In fact, a long and fierce debate has been carried on amongst economists for decades about whether to scrap or quarantine the negative gearing policy. A report of Australia tax office (2016) denotes that negative gearing is used by about 1.26 million investors, 10% of the total Australian taxpayers (12.78 million). Supporters of negative gearing argue that 1) it is essential to keep rentals affordable 2) medium income households use negative gearing the most 3) it creates jobs and activities in new construction sector 4) it increase the house stock in Australia.
However, there are lots of evidences showing the fact is opposite. Firstly, renting has become unaffordable for many Australians recently. Statistics denotes that rents have doubled …show more content…
Firstly, the price of established properties will probably drop because it seems less attractive to investors. Investors may try to pull out the money immediately in case of a sudden decrease in housing price, which will probably lead to bad chain reaction. Secondly, newly constructed dwelling will be more attractive and more building permits can be projected. Thirdly, investors may charge more rents to change the situation from negative gearing to positive gearing. It seems fairly awful in the short-term perspective but from the long-term view, it helps to reduce the possibility of housing bubbles and increase new home supply. It will balance the current supply versus demand shortage and it is definitely a good news to the first homebuyers.
Effect on economy
The application of negative gearing tax policy has an impact of declining government revenue, which fuels not only a low rate of economic development and growth but also inflation in the economy. The discounted property tax on capital gains as well as the negative gearing was found to cost the government, some inflation-adjusted value of about $33.5 billion between 1995 and 2012 (Altshuler, 2010). The government needs sufficient funds in order to build better infrastructure and provide a secure environment, which is critical for the individuals living in this
However, there are lots of evidences showing the fact is opposite. Firstly, renting has become unaffordable for many Australians recently. Statistics denotes that rents have doubled …show more content…
Firstly, the price of established properties will probably drop because it seems less attractive to investors. Investors may try to pull out the money immediately in case of a sudden decrease in housing price, which will probably lead to bad chain reaction. Secondly, newly constructed dwelling will be more attractive and more building permits can be projected. Thirdly, investors may charge more rents to change the situation from negative gearing to positive gearing. It seems fairly awful in the short-term perspective but from the long-term view, it helps to reduce the possibility of housing bubbles and increase new home supply. It will balance the current supply versus demand shortage and it is definitely a good news to the first homebuyers.
Effect on economy
The application of negative gearing tax policy has an impact of declining government revenue, which fuels not only a low rate of economic development and growth but also inflation in the economy. The discounted property tax on capital gains as well as the negative gearing was found to cost the government, some inflation-adjusted value of about $33.5 billion between 1995 and 2012 (Altshuler, 2010). The government needs sufficient funds in order to build better infrastructure and provide a secure environment, which is critical for the individuals living in this