RBA says review negative gearing
The central bank believes negative gearing should be reviewed with other housing-related tax concessions that could be fuelling speculative investment in housing. “Its interaction with other aspects of the tax system should be taken into account”, the submission read.
In a submission to the inquiry into home ownership, the RBA noted there had been a “pronounced decline” in home ownership among younger households in recent decades.
In the 28-page submission, dated June 2015, the bank acknowledges that negative gearing, combined with other tax concessions, may have the effect of encouraging investors to incur debt on property that they might otherwise avoid.
That means the RBA is recommending that there is a case for a review of negative gearing “but not in isolation”.
Reserve Bank officials have struggled this year to balance the need for additional official interest rate cuts – largely to maintain downward pressure on the Australian dollar in order to benefit the broader economy – against the threat of a property bubble.
The Reserve Bank of Australia (RBA) has urged the government to reconsider tax concessions for property investments.
Joe Hockey isn’t about to soothe the Reserve Bank’s concerns over negative gearing.
“At Mortgage Choice, we think negative gearing plays an important role in the property market”.
Treasurer Joe Hockey on Wednesday said negative gearing would not be scrapped.
But instead of placing the emphasis on negative gearing and the impact it has on the property market, Flavell says there needs to be more effort and emphasis on making it easier for first home buyers. Mr Hockey said there was a lot of misinformation about negative gearing.
Mr Hockey said a key principle was ensuring that people be able to deduct expenses of a business or investment against their primary income. “And that is that you can deduct the cost of the loss against another form of income, that would be creating another exemption”, he said.
“He is all hot air when it comes to tax reform”.
The Business Council of Australia says a successful outcome to the tax review will require keeping all options on the table, but it will also require a level of bipartisanship that has not been seen “for a long time”.
“It is somewhat ironic that we live in country which encourages borrowing and discourages saving”.
The RBA addressed both these issues in its submission.
“In particular, a wider range of expenses, including some non-cash expenses, may be deducted against non-property income than is possible in some other jurisdictions”.
But while all the focus is on the good deal for investors, the RBA also highlighted that non-investors, or owner occupiers, also get special treatment under Australian tax law relative to other nations. The result of is it may have had “the effect of encouraging leveraged investment in property”.