TE-BO: Budget 2014 – a Budget saving not being talked about is – ‘Negative Gearing’ – and why not …

TE-BO: Budget 2014 – a Budget saving not being talked about is – ‘Negative Gearing’ – and why not …
| Author: TE-BO – The Eye-Ball Opinion| Date: May 3rd, 2014 |

the-eyeball-opinion6Society has wised up – it no longer believes it should do nothing about the amount of tax they pay.  For decades the way out of the ‘tax-trap’ for millions of taxpayers has been to dream and pursue a means to reducing their tax liability.  Kerry Packer has a lot to answer for – to see why watch the YouTube clip below from around the 4:00 minute mark …

Now we all know how wasteful the Rudd/Gillard Governments were – and in that regard Packer’s comments are most relevant.  At the other end of the scale – it was recently reported that the Tax Department has had some success in raising the amount of tax collected from Global Internet giant – ‘GOOGLE’ operations in Australia.  [see May 1st SMH story here] Google reported some US$12.2 billion profit world-wide yet only paid some US$2.3 billion across all its global operations.  That is about 19% and considering Corporate tax in Australia is  30%, and in the US at 40%, I’d say GOOGLE is doing a good job at thumbing their noses at the Global Tax collectors.

So what can the little guy do about tax minimisation – Negative Gearing is the most lucrative.   100,000’s of Australians have taken up the generous tax concessions of buying multiple rental homes where they get to right off all the tax losses from managing a rental property against their payee taxes.    People earning $100,000’s + are able to offset any tax from their ‘payee’ tax employment with the negative returns from property investment.  There is not an MP who has not used this loop-hole – rather than just rely on the generous $350+ per night ‘accommodation’ expense perk Politicians avail themselves to when The House sits in Canberra, most have bought a home there and negative geared it and still claim the accommodation expense whilst staying in their own home.

It may not be that transparent – i.e. the home might be owned by a trust or family member – but the intent is there to double dip – use the accommodation expense rort to pay for a dwelling that is under the management control of the Politician.   This is a main reason why Joe Hockey, Wayne Swan, Peter Costello, and the many Treasurer’s before have not made any notions to put ‘negative gearing’ on the tax review table.

“Negative gearing by property investors reduced personal income tax revenue in Australia by $600 million in the 2001-02 tax year, $3.9 billion in 2004-05 and $13.2 billion in 2010-11.” [source]

Now one would have to say the above tax sacrifices against ‘negative gearing’ is a fair whack of tax revenue to forgo – if Hockey believes what he says about the desperate plight of our current debt and budget crisis, then ‘negative gearing’ has to become part of the fix.  In addition – Abbott made no election promises about ‘negative gearing’, and it would not be an increase in tax but a review on thresholds where negative gearing is offset – i.e there would have to be a minimal amount of tax paid by payee taxpayers regardless of how much negative gearing offsets they had.  Perhaps a carry over option would mitigate the damage control.

Negative Gearing also applies to other business ventures apart from property like margin loans for share portfolios,  i.e. GFC capital losses cannot be off-set against payee tax liability but the interest on loans to fund those losses is.

It really is a good way to reduce individual tax and as long as the property is not sold – no capital gains is also a no win for the Tax Collectors.  This also applies to Public Trust estates – estates under decades of management with ‘billion’s’ of untaxed capital gains sit in ‘solid-state’ investments where the one and only rule is – ‘never sell an asset that creates a tax liability’.

Negative gearing is one of many ‘untouchable’ areas where Hockey is not allowed to go to find revenue – they all fall within the realm of the more affluent and wealthier taxpayer.  All past Treasurers have been told to stay away from these areas as well – it could be deemed as political suicide if they ignored the directive.   Hell would you not want to see a Treasurer follow his own lead in managing the Nations finances as opposed to following the party line first and the Nation’s interest second.

I remember a new tax in the 70’s when I first joined the workforce – you had to pay a tax on every TV you owned – it only lasted a term but the idiots who thought that one up are an example of the pigeon-hole thinking our public servants come up with.

Negative gearing has to be on the table if Hockey is serious about tackling the budget crisis.  A comment made in the 2009  ‘Henry Review‘ on our Tax System stated –

The existing tax system is also likely to encourage excessive leveraging in pursuit of tax-preferred income. Where capital inflow is used to finance less productive assets, this can also affect long-term macroeconomic stability. In this regard, recommendations to provide a more neutral tax treatment of savings, to reduce the benefits from negative gearing and eventually abolish stamp duties on housing would also help improve macroeconomic stability.

Well Henry was not wrong given the highlighted 2010-11 $13+ billion negative gearing revenue ‘give-up’ quoted above …

The other benefit – it might just bring property prices to more affordable levels as property investors bail – and just think of all those capital gains tax collects Mr Hockey – things are not all that bad Joe if you really take a look and try to spread the budget savings across the whole of the spectrum of taxpayers … leave the poorest alone …


This entry was posted by TE-BO - [The EYE-BALL Opinion].

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