 per cent capital gains tax discount in 1999. He defended the current settings and railed against the description of negative gearing and the CGT discount as “concessions” during his address to the industry gathering on Thursday.
“Interest on borrowings has always been tax-deductible, as long as we’ve had an income tax which goes back to 1915, a federal income tax to fight the First World War,” Mr Costello said.
“It’s not a concession to say that the costs of borrowing can be deducted against income. It is a feature of our taxation [system], and some people say they would like to take that feature out in respect of one area: property.
“But can’t you see if you take it out in respect of one area, there’s no logic in keeping it in other areas?
“The principle is either right or it’s not. It’s not a concession. This is a feature of Australia’s taxation law. And the moment you start playing around with these things, the moment you know that road – higher taxes, higher spend and higher debt – is the road the government will take us on.”
Campbell Kwan attended the annual congress courtesy of the PCA.
